As seen in our article on limited liability entities, we normally recommend the creation of business entities which have limited exposure to the owners for obligations and also allow tax planning that may be beneficial to the owners. Such entities are usually useful to any person beginning a business in the United States.
Certain types of businesses, namely the professions, can enjoy the benefits of using limited liability entities but are subject to special provisions directed solely to the unique aspects of an entity composed of professionals, such as doctors, dentists, architects, accountants, engineers, lawyers and veterinarians. Those entities are commonly referred to as professional corporations, though they can be professional limited liability companies as well.
Professional corporations are those corporate entities for which many state corporation statutes make special provision. There are major differences between the legal regulations applicable to professional corporations from those applying to other corporations. Professional corporations, which may have a single director or multiple directors, do not usually afford that person or persons the same degree of limitation of liability as ordinary business corporations. Such corporations usually must identify themselves as professional corporations by including “PC” or “P.C.” after the firm’s name. Professional corporations often exist as part of a larger, more complex, legal entity.
The rules concerning professional corporations vary in the different states of U.S. This article shall discuss the California laws pertaining to professional corporations, concentrating on particular professions but understanding that the same themes apply to all professional corporations in this State. It will quickly be seen that the laws for the various professions often overlap in their requirements.
DIFFERENT PROFESSIONS
Accountants
See:
CALIFORNIA CORPORATIONS CODE, §§ 13400-13410 (Moscone-Knox Professional Corporation Act)
CALIFORNIA BUSINESS AND PROFESSIONS CODE, §§ 5150 through 5158 (Accountants)
General Discussion:
According to the Moscone-Knox Professional Corporation Act “”Professional services” are any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Public Accountancy Act, or the Osteopathic Act.
A “professional corporation” is a corporation organized under the General Corporation Law or the Moscone-Knox Professional Corporation Act and that is engaged in rendering professional services in a single profession (except as otherwise authorized in § 13401.5) pursuant to a certificate of registration issued by the governmental agency regulating the profession and that in its practice or business designates itself as a professional or other corporation as may be required by statute. However, any professional corporation rendering professional services by persons duly licensed by the California Board of Accountancy, or any examining committee under the jurisdiction of the board, is not required to obtain a certificate of registration in order to render those professional services.
A “licensed person” is any natural person who is duly licensed under the provisions of the Business and Professions Code to render the same professional services as are or will be rendered by the professional corporation of which he or she is or intends to become, an officer, director, shareholder, or employee.
A “disqualified person” means a licensed person who for any reason becomes legally disqualified (temporarily or permanently) to render the professional services that the particular professional corporation of which he or she is an officer, director, shareholder, or employee is or was rendering.
The Corporations Code does not provide that anyone other than a licensed public accountant may be a shareholder, officer, or director of a professional public accountancy corporation.
The provisions of the General Corporation Law apply to professional corporations, except where such provisions are in conflict with or inconsistent with the provisions of the Moscone-Knox Professional Corporation Act.
A professional corporation which has only one shareholder need have only one director who shall be such shareholder and who shall also serve as the president and treasurer of the corporation. The other officers of the corporation in such situation need not be licensed persons. A professional corporation which has only two shareholders need have only two directors who shall be such shareholders. The two shareholders between them shall fill the offices of president, vice president, secretary and treasurer.
The articles of incorporation of a professional corporation must contain a specific statement that the corporation is a professional corporation within the Moscone-Knox Professional Corporation Act.
No professional corporation can render professional services in this California without a currently effective certificate of registration issued by the governmental agency regulating the profession in which such corporation is or proposes to be engaged.
A professional corporation may lawfully render professional services in this state, but only through employees who are licensed persons. The corporation may employ persons not so licensed, but such persons may not render any professional services rendered or to be rendered by the corporation. A professional corporation may render professional services outside of California, but only through employees who are licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices.
Shares of capital stock in a professional corporation may be issued only to a licensed person or to a person who is licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices, and any shares issued in violation of this restriction are void.
