Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.

Do you have a medical or law degree but don’t want to work for someone else? You may like to learn how to form a professional corporation.

Then, you can start a business in your field of interest. Soon enough, you’ll be able to take on clients and enjoy your days working for yourself.

Read on to learn how to form a professional corporation and if it’s the right path for you.

Steps to Form a Professional Corporation

Understanding how to form a professional corporation (PC) is crucial. Fortunately, the steps you’ll take aren’t too different from creating another type of business. However, the differences that do exist can affect your business.

Consider the following steps as you start to form a professional corporation.

Verify You Qualify for a PC

First, you need to make sure you can form a professional corporation. PCs are only open to people in certain professions, including:

  • Accounting
  • Architecture
  • Dentists
  • Doctors
  • Lawyers

You’ll need to have a professional license from something like the American Bar Association or your state’s medical board. If you work in an industry that doesn’t offer a license or professional certification, you should look at forming a corporation or LLC.

Choose and Reserve a Name

Next, you’ll need to choose and reserve a name for your new corporation. You can search the database of available names in your state. If the name you want isn’t available, you may want to set up your business with a different legal name.

Then, you can apply for a DBA (doing business as) with the name you prefer. That way, you can operate a clinic or law office under the name you want.

Make sure you have money to reserve your name with your state. The fee for this depends on where you live, but you’ll need something to make sure no one else can take your name.

Find a Registered Agent

Another vital step in forming a professional corporation is to select a registered agent. A registered agent is a person or business that serves as a point of contact between your PC and your state.

You need to choose a registered agent now because you need to provide their name and contact information when filing your Articles of Incorporation. Some businesses offer a registered agent service.

Alternatively, you can serve as your own registered agent if you have the time. However, you will need to stay on top of your mail to avoid missing any important documents from your state.

Write Your Articles of Incorporation

To officially form your professional corporation, you will need to write your Articles of Incorporation. Then, you will file a copy of the document with the Secretary of State where you live.

When writing the articles, you will need to include your registered agent. You should also include the names of all co-owners. All owners have to prove that they have the proper license to practice the specific profession they intend to practice.

You should also appoint at least three people to serve on your board of directors. If you want to, you can appoint more directors. In most states, three is the minimum number of directors. After you outline everything in your Articles of Incorporation, you can send the document to your state.

Outline Your Corporate Bylaws

When forming a professional corporation, another document you must have is your corporate bylaws. Your bylaws will cover your business’s organizational policies.

You need to include the name of your business, the business’s statement of purpose, and a list of the directors and officers. The document also has to outline the fiscal schedule and meeting schedule for the board of directors.

It also must cover how to add or subtract directors and the process for dissolution. If you have co-owners, be sure to discuss all of these details and write the bylaws together.

Request an EIN

Next, you should request an employer identification number (EIN). An EIN will serve as the tax ID for your professional corporation.

You will need an EIN to do many things, including paying taxes and hiring people. Even if you don’t plan on hiring people, an EIN can help separate your business and professional finances when it comes to taxes.

It’s free to request an EIN from the IRS, so you should get one as soon as you can. That way, you’ll be able to set up everything you need for your PC.

Open a Business Bank Account

Once you receive an EIN, you should open a business bank account. You’ll use this account to take in payments from clients, and you can pay yourself and any employees.

Most banks require an EIN to open a business account for businesses other than a sole proprietorship. Plus, having a separate bank account keeps you from mixing business and personal income and expenses.

You should be able to open a business bank account at your current bank. Then, you won’t have to go to separate locations to move money or pay yourself.

Prepare for Taxes

Having an EIN also helps you prepare for taxes. You can expect to pay corporate taxes and employment taxes with a professional corporation. You may also need to cover payroll taxes and the employer portion of FICA and Medicare taxes.

The EIN is what you’ll use to pay all of these taxes regularly, usually every quarter. That way, you can keep from getting a massive tax bill at the end of the year.

Meet With the Board of Directors

Now, you’re ready to host your first Board of Directors meeting. Be sure to consider the schedules of everyone on the board so that you can set a time that works for everyone.

At the first meeting, you can go over the business structure and how everything will work. You will also set up stocks and shareholder agreements.

