Professional Corporations
1. What is
a Professional Corporation or Professional LLC?
2. How is a Professional Corporation or Professional
LLC formed?
3. What is an appropriate name ending for a Professional
Corporation or Professional LLC?
4. How is a Professional Corporation taxed?
5. Who can be a shareholder or director in a
Professional Corporation?
6. Do any states not permit the use of a Professional
entity?
1. What is a Professional Corporation or Professional
LLC?
Professional corporations and professional limited
liability companies (PLLC's) are corporations and limited
liability companies organized for the purpose of providing
professional services. Usually, professions where the state
requires a license to provide services, such as a doctor,
chiropractor, lawyer, accountant, architect, or engineer,
require the formation of a professional corporations or PLLC
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2. How is a Professional
Corporation or Professional LLC formed?
Articles of incorporation for a professional
corporation and articles or organization for a PLLC, are similar
to those of standard corporations and LLCs. However, with
professional entities, the proper state licensing body must
often approve the formation documents before these documents
can be filed with the secretary of state. Further, the articles
typically must contain the signature of a licensed professional
as the incorporator, and that person's license number, or
a certified copy of the license may be necessary as part of
the filing requirements. As a result, the filing time for
professional entities may be longer than the filing time for
standard business entities.
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3. What is an appropriate
name ending for a Professional Corporation or Professional LLC?
A professional corporation usually must
end with the designation Professional Corporation or the abbreviation
P.C. The professional LLC uses the designation Professional
Limited Liability Company or PLLC.
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4. How is a Professional
Corporation taxed?
A professional corporation is taxed
like a C corporation (unless they make the S corporation election).
However, some professional corporations do not have the advantage
of graduated corporate federal income tax rates. Professional
corporations that are "qualified personal service corporations"
pay a flat federal income tax rate of 35 percent. "Qualified
personal service corporations" provide services in the fields
of health, law, engineering, architecture, accounting, actuarial
science, or consulting. Professional corporations are allowed
to file for S Corporation status, this election allows for
the entity to have pass-through tax treatment. With pass-through
taxation, the income to the entity is not taxed at the entity
level; however; the entity does complete a tax return. The
income or loss as shown on this return is "passed through"
the business entity to the individual shareholders or interest
holders, and is reported on their individual tax returns.
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5. Who can be a shareholder
or director in a Professional Corporation?
Many states restrict who may be a shareholder
or a director of a professional corporation. The stock must
be owned by either: employees performing the professional
services, retired employees who had performed such services,
the estate of someone who had performed such services, or
someone who inherited the stock from a deceased employee who
had performed such services (but only for two years after
the date of death). Note, in some states only licensed practitioners
of the specific service that the corporation provides may
own stock in the corporation and serve on the board of directors.
Other states require at least 50% of the shareholders and
directors to be licensed professionals.
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6.Do any states not permit
the use of a Professional entity?
The state of California does not permit
limited liability companies to be formed to provide professional
services. California does, however, allow the formation of
professional corporations. |