No shareholder of a professional corporation qualified to render professional services in California may enter into a voting trust, proxy, or any other arrangement vesting another person (other than another person who is a shareholder of the same corporation) with the authority to exercise the voting power of any or all of his or her shares, and any such purported voting trust, proxy or other arrangement is void.
Shares in a professional corporation qualified to render professional services in California may be transferred only to a licensed person, to a shareholder of the same corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to such professional corporation, and any transfer in violation of this restriction is void.
A professional corporation may purchase its own shares without regard to any restrictions provided by law upon the repurchase of shares, if at least one share remains issued and outstanding.
A professional corporation qualified to render professional services in California must acquire all of the shares of a shareholder who is disqualified from rendering professional services in California or of a deceased shareholder who was, on his or her date of death, licensed to render professional services in this state. If a disqualified shareholder or the representative of a deceased shareholder fails to transfer his shares to the corporation, to another shareholder of the corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to a licensed person, within 90 days following the date of disqualification, or within six months following the date of death of such shareholder, then the certificate of registration of such corporation may be suspended or revoked by the governmental agency regulating the profession in which such corporation is engaged. In the event of such suspension or revocation such corporation shall cease forthwith to render professional services in California.
No professional corporation may be formed so as to cause any violation of law, or any applicable rules and regulations, relating to fee splitting, kickbacks, or other similar practices by physicians and surgeons or psychologists, including, but not limited to, § 650 or § 2960(e) of the Business and Professions Code. A violation of any such provisions shall be grounds for the suspension or revocation of the certificate of registration of the professional corporation.
A professional corporation may adopt any name permitted by a law expressly applicable to the profession in which such corporation is engaged or by a rule or regulation of the governmental agency regulating such profession. The § 201(b) requirements do not apply to the name of a professional corporation if the name contains or is restricted to the name or the last name of one or more of the present, prospective, or former shareholders or of persons who were associated with a predecessor person, partnership or other organization or whose name or names appeared in the name of such predecessor organization, and the Secretary of State shall have no authority by reason of § 201(b) to refuse to file articles of incorporation which set forth such a name.
The name of a professional corporation cannot be substantially the same as the name of a domestic corporation, the name of a foreign corporation qualified to render professional services in this state which is authorized to transact business in this state, or a name which is under reservation for another corporation.
A professional corporation qualified to render professional services in California is subject to the applicable rules and regulations adopted by, and all the disciplinary provisions of the Business and Professions Code expressly governing the practice of the profession in this state, and to the powers of, the governmental agency regulating the profession in which such corporation is engaged. Nothing in the Moscone-Knox Professional Corporation Act affects or impairs the disciplinary powers of any governmental agency over licensed persons or any law, rule or regulation pertaining to the standards for professional conduct of licensed persons or to the professional relationship between any licensed person furnishing professional services and the person receiving such services.
CALIFORNIA BUSINESS AND PROFESSIONS CODE
§§ 5150 through 5158.
An accountancy corporation is a corporation which is registered with the California Board of Accountancy and has a currently effective certificate of registration from the board. Subject to all applicable statutes, rules and regulations, an accountancy corporation is entitled to practice accountancy.
An applicant for registration as an accountancy corporation must supply to the board all necessary and pertinent documents and information requested by the board concerning the applicant’s plan of operation. The board may provide forms of application. If the board finds that the corporation is duly organized and existing under the General Corporation Law or the foreign corporation is duly qualified for the transaction of intrastate business pursuant to the General Corporation Law, that, except as otherwise permitted under Section 5053 or 5079, each officer, director, shareholder, or employee who will render professional services is a licensed person as defined in the Moscone-Knox Professional Corporation Act, or a person licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices, and that from the application it appears that the affairs of the corporation will be conducted in compliance with law and the rules and regulations of the board, the board shall upon payment of the registration fee in the amount as it may determine, issue a certificate of registration.
Except as otherwise provided by law, each director, shareholder, and officer of an accountancy corporation shall be a licensed person as defined in the Moscone-Knox Professional Corporation Act, or a person licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices.
