Decoding Professional Corporation: What Does It Mean?

Professional corporations, or PC’s, are a type of legal business entity created to allow individuals or a group of professionals to conduct business while limiting their personal liability. A professional corporation is regularly reserved for professions, such as doctors, lawyers, accountants, architects and tech consultants, which require special licensing or certificates.

Like a regular corporation, professional corporations are completely separate entities from its owners. This means that if the professional corporation is taken to court or sued, the professional owners are not held liable in most cases for debts, losses or damages the business might incur — only the assets of the professional corporation can be seized.

The benefit of forming a professional corporation, then, is twofold. First, form a legal distinction between the professional owners and the business — reducing their personal risk. Second, a PC provides credibility to the business. Forming a professional corporation indicates to clients that the professional is serious about their business, setting them apart from independent contractors who are essentially on their own.

The Nuts and Bolts of a Professional Corporation

In order to form a professional corporation, you must be qualified and legally certified in your profession. If you are forming a professional corporation with multiple owners, each owner must be professionally certified. For example, if you are forming a medical professional corporation, each owner must be a licensed medical doctor.

In many states, professional corporations must fulfill general corporate formation requirements, much like any other legal business entity. This includes the filing of Articles of Incorporation, drafting corporate bylaws, obtaining a federal employer identification number — as well as meeting state filing requirements, such as standard corporate registration fees.

Once the formation requirements have been fulfilled, corporations must also abide by the professional corporation statutes in the state as well. This may include the adoption of additional corporate documents such as a professional service agreement or premises agreement.

Staying Up-to-Date on Professional Corporation Rules

Depending on the state, professional corporation rules and regulations may be subject to change. In order to remain in compliance with state laws, it is important to regularly review the professional corporation statute and update, revise, or restate corporate documents and filings as needed.

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Complying with state professional corporation laws is key to protecting your business and personal liability from potential risks. With ever-changing shifts in regulations, it is important to speak with a legal professional who understands the complexities of professional corporation law and how it affects you.

Related Legal Concepts

Understanding professional corporations often goes hand in hand with other corporate structures like S corporation and C corporation, which offer different tax treatments and ownership restrictions. The concept of professional negligence becomes particularly relevant for PC owners, as they may still face personal liability for their own professional malpractice despite the corporate shield. Professional corporations share many formation requirements with standard corporations and closely held corporations, including filing Articles of Incorporation and maintaining corporate formalities to preserve limited liability protection.

The Bottom Line

Professional corporations provide licensed professionals with a valuable balance of liability protection and business credibility while allowing them to practice their specialized skills within a corporate framework. This business structure is particularly beneficial for professionals who want to separate their personal assets from business risks while maintaining the professional standards required by their licensing boards. For guidance specific to your situation, always consult a qualified, licensed attorney.