Professional Corporation

What is a professional corporation?

A professional corporation is a corporate entity type designed for licensed professionals like lawyers, doctors, accountants, and engineers. State laws often require professionals to practice through entities that maintain professional accountability. Professional corporations provide some liability protection for business debts while preserving personal liability for professional malpractice. They also enable tax planning strategies.

Forming a professional corporation

Check your state's requirements for professional practice entities. File articles of incorporation designating the entity as a professional corporation. Obtain any required board or licensing authority approval. Issue shares only to licensed professionals in your field, as most states prohibit non-professional ownership. Maintain corporate formalities including separate finances, annual meetings, and proper documentation.

Tax treatment options

Professional corporations can be taxed as C corporations or elect S corporation status. C corporation taxation allows some income splitting but creates double taxation on distributions. S corporation status passes income through to shareholders, avoiding double taxation. S corps also enable self-employment tax planning by splitting income between salary and distributions. Consult your accountant on the optimal election.