An accountancy corporation shall not do or fail to do any act the doing of which or the failure to do which would constitute unprofessional conduct under any statute, rule or regulation now or hereafter in effect. In the conduct of its practice, it shall observe and be bound by such statutes, rules and regulations to the same extent as a person holding a permit under Section 5070 of this code. The board shall have the same powers of suspension, revocation and discipline against an accountancy corporation as are now or hereafter authorized by law.
Each office of an accountancy corporation engaged in the practice of public accountancy in this state shall be managed by a certified public accountant or public accountant.
Attorneys at Law
See:
California Corporations Code, §§ 13400-13410 (Moscone-Knox Professional Corporation Act)
California Business and Professions Code, §§ 6000-6228
General Discussion:
A California professional law corporation is controlled generally by all of the provisions of the California Corporations Code and specifically by the provisions of §§ 13400-13410 of that Code. Additionally, the corporation is subject to the statutory requirements of §§ 6000-6228 of the Business and Professions Code.
In addition to the above named statutory requirements, a professional law corporation is subject to the rules and regulations of the California State Bar. The corporation is also subject to any rules, requirements, regulations, and restrictions which may be imposed by the California Supreme Court or by the California Rules of Professional Conduct.
A professional law corporation is formed by the filing of Articles of Incorporation with the Secretary of State. However, before the corporation can engage in the business of practicing law, it must receive a certificate of registration from the California State Bar.
The primary distinctions between a “regular” corporation and a professional law corporation are:
1. Each director, shareholder, and officer of a professional law corporation MUST be licensed to practice law.
2. If a professional law corporation has only one shareholder, then it is required to have only one director. The sole shareholder shall be the President and the Treasurer of the corporation.
3. If a professional law corporation has only two shareholders, then it is required to have only two directors. The two shareholders shall, between them, hold the offices of President, Vice-President, Secretary, and Treasurer.
4. A professional law corporation MUST hold a certificate of registration from the California State Bar.
5. A professional law corporation may render professional services only through employees who are licensed to practice law.
6. Shares of stock in a professional law corporation may be issued only to a person who is licensed to practice law. Any shares issued in violation of this restriction are void.
7. No shareholder of a professional law corporation may enter into a voting trust, proxy, or any other arrangement vesting another person (other than another person who is a shareholder of the same corporation) with the authority to exercise the voting power of any or all of his or her shares. Any such voting trust, proxy or other arrangement is void.
8. Shares in a professional law corporation may be transferred only to a person who is licensed to practice law, to a shareholder of the corporation, or to the professional law corporation itself. Any transfer in violation of this restriction is void.
9. The California State Bar may suspend or revoke a professional law corporation’s certificate of registration if the corporation, a shareholder, or another person licensed to practice law fails to acquire all of the shares of a shareholder who is disqualified from practicing law within 90 days of the disqualification.
10. The California State Bar may suspend or revoke a professional law corporation’s certificate of registration if the corporation, a shareholder, or another person licensed to practice law fails to acquire all of the shares of a deceased shareholder within six months following the date of death of such shareholder.
11. If the certificate of registration of a professional law corporation is suspended or revoked, it MUST immediately cease to engage in the business of practicing law.
12. A professional law corporation must comply with the liability insurance requirements of the California State Bar as well as any requirements regarding the name of the corporation.
13. “A law corporation shall not do or fail to do any act the doing of which or the failure to do which would constitute a cause for discipline of a member of the State Bar, under any statute, rule or regulation now or hereafter in effect. In the conduct of its business, it shall observe and be bound by such statutes, rules and regulations to the same extent as if specifically designated therein as a member of the State Bar.” Business and Professions Code, § 6167.
Dentists
See:
CORPORATIONS CODE, §§ 13400-13410 (Moscone-Knox Professional Corporation Act)
CALIFORNIA BUSINESS AND PROFESSIONS CODE, §§ 1800-1808 (Dental Corporations)
General Discussion:
“Professional services” are any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.
A “professional corporation” is a corporation organized under the General Corporation Law or the Moscone-Knox Professional Corporation Act and that is engaged in rendering professional services in a single profession (except as otherwise authorized in § 13401.5) pursuant to a certificate of registration issued by the governmental agency regulating the profession and that in its practice or business designates itself as a professional or other corporation as may be required by statute. However, any professional corporation rendering professional services by persons duly licensed by the Dental Board of California, or any examining committee under the jurisdiction of the board, is not required to obtain a certificate of registration in order to render those professional services.
