A Professional Corporation (P.C.) is a corporation that is formed with shareholders that are exclusively one profession (i.e. doctors, lawyers, etc.) These corporations will have certain requirements (required by their respective associations) in addition to the requirements imposed by the Secretary of State. They are only allowed to issue one type of stock and they are required to be engaged in only one type of profession. Depending on your profession, you may be restricted to a professional corporation or limited liability partnership.
Tax Consequences and Liability of Shareholders of a Professional Corporation
Income that you receive as a shareholder in a P.C. is taxed just like a normal corporation, however, if you qualify you may be able to elect the Subchapter S and avoid the double taxation of a non-subchapter S corporation. Thus, you can have the limited liability of a corporation (with some exceptions for the requirements of your profession) with the pass-through taxation of the Subchapter S election.
See a CPA/tax consultant for the exact tax consequences of starting your business as a professional corporation.
- Limited Liability
- Shareholders may be liable for only the amount contributed depending the profession requirements.
- Possible pass-through taxation
- If you qualify and elect the Subchapter S exemption, your corporation can enjoy the same pass-through tax benefits as a partnership.
- Shares can be bought/sold, thus transferring your interest in the professional corporation.
- Challenging to Start
- Articles of incorporation must be filed with the Secretary of State and your professional association or organization have requirements
- Challenging to Maintain
- A professional corporation must maintain the usual corporate formalities (i.e. annual board of directors meeting, corporate minutes, etc.) but also any formalities required by the profession.
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