The California professional corporation bylaws were created to provide services in professions that require a state license in order to practice. Services that constitute professional services are defined in the California Corporations Code Section 13401, which includes most healthcare professionals, including physical therapists and doctors. The bylaws may be for either a C corporation or an S corporation.

What Are Corporation Bylaws?

The bylaws of a corporation are the rules that govern the duties and operations of that corporation and its directors and officers. Bylaws are needed in order to keep the corporation active and to announce the operating rules of the corporation to employees and investors.

A limited liability company (LLC) will refer to the bylaws as an Operating Agreement. Sample bylaws are usually included in the corporate kit of an LLC or corporation. There is no need to file the Operating Agreement or bylaws with the Secretary of State (SOS). Rather, the Operating Agreement and bylaws are only filed in the internal business records.

Bylaws will usually include the following articles:

  • Meetings of shareholders.
  • Offices.
  • Directors.
  • Officers.
  • Committees.
  • Indemnification of directors, employees, officers, and other agents.
  • General corporate matters.
  • Records and reports.
  • Amendments.

Information You Must Know

A California professional corporation may either be an S corporation or a C corporation, and is established to provide services in professions that require a state license in order to practice. Section 13401 of the California Corporations Code defines the services that embody professional services as those that include most healthcare professionals, including physical therapists and doctors.

In order to form a California professional services corporation, the Articles of Incorporation must be filed with the SOS. After completing the registration with the state, the business must adopt bylaws, hold a meeting with the shareholders and directors, and issue shares to owners. Within 90 days of incorporation, a Statement of Information must be filed. Remember, most professional corporations have requirements that must be met in terms of who can be a member of the board of directors, an officer, or a stockholder. Usually, they must be a licensed professional.

Under the California Corporations Code, the licensed professional must be one of the license-types that align with the operations of the professional corporation. In other words, a licensed cosmetologist would probably not meet the qualifications of a professional law corporation.

Advantages of Incorporating

Some of the advantages to incorporating include:

  • Professional corporations are allowed to have multiple owners.
  • Owners will receive limited liability protection.
  • The expenses of the business may be tax-deductible.
  • The corporation will exist indefinitely, regardless of death or transfer of stock.
  • The sale of stock makes ownership easily transferable.
  • Corporations can easily raise capital by issuing stock.
  • Corporations are usually deemed more legitimate and professional.
  • There is a decrease in audit risk.

What Is a C Corporation?

The most common type of corporation is the C corporation, mainly because it's the default corporation type. Shareholders in a C corporation suffer from double taxation. Double taxation occurs when the business generates a profit and that profit is taxed at both the corporate and individual level.

C corporations may have an unlimited number of stockholders. However, there's a maximum number of 35 stockholders for businesses that would like to be exempt from SEC filing requirements. Some other advantages to forming a C corporation include:

  • Corporations attract highly skilled employees that are looking for fringe benefits and stock options
  • Investors are much more likely to invest in a corporation rather than a sole proprietorship or partnership
  • C corporations are allowed to deduct fringe benefits, such as:
    • Disability and health insurance.
    • Group term life insurance.
    • Death benefits payments.
    • Employee medical expenses.

10 Steps in Forming a Professional Corporation

The 10 steps in forming a professional corporation in California include:

  1. File and complete the Articles of Incorporation.
  2. Register with the required government agency that manages the profession.
  3. Create the bylaws of the business.
  4. Appoint the board of directors.
  5. Hold the board of directors meeting.
  6. Issue the shares to the agreed upon owners of the business.
  7. File a statement of information.
  8. Pay all required fees and taxes.
  9. Comply with all state and federal regulations and obligations.
  10. Obtain the required local business license and respect local laws.

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