A “licensed person” is any natural person who is duly licensed under the provisions of the Business and Professions Code to render the same professional services as are or will be rendered by the professional corporation of which he or she is or intends to become, an officer, director, shareholder, or employee.
A “disqualified person” means a licensed person who for any reason becomes legally disqualified (temporarily or permanently) to render the professional services that the particular professional corporation of which he or she is an officer, director, shareholder, or employee is or was rendering.
The Corporations Code does not provide that anyone other than a licensed dentist may be a shareholder, officer, or director of a professional dental corporation.
The provisions of the General Corporation Law apply to professional corporations, except where such provisions are in conflict with or inconsistent with the provisions of the Moscone-Knox Professional Corporation Act.
A professional corporation which has only one shareholder need have only one director who shall be such shareholder and who shall also serve as the president and treasurer of the corporation. The other officers of the corporation in such situation need not be licensed persons. A professional corporation which has only two shareholders need have only two directors who shall be such shareholders. The two shareholders between them shall fill the offices of president, vice president, secretary and treasurer.
The articles of incorporation of a professional corporation must contain a specific statement that the corporation is a professional corporation within the Moscone-Knox Professional Corporation Act.
No professional corporation can render professional services in this California without a currently effective certificate of registration issued by the governmental agency regulating the profession in which such corporation is or proposes to be engaged.
A professional corporation may lawfully render professional services in this state, but only through employees who are licensed persons. The corporation may employ persons not so licensed, but such persons may not render any professional services rendered or to be rendered by the corporation. A professional corporation may render professional services outside of California, but only through employees who are licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices.
Shares of capital stock in a professional corporation may be issued only to a licensed person or to a person who is licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices, and any shares issued in violation of this restriction are void.
No shareholder of a professional corporation qualified to render professional services in California may enter into a voting trust, proxy, or any other arrangement vesting another person (other than another person who is a shareholder of the same corporation) with the authority to exercise the voting power of any or all of his or her shares, and any such purported voting trust, proxy or other arrangement is void.
Shares in a professional corporation qualified to render professional services in California may be transferred only to a licensed person, to a shareholder of the same corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to such professional corporation, and any transfer in violation of this restriction is void.
A professional corporation may purchase its own shares without regard to any restrictions provided by law upon the repurchase of shares, if at least one share remains issued and outstanding.
A professional corporation qualified to render professional services in California must acquire all of the shares of a shareholder who is disqualified from rendering professional services in California or of a deceased shareholder who was, on his or her date of death, licensed to render professional services in this state. If a disqualified shareholder or the representative of a deceased shareholder fails to transfer his shares to the corporation, to another shareholder of the corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to a licensed person, within 90 days following the date of disqualification, or within six months following the date of death of such shareholder, then the certificate of registration of such corporation may be suspended or revoked by the governmental agency regulating the profession in which such corporation is engaged. In the event of such suspension or revocation such corporation shall cease forthwith to render professional services in California.
No professional corporation may be formed so as to cause any violation of law, or any applicable rules and regulations, relating to fee splitting, kickbacks, or other similar practices by physicians and surgeons or psychologists, including, but not limited to, § 650 or § 2960(e) of the Business and Professions Code. A violation of any such provisions shall be grounds for the suspension or revocation of the certificate of registration of the professional corporation.
A professional corporation may adopt any name permitted by a law expressly applicable to the profession in which such corporation is engaged or by a rule or regulation of the governmental agency regulating such profession. The § 201(b) requirements do not apply to the name of a professional corporation if the name contains or is restricted to the name or the last name of one or more of the present, prospective, or former shareholders or of persons who were associated with a predecessor person, partnership or other organization or whose name or names appeared in the name of such predecessor organization, and the Secretary of State shall have no authority by reason of § 201(b) to refuse to file articles of incorporation which set forth such a name.
