Whether you're considering starting a business or wondering whether your existing business should include a professional corporation, you may be looking into the benefits of professional licensing. In the state of California, professionals who wish to conduct professional services, and do so using a business entity, must form a professional corporation.
Professional corporations are usually organized by one or more people (physicians, attorneys, engineers, accountants), and provide services with convenient tax advantages. In the state of California, only licensed professionals can create a professional corporation—with the licensed professional themselves being the majority shareholder.
There are several different types of professional corporations, each with their own unique benefits.
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Sole Proprietorship—Can be owned by 1 individual
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The sole proprietor won't need to do separate taxes for their business and their profit becomes their income
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The legal costs to start and maintain a sole proprietorship are minimal
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The sole proprietor has complete control of the business and how it operates
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The Sole proprietor won't have to formally file paperwork (at the federal, state, or local level) to be considered the sole proprietor of their business
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Sole proprietors can operate under an assumed name to conceal their identity by filing a DBA (“doing business as”)
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Limited Liability Company (LLC)—Can be owned by 1 or more individuals
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An LLC is legally separate from its owner(s), thus limiting the personal liability of the owner(s) to the assets of the company
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There is generally less paperwork with an LLC as opposed to an S-Corp or C-Corp, as LLCs are not required to hold annual reports
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If the LLC has one owner, the owner can file the taxes under the same status as a sole proprietor
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There is no limit to the number of shareholders or owners an LLC can have
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S-Corporation (S-Corp)—Owned by no more than 100 shareholders
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S-Corps also provide their owners limited liability protection, just like an LLC
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S-Corps avoid the chance of “double taxation” which occurs with C-Corps (dividends taxed first at corporate level, then shareholder level)
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The owner(s) of an S-Corp can opt to receive both salary and dividend payments (resulting in a lower tax bill)
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It is much easier to convert an S-Corp into a C-Corp than it is to convert a Sole Proprietorship or an LLC to a C-Corp
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C-Corporation (C-Corp)—owned by an unlimited number of shareholders
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C-Corps also provide their owners limited liability protection, just like an LLC
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Even if the owner of a C-Corp leaves the company, the corporation will stand as a legal entity of its own
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C-Corps have certain tax advantages, including tax-deductible business expenses.
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C-Corps have unlimited growth potential, however will need to register with the SEC (Securities Exchange Act of 1934) once it has $10 million in assets and 500 shareholders
If you're looking into starting a professional corporation, it is advisable to seek legal guidance from our office today as we strive to help guide you with your specific case.
Attorney Ramona Kennedy cares about your case and will fight for you.
This is a California Business Law blog. It is not intended to be used as legal advice. For further information please contact the law offices of attorney Ramona Kennedy.
Ramona Kennedy (Attorney) received her Jurisprudence Doctorate and is a licensed attorney in California (USA).
You can contact attorney Ramona Kennedy Law Offices (Kennedy Law LC) for an initial consultation and case evaluation. The first consultation is free of charge.
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