Professional Corporation Definition

Learn more about what a professional corporation is in business.

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Starting a business isn’t a one-size-fits-all process. In fact, we imagine you struck out on your own to create a working environment that more closely fits your unique vision and needs. One of the most important ways to tailor your business to your needs and desires is to choose the right business structure. If you already know you want to start a limited liability company (LLC) or a corporation, we make the process easy for you with our LLC Formation and Corporation Formation Services.

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There are many business structures to choose from, but here we’ll focus on professional corporations. Is a professional corporation right for you? It depends on your specific circumstances and the laws in your state. So let’s take a brief look at the definition of a professional corporation.

What is a professional corporation?

The general professional corporation definition is a corporation in which only individuals with state licenses to practice the same profession can own shares of the business. Some states allow individuals licensed in different, related professions to own shares of the same legal entity. These rules can vary from state to state, so it’s essential to speak to a legal professional about professional corporation rules in your state.

Professional Corporation Advantages

Professional corporation benefits can include limiting the personal liability of each shareholder for other shareholders’ misconduct. If another professional in your corporation commits malpractice or a wrongful act while conducting business, you’re likely to lose only business property in a lawsuit, not your personal assets. This is very different from your liability in a general partnership of professionals.

With a professional corporation, you can ensure that all of your co-owners are well educated in your industry. You can also reduce financial obligations, such as self-employment taxes, in a professional corporation when compared to an LLC.

Professional Corporation Disadvantages

Part of the allure of a standard corporation is the fact that you can easily raise capital by selling your shares to anyone you want with few restrictions. This is not so with the typical professional corporation. Normally, professional corporations must limit sales of their shares to other licensed professionals. And, professionals with shares must all be from the same state-licensed industry. This can make it difficult for your professional corporation to bring in money through new shareholders. And it can also make the formation of your business more complicated.

Professional Corporation Examples

A professional corporation is centered around providing one state-licensed service to the public. There are many types of professional services that can fit within a professional corporation, including:

Dentistry
Architecture
Medical care
Accounting
Legal services
Engineering
Chiropractic care
Financial planning

In some special circumstances, you can offer more than one professional service in your professional corporation if those services are related. For instance, your state’s laws might allow you to offer accounting and financial planning services in a single professional corporation.

A professional corporation is selective and protects your personal assets

Professional corporations have rigid ownership rules. However, this entity type can limit your liability for colleagues’ malpractice while allowing you to be selective about your co-owners. This business structure might be the best choice for your legal, financial, and professional needs, but it’s important to speak to legal and financial experts before making a decision.

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Starting your own business might be about venturing out on your own, but that doesn’t mean you have to do everything alone. Good business support can help you reach new horizons, and that’s exactly what we provide with our many services. With our business support services, we can take the struggle and guesswork out of becoming a new business owner. And once you’re in the groove of running a new business, we can help you keep that business legally compliant with our Worry-Free Compliance Service. We have the tools to make your entrepreneurship easier from start to finish.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.