The name of a professional corporation cannot be substantially the same as the name of a domestic corporation, the name of a foreign corporation qualified to render professional services in this state which is authorized to transact business in this state, or a name which is under reservation for another corporation.
A professional corporation qualified to render professional services in California is subject to the applicable rules and regulations adopted by, and all the disciplinary provisions of the Business and Professions Code expressly governing the practice of the profession in this state, and to the powers of, the governmental agency regulating the profession in which such corporation is engaged. Nothing in the Moscone-Knox Professional Corporation Act affects or impairs the disciplinary powers of any governmental agency over licensed persons or any law, rule or regulation pertaining to the standards for professional conduct of licensed persons or to the professional relationship between any licensed person furnishing professional services and the person receiving such services.
CALIFORNIA BUSINESS AND PROFESSIONS CODE
§§ 1800-1808 (Dental Corporations)
A dental corporation is a corporation that is authorized to render professional services if that corporation, its shareholders, officers, directors, and are dentists and are in compliance with the Moscone-Knox Professional Corporation Act, §§ 1800-1808 of the Business and Professions Code, and any other statutes, rules, and regulations applicable to a dental corporation and the conduct of its affairs.
The name of a dental corporation, and any name or names under which it renders professional services, must contain (and be limited to) the name or the last name of one or more of the present, prospective, or former shareholders and must include the words “dental corporation” or wording or abbreviations denoting corporate existence.
Except as provided in Section 13403 of the Corporations Code, each director, shareholder, and officer of a dental corporation must be a licensed person as defined in the Moscone-Knox Professional Corporation Act.
The income of a dental corporation attributable to professional services rendered while a shareholder is a disqualified person (as defined in the Moscone-KnoxProfessional Corporation Act) cannot in any manner accrue to the benefit of that shareholder or his or her shares in a dental corporation.
A dental corporation cannot do or fail to do any act which would constitute unprofessional conduct under any statute, rule or regulation now or hereafter in effect. In the conduct of its practice, a dental corporation must observe and be bound by all statutes, rules and regulations to the same extent as a person holding a license to practice dentistry.
The Dental Board of California (Board) has the same powers of suspension, revocation and discipline against a dental corporation as are now or hereafter authorized, or by any other similar statute against individual licensees. Proceedings against a dental corporation are conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. The Board has all of the powers granted in that Chapter.
The Board may formulate and enforce rules and regulations to carry out the purposes and objectives of the provisions set forth in the Business and Professions Code and the Moscone-Knox Professional Corporation Act, including Rules and regulations requiring that the articles of incorporation or bylaws of a dental corporation must include a provision whereby the capital stock of a dental corporation owned by a disqualified person (as defined in the Moscone-Knox Professional Corporation Act), or a deceased person, must be sold to the corporation or to the remaining shareholders of that corporation within the time as the rules and regulations may provide, and
That a dental corporation must provide adequate security by insurance or otherwise for claims against it by its patients arising out of the rendering of professional services.
Doctors
See:
CALIFORNIA CORPORATIONS CODE, §§ 13400-13410 (Moscone-Knox Professional Corporation Act)
CALIFORNIA BUSINESS AND PROFESSIONS CODE, §§ 2000-2521 (Medicine)
General Discussion:
“Professional services” are any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.
A “professional corporation” is a corporation organized under the General Corporation Law or the Moscone-Knox Professional Corporation Act and that is engaged in rendering professional services in a single profession (except as otherwise authorized in § 13401.5) pursuant to a certificate of registration issued by the governmental agency regulating the profession and that in its practice or business designates itself as a professional or other corporation as may be required by statute. However, any professional corporation rendering professional services by persons duly licensed by the Medical Board of California, or any examining committee under the jurisdiction of the board, is not required to obtain a certificate of registration in order to render those professional services.
A “licensed person” is any natural person who is duly licensed under the provisions of the Business and Professions Code to render the same professional services as are or will be rendered by the professional corporation of which he or she is or intends to become, an officer, director, shareholder, or employee.
A “disqualified person” means a licensed person who for any reason becomes legally disqualified (temporarily or permanently) to render the professional services that the particular professional corporation of which he or she is an officer, director, shareholder, or employee is or was rendering.
