Is forming a North Carolina professional corporation the right choice for your business? If your business meets the right criteria, this business structure offers benefits that can protect your personal assets and increase the financial stability of your business. If you’re ready to get started, ZenBusiness offers information and services that can help you on your way.
Determine whether a North Carolina professional corporation structure is right for you
A professional corporation (PC) is a business entity structured for those providing licensed professional services. Its owners (stockholders) can only be professionals licensed to perform the same professional services the corporation offers. Examples of who may own shares of a professional corporation in North Carolina include:
- Medical doctors
- Marriage and family therapists
- Occupational therapists
- Speech and language pathologists
- Clinical mental health counselors
- Land surveyors
- Landscape architects
- Social workers
- Soil scientists
In most cases, 100% of the PC’s stock must be owned by licensed professionals.
Non-licensed employees can own one-third of professional corporation stock involving architecture, landscape architecture, engineering, land surveying, geology, or soil science. If the professional corporation is for certified public accountants, 49% of the corporate stock can be owned by non-licensed individuals, as long as licensed individuals own and control voting stock that represents 51% or more of the votes entitled to elect corporate directors.
Is it better to form a professional corporation (PC) or a professional limited liability company (PLLC)?
Both structures limit the personal liability of shareholders, directors, and officers for PCs, and members for PLLCs. However, there are a number of differences between them.
By default, a PLLC enjoys pass-through taxation, which means that profits are taxed only on individual members’ tax returns. On the other hand, PCs are subject to double taxation, which means that their profits are taxed both at the corporate level and on the shareholders’ individual tax returns. Your PC may be able to avoid corporate double taxation by electing to be taxed as an S corporation.
Although both PCs and PLLCs provide protections for your business, PCs require more paperwork and formalities, but transferring ownership interest between licensed professionals is much easier. PLLCs are easier to form and maintain, but ownership changes require more work than with a PC.
How to start a professional corporation in North Carolina
Starting a North Carolina PC requires preparation. Completing the steps below will be important to starting your business off on the right foot.
Choose a name for your North Carolina professional corporation
Your PC’s name communicates your values and abilities to prospective clientele. By law, your PC’s name must contain a corporate designation such as “corporation,” “incorporated,” “company,” “limited,” “corp.,” “inc.,” “co.,” “ltd.,” “professional association,” “P.A.,” “professional corporation,” or “P.C.”
The name cannot contain language that states or implies that your PC is organized for an unlawful purpose or a purpose other than its actual purpose, and it must also be distinguishable from other North Carolina business entities. You must also check with the licensing authority of your profession to determine whether it has additional naming requirements.
You can check whether the name you prefer for your business is available by using ZenBusiness’s Business Name Reservation Service. We will run a search to see whether your preferred business name is available based on your state’s standards and reserve your business name for future use. We can also help you reserve a domain name with our Domain Name Service. If you want to do business under a name different from the business name on your Articles of Incorporation, you must file an Assumed Business Name Certificate. ZenBusiness’s DBA Service can help you with this.
Select a North Carolina registered agent
Every North Carolina corporation must have a registered agent. A registered agent can be a resident of North Carolina or a business entity authorized to conduct business in North Carolina. Any registered agent you choose must have a business office in North Carolina that is also your registered office.
Registered agents are necessary to receive important business and legal documents for your business. Documents served to registered agents could be lawsuits, collection notices, or notices from government agencies. Because registered agents serve this purpose, they need to be continuously available during business hours to receive time-sensitive documents on your behalf.
Serving as your own registered agent has its drawbacks. You will likely need to leave the office during business hours to handle important matters, and don’t want your clients or potential clients to see service of process while they are waiting for an appointment. To protect your privacy and free up your business management options, ZenBusiness provides registered agent services to help you find a registered agent that suits your needs.
Complete your North Carolina Articles of Incorporation
To form your business, you must file Articles of Incorporation with the Secretary of State. Your Articles of Incorporation and formation documents must include:
- Your PC’s name
- The number of shares your PC is authorized to issue
- Your PC’s street address and mailing address (if different)
- Each incorporator’s name and address
- The professional services your corporation will provide
- Certification from your profession’s licensing board that ownership of corporate stock complies with stock ownership rules for PCs
You can find detailed instructions for filing your PC’s formation documents at sosnc.gov.
Establish a corporate record in North Carolina
Running a corporation requires diligent note-taking and bookkeeping. By law, North Carolina corporations must keep records of minutes from all meetings involving incorporators, shareholders, and directors, and they must keep a record of all actions taken by shareholders or directors (without a meeting) as well as actions taken by director committees. Your corporation must maintain accounting records, records of its shareholders, and the number of shares each shareholder owns.
