PC Corporations

PC Corporation Compliance in California

In California, professional corporation (PC) compliance refers to the strict set of rules governing corporations for licensed professionals, such as doctors and lawyers. Compliance is crucial because the state prohibits many professionals from forming a standard corporation or LLC for their practice. These regulations, defined primarily by the Moscone-Knox Professional Corporation Act, govern ownership, management, filings, and professional standards.

Core Compliance Requirements

Ownership and Management

• Licensed shareholders: Only licensed individuals in a particular field can own shares in that profession’s corporation. For example, only licensed attorneys can be shareholders in a law corporation. There are strict limitations on other licensed professionals holding a minority share.
• Professional governance: The majority of officers and directors generally must be licensed professionals in that field. Specific rules exist for corporations with only one or two shareholders regarding officer and director positions.
• Single profession: A PC is generally limited to providing services within a single profession, though some exceptions apply.

Formation and Registration

• Secretary of State filings: To form a PC, you must file specific Articles of Incorporation with the California Secretary of State. These articles must explicitly state that the entity is a professional corporation under the Moscone-Knox Act.
• Licensing board registration: The corporation must obtain a certificate of registration from the specific state licensing board that governs the profession.
• Professional name: A PC’s name must comply with the naming requirements set by both the Secretary of State and the relevant licensing board. This often involves including a corporate designation like “A Professional Corporation,” “Inc.,” or “P.C.”

Ongoing and Annual Filings

• Statement of Information: A PC must file a Statement of Information with the Secretary of State within 90 days of formation, and then annually thereafter. This filing updates the corporation’s officers, directors, and agent for service of process.
• Franchise tax: California PCs are required to pay a minimum annual franchise tax to the Franchise Tax Board (FTB), even if they have no taxable income.
• Annual meetings: The corporation is required to hold annual meetings for both shareholders and directors, with minutes recorded to maintain corporate formalities.

Financial and Operational Standards

• Bylaws and corporate records: The PC must have professionally drafted bylaws that dictate its internal management, which should be kept in a corporate records book along with stock certificates and meeting minutes.
• Securities law compliance: When issuing shares, the PC must comply with state and federal securities laws, including filing for exemptions.
• Liability and insurance: While the PC provides limited liability from general business debts, it does not shield a professional from personal malpractice liability. Adequate professional liability insurance is essential.

Penalties for Non-Compliance

Failing to meet these strict compliance standards can result in severe consequences, including:

• Rejection of filings by the Secretary of State.
• Disciplinary action, suspension, or revocation of the corporate license by the professional licensing board.
• Significant legal and financial penalties.
• The invalidation of issued shares.
• Lawsuits and fines.

Disclaimer

This is a general overview of the filings for Professional Corporations in California. Specific tax situations can vary significantly. You should always consult with a qualified tax professional or legal advisor for personalized advice.