The following licensed persons may be shareholders, officers, directors, or professional employees of a professional medical corporation so long as the sum of all shares owned by those licensed persons does not exceed 49 percent of the total number of shares of the professional corporation and so long as the number of those licensed persons owning shares in the professional corporation does not exceed the number of persons licensed by the governmental agency regulating the designated professional corporation:
Licensed doctors of podiatric medicine.
Licensed psychologists.
Registered nurses.
Licensed optometrists.
Licensed marriage, family, and child counselors.
Licensed clinical social workers.
Licensed physician assistants.
Licensed chiropractors.
Licensed acupuncturists.
The provisions of the General Corporation Law apply to professional corporations, except where such provisions are in conflict with or inconsistent with the provisions of the Moscone-Knox Professional Corporation Act.
A professional corporation which has only one shareholder need have only one director who shall be such shareholder and who shall also serve as the president and treasurer of the corporation. The other officers of the corporation in such situation need not be licensed persons. A professional corporation which has only two shareholders need have only two directors who shall be such shareholders. The two shareholders between them shall fill the offices of president, vice president, secretary and treasurer.
A professional medical corporation may establish in its articles or bylaws the manner in which its directors are selected and removed, their powers, duties, and compensation. Each term of office may not exceed three years. The articles or bylaws of a professional medical corporation with more than 200 shareholders may provide that directors who are officers of the corporation or who are responsible for the management of all medical services at one or more medical centers may have terms of office, as directors, of up to six years; however, no more than 50 percent of the members of the board, plus one additional member of the board, may have six-year terms of office.
The articles of incorporation of a professional corporation must contain a specific statement that the corporation is a professional corporation within the Moscone-Knox Professional Corporation Act.
No professional corporation can render professional services in this California without a currently effective certificate of registration issued by the governmental agency regulating the profession in which such corporation is or proposes to be engaged.
A professional corporation may lawfully render professional services in this state, but only through employees who are licensed persons. The corporation may employ persons not so licensed, but such persons may not render any professional services rendered or to be rendered by that corporation in this state. A professional corporation may render professional services outside of this state, but only through employees who are licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices.
Shares of capital stock in a professional corporation may be issued only to a licensed person or to a person who is licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices, and any shares issued in violation of this restriction are void.
No shareholder of a professional corporation qualified to render professional services in California may enter into a voting trust, proxy, or any other arrangement vesting another person (other than another person who is a shareholder of the same corporation) with the authority to exercise the voting power of any or all of his or her shares, and any such purported voting trust, proxy or other arrangement is void.
Shares in a professional corporation qualified to render professional services in California may be transferred only to a licensed person, to a shareholder of the same corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to such professional corporation, and anytransfer in violation of this restriction is void.
A professional corporation may purchase its own shares without regard to any restrictions provided by law upon the repurchase of shares, if at least one share remains issued and outstanding.
A professional corporation qualified to render professional services in California must acquire all of the shares of a shareholder who is disqualified from rendering professional services in California or of a deceased shareholder who was, on his or her date of death, licensed to render professional services in this state. If a disqualified shareholder or the representative of a deceased shareholder fails to transfer his shares to the corporation, to another shareholder of the corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to a licensed person, within 90 days following the date of disqualification, or within six months following the date of death of such shareholder, then the certificate of registration of such corporation may be suspended or revoked by the governmental agency regulating the profession in which such corporation is engaged. In the event of such suspension or revocation such corporation shall cease forthwith to render professional services in California.
No professional corporation may be formed so as to cause any violation of law, or any applicable rules and regulations, relating to fee splitting, kickbacks, or other similar practices by physicians and surgeons or psychologists, including, but not limited to, § 650 or § 2960(e) of the Business and Professions Code. A violation of any such provisions shall be grounds for the suspension or revocation of the certificate of registration of the professional corporation.
A professional corporation may adopt any name permitted by a law expressly applicable to the profession in which such corporation is engaged or by a rule or regulation of the governmental agency regulating such profession. The § 201(b) do not apply to the name of a professional corporation if name contains or is restricted to the name or the last name of one or more of the present, prospective, or former shareholders or of persons who were associated with a predecessor person, partnership or other organization or whose name or names appeared in the name of such predecessor organization, and the Secretary of State shall have no authorityby reason of § 201(b) to refuse to file articles of incorporation which set forth such a name.
