Professional Corporation Definition

What is a professional corporation?

A professional corporation (PC) is a business entity for licensed professionals. Some states allow individuals licensed in different, related professions to own shares of the same legal entity, while others require everyone to share the same certifications. These rules can vary from state to state, so it’s essential to speak to a legal professional about professional corporation regulations 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.

With a professional corporation, you can ensure that all of your co-owners are well-educated in your industry. You can also reduce some financial obligations, such as self-employment taxes, in a professional corporation when compared to a professional 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 the case with the typical professional corporation. Normally, professional corporations must limit the sale of their shares to other licensed professionals.

And, in some states, 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 a 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 professional needs, but it’s important to speak to legal and financial experts before making a decision. Find out more about how to form a professional corporation.