In California, What Is the Purpose of a Professional Corporation?
In California, the main purpose of professional corporations is to provide limited liability protections to the professionals involved. Limited liability means that the professionals will not be held personally liable for the debts or liabilities of the corporation.
It is important to note that, although there is limited liability, it will not completely absolve a professional from liability for their own malpractice or negligence. When a professional makes mistakes or does not meet their standard of care, they can be sued for malpractice.
One common example of this is medical malpractice. For example, if a surgeon in a professional medical corporation makes a mistake, such as leaving a surgical sponge in a patient, they can be sued. Even though they are part of the medical corporation, they can be held personally liable for the damages that result from their mistake.
Because of this issue, a professional will often have malpractice insurance that gives them protection if they are sued. When these types of claims are made, the assets of the corporation or personal assets of other members of the corporation are typically not at risk.
California lawyers can help their clients properly form professional corporations, protect their rights, and avoid personal liability. California lawyers can also help individuals who need to file a lawsuit against a member of a professional corporation.
How Does Partnership by Estoppel Affect Liability in California?
In California, a partnership by estoppel can make individuals who are not actually partners be held liable as though they were partners if a third party reasonably relied on the representation of a partnership. This means that apparent partners can be held jointly and severally liable for misconduct and debts or other partners if the third party was harmed by relying on the appearance of a partnership.
If someone has any questions or concerns about partnership liability, it is essential to schedule a California lawyer consultation.
What Types of Professions Usually File Under Professional Corporation Laws in California?
There are numerous types of professionals that often file under professional corporation laws in California. In most situations, these professions require state professional licenses.
A professional corporation can provide tax advantages, liability protection, and help maintain a professional image. Common professions that form corporations are discussed below.
Lawyers
Lawyers commonly form professional corporations in order to limit their personal liability for the conduct of their associates. When an attorney in a professional corporation is professionally negligent, the claim will be limited to that one attorney and not the others in the corporation. This arrangement also provides tax benefits, such as income splitting.
Physicians and Dentists
Healthcare providers commonly form professional corporations to protect their personal assets from lawsuits related to the liabilities or debts of the corporation that are not directly related to personal medical practice. The members can also benefit from tax advantages, including the ability to deduct business expenses.
Certified Public Accountants (CPAs)
CPAs often form professional corporations for similar reasons as healthcare providers. Additionally, protection from liability is important when dealing with financial issues when errors can result in significant damages. A CPA professional corporation can allow the members to present a more established and formal image to their clients.
Engineers and Architects
These professionals often handle large-scale projects with high risks. A professional corporation can protect their personal assets from claims that are not related to their own personal malpractice or negligence, for example, contract disputes or general corporation liability.
How Are Professional Corporations Different From Other Types of Corporations?
The main differences between professional corporations and other corporations is that a professional corporation is designed for licensed professionals. While other corporations may have any individual as a shareholder, a professional corporation typically requires the shareholders to be licensed professionals in the same profession. Other differences are discussed below.
Shareholder Restrictions
With a standard C Corporation or S Corporation, nearly anyone can be a shareholder, including other business entities. A foreign investor can also be a shareholder.
With a professional corporation, however, such as a medical practice or law firm, shareholders must be licensed professionals in the same field, as noted above. This means that only lawyers can be shareholders in law firm professional corporations.
Liability Protection
Professional corporations and standard corporations both provide limited liability protections, but the scope of the protections is different. For example, shareholders in C Corporations or S Corporations, in general, have limited liability protections for all corporate obligations.
On the other hand, professionals in professional corporations may be held personally liable for their own professional malpractice or negligence.
Taxation
S Corporations have pass-through taxation while corporation profits and losses pass through to the shareholders and are reported on each individual’s tax return. C Corporations are taxed separately at the corporate level and the shareholders also pay taxes on the dividends they received, which results in what is referred to as double taxation.
Professional corporations can choose to be taxed as C Corporations or S Corporations. However, they may also be subject to additional tax requirements or rules under California law and the regulations of the profession.
Regulatory Compliance
Professional corporations have to comply with standard corporate laws as well as follow the rules and regulations of the California state professional licensing board. For example, a professional corporation of attorneys have to follow the rules of the California State Bar Association.
In contrast, a C Corporation or S Corporation does not have to comply with these professional requirements and regulations.
In California, How Does Limited Liability Work With Professional Corporations?
In California, professional corporation limited liability protects the shareholders’ personal assets from the general liabilities or debts of the corporation. For example, if a corporation is sued or owes money, the personal assets of a shareholder are typically not at risk.
As noted above, however, limited liability does not protect professionals from their own personal negligence or malpractice. For example, if a physician who is part of a professional corporation makes a medical error, they will be held personally responsible for that error.
Do I Need a California Corporate Lawyer for Help With Professional Corporation Issues?
If you have any questions, issues, or concerns with professional corporations in California, it is essential to consult with a California corporate lawyer. Creating and managing professional corporations in California can be complicated because of corporation laws and the rules of professional conduct.
Hiring an attorney who has experience with professional corporations can help their clients through the incorporation process and make sure you comply with all of the applicable laws and regulations as well as help you understand your rights and responsibilities.
If you need assistance filing a lawsuit against a professional corporation or a member of a professional corporation, your attorney can help guide you through the process. Your lawyer can explain whether the professional may be held personally liable or has protections through their corporation.
You can quickly and easily use the no cost attorney matching services provided by LegalMatch to find a California lawyer in your area who has experience with corporations. It is important not to leave the future of your professional corporation to chance when you can quickly find a lawyer in your area today.
