What Is a Professional Service Corporation?
A professional service corporation is an incorporated business under state law that gives some kind of service that requires the work of licensed professionals. 3 min read updated on September 19, 2022
A professional service corporation, also called a professional corporation, is an incorporated business under state law that provides some kind of service that requires the work of licensed professionals.
What Is a Professional Service Corporation?
Professional service corporations can provide many different kinds of services. The most common examples include:
- Physicians
- Registered professional nurses
- Licensed practical nurses
- Chiropractors
- Dentists
- Veterinarians
- Optometrists
- Physical therapists
- Pharmacists
- Mental health practitioners
- Respiratory therapists
- Public accountants
- Licensed practical nurses
- Licensed midwives
- Podiatrists
- Massage therapists
- Occupational therapists
- Opticians
- Engineering and land surveyors
- Architects
- Landscape architects
- Athletic trainers
- Shorthand reporters
- Psychologists
- Social workers
- Interior designers
- Dietitians and nutritionists
- Speech language pathologists
- Audiologists
- Acupuncturists.
Professional corporations allow licensed professionals to benefit from the liability protection and income potential of the corporate structure. This liability protection doesn't protect professionals from malpractice. The professionals within the professional corporation will be at risk for malpractice lawsuits as any other professional would be. However, their shareholders, officers, and employees enjoy liability protection.
Other workers in the professional corporation would all be protected in a malpractice suit because they are not the individuals providing the professional service. This includes people in roles such as secretary, technician, bookkeeper, and others.
Depending on how and where a professional service corporation is incorporated, it might only allow for stock sales and transfers to go to:
- Other licensed professionals
- LLCs
- Corporations.
If this isn't a requirement of the state, it could be made a requirement in the corporation's bylaws.
Characteristics of a Professional Corporation
Some states actually require businesses offering professional services to form professional service corporations. Most states, however, simply make it an option. It may be in the best interest of the business owners to form a professional service corporation. Potential clients, customers, and patients will appreciate the reassurance that comes with the title of professional corporation. Lawyers, medical professionals, and others who want to assure the people they serve that they are, in fact, licensed professionals, will choose this business structure.
When choosing a name for your professional corporation, keep in mind that you are required to include some form of the words "professional corporation" in the name. This could be abbreviated to PC or P.C. at the end of the corporation's name. For example, you could name a professional corporation, Three Brothers Veterinary Clinic P.C.
All the owners of a professional corporation have to be licensed professionals in the same field as the corporation. In some states, a professional corporation is required to obtain licensure from the state licensing board.
Pros and Cons of a Professional Corporation
Some of the advantages of forming a professional corporation include:
- Liability protection
- Perpetual existence.
Professional corporations protect the shareholders and other non-licensed professionals involved with the company through liability protection. If one of the doctors in a medical corporation is sued for malpractice, the shareholders of that corporation don't need to worry about their assets being taken.
Not all business types allow for perpetual existence. Some require you to declare a dissolution date in your state registration. Professional corporations don't require a dissolution date, so the company can continue doing business as long as it remains in good standing with the state.
A possible downside to professional corporations is that all the company's owners have to be in the same profession as licensed professionals. Another disadvantage is the taxation side of professional corporations.
Professional Service Corporation Taxation
Professional service corporations are taxed like C corporations. This does mean they can face the double taxation that corporations are known for. The corporation itself is taxed on its income, and the shareholders are taxed on the profits they take home as well. There are some upsides to a professional service corporation, however, that are not offered to C corporations.
When a business registers as a professional corporation, it can deduct the costs of certain types of insurance plans and other expenses for its employees, including:
- Accident and health insurance
- Reimbursements for medical expenses
- Life insurance
- Disability insurance.
Permit and License Requirements
All professional service corporations require permits and licenses from the state. Before forming your business, be sure you understand exactly which certifications you will need. Some licensure can take a while to be processed, so give yourself plenty of time to get things in order before incorporating.
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