Forming a Professional Corporation

What is a Professional Corporation?

Forming a professional corporation is definitely a prudent decision licensed professionals should consider.  If you’ve looked at some of the other articles on this site, you are already aware that a corporation, once created, is a treated as a legal “person” separate and distinct from its owner(s).  The corporation generally has its own income and is responsible for its actions.  This separateness has always been a part of what a corporation is—and what makes it different than other kinds of companies.

On the other hand, lawyers, accountants and doctors, for example, are licensed professionals.  The license is their permission to act in their field but also a method to regulate practitioners so that they remain accountable for their actions and, as necessary, to discipline them.  If professionals act incompetently or improperly, limits can be placed on their license and their ability to practice.  In order to retain the ability to practice, professionals in many fields are forbidden from holding a professional license in a regular corporation where their corporate actions might be considered separate from their own personal actions.  Instead, to best protect the public, professionals are required always to be responsible for their actions and prevented from disclaiming liability by use of conventional corporations.

Professional corporations were created by state law to allow licensed professionals to operate a business entity limited their personal liability in business matters not related to their professional license while maintaining their personal, professional liability on matters related to the practice of their chosen profession.  Stated differently, in a professional corporation, the professional is personally liable for his or her own negligence or malpractice, but they generally have the limited liability of a corporation against things not related to their license—such as if someone slips and falls on their property.  Also, if a group of professionals want to come together in a professional corporation, they are protected from liability for the acts of those working with them and are responsible generally for their own professional actions.  This differs from other entities they might choose to form, such as partnerships, where all owners can be responsible for the others acts.

Some examples of professional categories which might choose to open a professional corporation:

• Doctors
• Lawyers
• Accountants
• Licensed mental health professionals

Forming a professional corporation requires that specific state requirements be met and filings made.  Elite Incorporation can help you understand those requirements and make those filings properly.