What is a Professional Corporation and How is it Different?
A Professional Corporation (PC) is a specialized legal structure designed specifically for state-licensed practitioners (such as physicians, architects, attorneys, and engineers) who are often prohibited by state law from forming standard corporations. While a standard corporation (Inc.) creates a total separation between the business and the owner, a PC operates with a distinct caveat: the law refuses to absolve professionals of their personal ethical and professional obligations.
Furthermore, Professional Corporation Formation is distinct regarding ownership. Unlike a standard corporation where shares can be sold to outside investors or family members, a PC strictly mandates that shareholders must be licensed in the same profession. This ensures that profit motives from non-professionals never override professional judgment/ethics.
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Critical Factors to Watch When Forming a Professional Corporation
Because shares in a PC can only be held by licensed professionals, you cannot simply leave your business to your spouse or children in a will unless they hold the exact same license. Upon the death or disqualification of a shareholder, the corporation is often legally required to buy back those shares or transfer them to another licensed practitioner within a very short, state-mandated window (often as little as six months). Without careful drafting of buy-sell agreements during formation, this mandatory redemption can drain the companyâs cash reserves at the worst possible time.
Additionally, you are answering to two masters: the Secretary of State and your specific State Licensing Board. A common pitfall is securing a corporate name that the state accepts, only to find it violates the specific advertising ethics of your licensing board. This double-layer compliance requires precise coordination to prevent administrative dissolution.
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