At its principal office, your corporation must keep the following records:
- Articles of Incorporation
- Resolutions the board of directors adopted, creating one or more classes or series of shares, and fixing relative rights, preferences, and limitations for outstanding shares
- Minutes of all shareholder meetings for the past three years
- Records of all actions taken by shareholders without a meeting for the past three years
- All written communications to shareholders, generally within the last three years
- Financial statements that must be made to shareholders for the past three years
- Names and business address of current directors and officers
- The most recent annual report
Your corporate records must be written or reasonably convertible into writing.
Designate a North Carolina professional corporation board of directors
Your PC must have a board of directors. Your board of directors authorizes or exercises corporate powers, and it authorizes or manages corporate business and affairs. At least one of your PC’s directors and one of its officers must be licensed in the professional services your corporation offers.
Create North Carolina corporate bylaws
Your incorporators or board of directors must adopt PC bylaws. Corporate bylaws normally contain terms for managing the business and regulating corporate affairs. Corporate bylaws can include provisions regarding:
- The corporation’s powers
- The board of directors’ powers
- The shareholders’ powers
- The par value of shares
- The extent and conditions of shareholders’ personal liabilities for corporate debts
- Personal liabilities for directors
- Duties for corporate agents and affiliates to give the corporation a right of first refusal for business opportunities
Your Articles of Incorporation can include provisions from your bylaws, but that isn’t required.
Hold your professional corporation’s first board meeting
Your PC needs to hold its initial organizational meeting immediately after incorporation. If the Articles of Incorporation name directors, the majority of your directors hold the meeting. If your Articles of Incorporation don’t name directors, the incorporators call the meeting. During the meeting, your corporation appoints officers, elects directors, adopts bylaws, and/or handles any other business presented.
Handle North Carolina tax obligations
Your corporation is subject to federal and state tax obligations. Your corporation may also be subject to local tax obligations.
To pay federal taxes, hire employees, and open corporate bank accounts, your professional corporation needs an employer identification number (EIN). ZenBusiness provides EIN services to help you obtain an EIN quickly.
You must pay corporate income taxes and franchise taxes to North Carolina. You don’t need a state tax identification number to pay these taxes. North Carolina uses your federal EIN for your state taxes.
Depending on the nature of your business, you may also need to apply for sales and use taxes at the local level. You can reach out to your city and county to determine what taxes apply.
Obtain North Carolina business licenses and permits
You and your shareholders are responsible for maintaining proper and up-to-date professional licenses to run your PC. Depending on your industry and location, you may also need business licenses at the federal, state, and/or local levels. There is no central place for business license requirements, and you need to review industry rules at the federal, state and/or local levels to determine what other licenses you may need.
Fortunately, our partners at Business Licenses, LLC, can do the research for you. Through this business license service, you will receive a report identifying the local, state, and federal licenses and permits required to run your business.
Acquire insurance for your North Carolina professional corporation
While the corporate structure might limit your personal liability for many corporate torts and debts, insurance is still important and even required under certain circumstances.
If your PC employs three or more employees, you must have workers’ compensation insurance. You may also want to purchase multiple forms of business insurance to protect your business assets from lawsuits and unforeseen harms. Lastly, you’re still liable for your personal negligence and any professional malpractice you personally commit or supervise. Professional malpractice insurance is important for protecting you and your license when running a PC.
Open a business bank account
Once you have your EIN, you can open a business account to separate your business funds, protect your capital, and provide easy financial access to authorized agents. The rates and benefits a financial institution might offer to businesses could be key in keeping your professional corporation financially healthy. If you’re looking to open a business bank account, ZenBusiness can help.
Maintaining Your Professional Corporation
Although professional corporations don’t have to file annual reports in North Carolina, they do have to hold annual shareholder meetings and keep professional licenses, registrations, and certifications current.
ZenBusiness’s services can help you manage your professional corporation
A North Carolina professional corporation can offer a practitioner like you many business benefits. The number of tasks you must complete may seem daunting, but ZenBusiness has the tools you need to help you through the process.
North Carolina PC FAQs
What are the filing fees for a North Carolina professional corporation?
There are many filing fees to incorporate and maintain your PC, and you can find them at sosnc.gov. North Carolina law also sets maximum fees for certification and registration of professional licenses. You may have to pay additional fees to the state and local government to conduct business.
Do I need a lawyer to form a North Carolina professional corporation?
No. You can form your PC on your own and ZenBusiness can help with tools like Business Name Reservation Service, Registered Agent Service, and Business License Reports.
Does North Carolina have other professional entity types?
Yes. You can form a professional limited liability company in North Carolina.
Can professionals from different fields form a North Carolina professional corporation together?
Typically, no. In most cases, a North Carolina PC can provide only one type of professional service. However, there are some exceptions for architecture, landscape architecture, engineering, land surveying, geology, soil science, and healthcare professionals.
Will I be taxed as an S corporation or C corporation in North Carolina?
Normally, you will be taxed as a C corporation. If you have 100 shareholders or less and otherwise qualify to file as an S corporation with the IRS, North Carolina taxes you as an S corporation.