Real Estate Law: Eligibility to Form a Professional Corporation in California
A professional corporation (PC) in California is a specific type of business entity designed for licensed professionals to conduct their practices within a corporate structure. Professional corporations offer unique benefits and considerations for individuals working in regulated professions, including those in the real estate industry. In this article, we will explore who is eligible to form a professional corporation in California, the criteria for eligibility, the professions covered, and the implications for real estate professionals.
1. Professional Corporation Eligibility:
In California, not all licensed professionals are eligible to form a professional corporation. To qualify for the formation of a PC, certain criteria must be met. The primary eligibility requirements include:
a. Licensed Professionals: Only individuals who hold valid licenses for specific regulated professions can form a professional corporation. These professions are typically those that require extensive education, training, and adherence to strict professional standards.
b. Authorized Professions: The California Corporations Code (Section 13401) specifies the professions that are eligible to form a professional corporation. These professions generally include doctors, lawyers, accountants, engineers, architects, dentists, chiropractors, veterinarians, and licensed clinical social workers, among others. Additionally, real estate brokers and salespersons licensed under the California Department of Real Estate are also eligible to form professional corporations.
2. Professionals Eligible to Form a Professional Corporation:
The list of professionals eligible to form a professional corporation in California includes, but is not limited to:
a. Doctors (M.D.s and D.O.s): Medical doctors and doctors of osteopathic medicine.
b. Lawyers: Attorneys admitted to the State Bar of California.
c. Accountants: Certified public accountants (CPAs) licensed by the California Board of Accountancy.
d. Engineers: Professional engineers licensed by the California Board for Professional Engineers, Land Surveyors, and Geologists.
e. Architects: Licensed architects regulated by the California Architects Board.
f. Dentists: Licensed dentists authorized to practice in California.
g. Chiropractors: Chiropractic doctors licensed by the California Board of Chiropractic Examiners.
h. Veterinarians: Licensed veterinarians who provide medical care to animals.
i. Licensed Clinical Social Workers (LCSWs): Social workers licensed by the California Board of Behavioral Sciences.
j. Real Estate Brokers and Salespersons: Licensed real estate brokers and salespersons authorized to practice under the California Department of Real Estate.
3. Process of Forming a Professional Corporation:
To form a professional corporation in California, eligible professionals must follow a specific process:
a. Choose a Corporate Name: Select a unique name for the professional corporation that complies with the naming requirements set by the California Secretary of State.
b. Draft Articles of Incorporation: Prepare the Articles of Incorporation, which should include specific language indicating that the corporation is a professional corporation formed to provide services in a particular licensed profession.
c. File with the Secretary of State: File the Articles of Incorporation with the California Secretary of State’s office along with the required filing fee.
d. Obtain Necessary Licenses: Ensure that all shareholders and officers of the professional corporation hold valid licenses for the profession in which the corporation operates.
e. Register with Regulatory Agencies: Depending on the profession, the professional corporation may need to register with the relevant regulatory agencies overseeing that particular industry.
f. Tax Elections: Decide on the tax classification for the corporation. A professional corporation can choose to be taxed as a C corporation or, if certain conditions are met, elect S corporation status to pass through income and losses to individual shareholders.
g. Adopt Bylaws: Draft and adopt corporate bylaws, which are the rules and procedures that govern the internal affairs of the corporation.
h. Comply with Ongoing Obligations: Once incorporated, the professional corporation must fulfill ongoing obligations, such as filing annual statements with the California Secretary of State, maintaining corporate records, and paying necessary taxes and fees.
4. Implications for Real Estate Professionals:
For real estate professionals, forming a professional corporation can provide numerous benefits. It offers a degree of personal liability protection, which can be crucial in the real estate industry where potential legal disputes can arise. Additionally, a professional corporation can help convey a sense of professionalism and credibility to clients and partners.
Licensed real estate brokers and salespersons may find the structure of a professional corporation appealing, especially if they wish to collaborate with other licensed real estate professionals under a corporate entity. The ability to centralize management and share liability among shareholders can be advantageous for real estate teams and partnerships.
5. Differences Between Professional Corporations and Other Business Entities:
Professional corporations have distinct characteristics that set them apart from other business entities, such as general corporations and limited liability companies (LLCs). The primary difference lies in the eligibility of shareholders and the nature of the services the corporation provides.
Unlike general corporations or LLCs, which can have a diverse range of shareholders, professional corporations are restricted to licensed professionals in the specific field in which the corporation operates. Additionally, professional corporations are limited to offering services within the scope of the licensed profession.
6. Legal Compliance and Professional Advice:
Forming a professional corporation in California involves navigating complex legal requirements and considerations specific to the licensed profession. As such, real estate professionals looking to incorporate as a professional corporation should seek legal advice and assistance from experienced business attorneys who are familiar with the nuances of the real estate industry and the regulations governing professional corporations.
A professional corporation in California is a viable option for licensed professionals, including real estate brokers and salespersons, seeking to conduct their practices within a corporate structure. To be eligible for a professional corporation, individuals must hold valid licenses in one of the authorized professions designated by the California Corporations Code.
Forming a professional corporation can provide licensed professionals with limited liability protection, a sense of professionalism, and centralized management. Real estate professionals considering incorporation should seek legal advice to ensure compliance with all applicable laws and regulations while optimizing the benefits that a professional corporation can offer.
Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal or professional advice. The process of forming a professional corporation in California involves specific legal requirements, and real estate professionals should seek legal advice tailored to their individual circumstances.