Be sure to appoint officers to manage specific parts of the business each day. You can then finalize these decisions and draft a meeting schedule for future Board of Directors meetings.

Get a Business License

Depending on your industry and where you live, you might need a business license. In some states, you will need a general license to operate any business.

Some industries also have business license requirements. Most professional industries shouldn’t require a separate permit, at least not at the federal level.

You should check with your state to see any specific requirements. If so, be sure to get a license and keep track of when you need to renew it to keep your business active.

Maintain Your Licenses

After starting your professional corporation, you will need to maintain your professional and business licenses. If you have co-owners, they will also need to keep up with any professional license requirements.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything important. If there are any issues, you can address them.

File an Annual Report

You will have to file an annual report with your state each year. An annual report includes the names and contact information of the owners and registered agent.

It should also cover all of your financial activity during the year. Many states require that you file one yearly, and you can file the report or hire someone else to manage it.

File Your Taxes

Of course, you’ll need to start paying taxes after starting your corporation. You should start paying taxes quarterly as soon as possible to avoid a large tax bill.

At the end of the year, you will need to file taxes for the business and your personal return. Consider hiring an accountant to make the process less stressful.

Before you start your business, you can set up an organizational system for your receipts. That way, you won’t have to struggle to find receipts for expenses and income.

Can You Hire an Incorporation Service?

You can hire an incorporation service to make the process of forming your business easier. A good service will help you draft the necessary documents to get your business going.

The company can also take care of filing the documents with your state. Some companies will even serve as a registered agent and help with compliance, such as filing annual reports.

An incorporation service may also offer a free name search. That way, you can choose the best name available in your state.

Best Time to Form a Professional Corporation

The best time to form a professional corporation is when you decide a PC is the proper business structure for you. Forming the business sooner allows you to start operating your new company sooner.

At the latest, you should form a professional corporation before your first transaction. If you have any transactions beforehand, they will fall under a partnership or sole proprietorship.

Those business structures don’t offer much legal protection. So if someone sues you or your partner, they could go after your personal assets rather than the business alone.

Cost of Forming a Professional Corporation

The cost of forming a professional corporation depends on where you live. You’ll need to pay fees for things such as:

  • Name reservation
  • Filing for the PC
  • Annual reports
  • Registered agent

The name reservation fee is usually low, and not all states charge for this. Filing for a professional corporation can cost anywhere from around $50 to $200, depending on where you live.

You can expect to pay at least $10 to file an annual report. Some states charge hundreds of dollars to file an annual report.

If you hire a registered agent, the service will usually cost around $100 a year. Some services may charge more or less, and a few companies include the service for free for your first year if you pay them to file your Articles of Incorporation.

Pros and Cons of Forming a Professional Corporation

One of the most significant advantages of forming a professional corporation is the legal separation. If something happens to your business, you can protect your personal assets, such as your car or house.

You can also protect yourself if a client sues one of your partners for malpractice. While you should trust the people you form a business with, the extra protection comes in handy. You won’t have to worry as much about what your partners do.

Unfortunately, the government requires professional corporations to take extensive records. You will need to record financial documents, meeting minutes, and other details. Unlike other corporations, you also have to track details related to your profession.

If you want to open a business without a partner, a professional corporation doesn’t offer many benefits. Yes, you do get separation from your personal assets. However, you don’t need things like protection from malpractice lawsuits against other owners.

Professional Corporation vs. Professional LLC: What’s the Difference?

A professional corporation is very similar to a corporation, while a professional LLC is similar to a regular LLC. That means a professional corporation has more stock options, and you can bring in more stock owners.

PCs have also been around longer than PLLCs, so legalities are easier to plan for if you have to go to court. You’ll also find that PCs exist in all states, while some states don’t recognize PLLCs.

However, PLLCs offer more flexibility than PCs. You can opt for pass-through taxation with a PLLC, so you don’t have to pay both corporate and personal taxes. If you get a PLLC, you also don’t have to keep as many records as if you formed a PC.

The Last Word

If you’re an accountant, lawyer, or doctor, you should consider forming a professional corporation. Then, you can start a business with plenty of personal and professional protections, and you can practice something you’ve studied for so long.

Be sure to consider if a professional corporation is right for you. That way, you can go through the steps to form the best business entity to get your practice up and running.


Filed under: Advice Columns

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