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What is a “professional corporation” and what makes it unique?

| Oct 27, 2014 | Business

A “professional corporation” is a corporate form that may render its professional services through licensed individuals in a particular profession. See Corp. Code § 13405(a). In California, professional corporations may only be formed to render services in the fields of law, medicine, dentistry, and accountancy. Thus, professional corporations are also subject to the regulation of the state agency that provides oversight over those professions. For example, a professional corporation formed for the special purpose of practicing dentistry would be subject to the regulation of the Dental Board of California. Similarly, a law corporation, as they are sometimes referred to, would be subject to the regulation of the State Bar of California.

Generally speaking, professional corporations are subject to the same corporate law rules as other corporations; however, professional corporations have additional shareholder requirements. Specifically, shares of stock in a professional corporation may only be issued to appropriately licensed persons. For example, shares in a law corporation may only be issued to members of the State Bar of California. In contrast, however, the shares of other health and welfare professional corporations may not be subject to the same strict requirements. See Corp. Code § 13401.5. The California Corporations Code also prohibits licensed shareholders from delegating their voting rights, by any means, to a non-licensed person. Similarly, shares of a professional corporation may only be transferred to other licensed professions or transferred back to the corporation. Transfers for any other reason will be considered to be void under the Corporations Code. See Corp. Code § 13407. As one might imagine, these voting and transfer restrictions present considerable estate planning issues for licensed professionals who are shareholders in professional corporations and do not have a spouse licensed in the same profession.

If you are a shareholder in a professional corporation or are considering incorporating as a professional corporation, you need to be aware of the other potential restrictions that may present operational difficulties moving forward. If you have any questions about the shareholder restrictions discussed above, or the potential estate planning issues these restrictions present, call the experienced corporate business formation and estate planning attorneys at The Loftin Firm for a consultation today.

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