The name of a professional corporation cannot be substantially the same as the name of a domestic corporation, the name of a foreign corporation qualified to render professional services in this state which is authorized to transact business in this state, or a name which is under reservation for another corporation.
A professional corporation qualified to render professional services in California is subject to the applicable rules and regulations adopted by, and all the disciplinary provisions of the Business and Professions Code expressly governing the practice of the profession in this state, and to the powers of, the governmental agency regulating the profession in which such corporation is engaged. Nothing in the Moscone-Knox Professional Corporation Act affects or impairs the disciplinary powers of any governmental agency over licensed persons or any law, rule or regulation pertaining to the standards for professional conduct of licensed persons or to the professional relationship between any licensed person furnishing professional services and the person receiving such services.
CALIFORNIA BUSINESS AND PROFESSIONS CODE
§§ 2000-2521 (Medicine)
A medical corporation is a corporation which is authorized to render professional services, as defined in §§ 13401 and 13401.5 of the Corporations Code, so long as that corporation and its shareholders, officers, directors and employees rendering professional services who are physicians, psychologists, registered nurses, optometrists, podiatrists physician assistants, are in compliance with the Moscone-Knox Professional Corporation Act, the provisions of Business and Professions Code §§ 2000-2521, and all other statutes and regulations now or hereafter enacted or adopted pertaining to the corporation and the conduct of its affairs.
With respect to a medical corporation, the governmental agency referred to in the Moscone-Knox Professional Corporation Act is the Division of Licensing.
Except as provided in §§ 13401.5 and 13403 of the Corporations Code, each shareholder, director and officer of a medical corporation, except an assistant secretary or an assistant treasurer, shall be a licensed person as defined in the Corporations Code.
A shareholder of a medical corporation which renders professional services may be a medical corporation which has only one shareholder who shall be a licensed person licensed person as defined in the Corporations Code. The shareholder of the latter corporation may be an officer or director of the former corporation.
The income of a medical corporation attributable to professional services rendered while a shareholder is a disqualified person, as licensed person as defined in the Corporations Code, shall not in any manner accrue to the benefit of such a shareholder or his or her shares in the a professional corporation.
A medical corporation may not do or fail to do any act the doing of which or the failure to do which would constitute unprofessional conduct under any statute or regulation now or hereafter in effect. In the conduct of its practice, the medical corporation must observe and be bound by such statutes and regulations to the same extent as a licensee under California Business and Professions Code, §§ 2000-2521.
The offering and operation by a medical corporation of a health care service plan licensed pursuant to the provisions of Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code is hereby authorized. For such purpose a medical corporation may employ, or enter into contracts or other arrangements with, any person or persons authorized to practice any of the healing arts, but no such employment, contract, or arrangement shall provide for the rendering, supervision, or control of professional services other than as authorized by law.
The Division of Licensing may adopt and enforce regulations to carry out the purposes and objectives of this article and the Moscone-Knox Professional Corporation Act including regulations requiring (a) that the bylaws of a medical or podiatry corporation shall include a provision whereby the capital stock of such corporation owned by a disqualified or a deceased person shall be sold to the corporation or to the remaining shareholders of such corporation within such time as such regulations may provide and that a medical corporation shall provide adequate security by insurance or otherwise for claims against it by its patients arising out of the rendering of professional services.
Any type of business organization that holds itself out to the public as an organization practicing medicine, or that a reasonably informed person would believe is engaged in the practice of medicine, shall be owned and operated only by one or more licensed physicians and surgeons.
A physician and surgeon who knowingly practices medicine with a business organization not owned or operated in compliance with the above restriction will have his or her license to practice permanently revoked.
Veterinary
See:
CALIFORNIA CORPORATIONS CODE, §§ 13400-13410 (Moscone-Knox Professional Corporation Act)
CALIFORNIA BUSINESS AND PROFESSIONS CODE, §§ 4800-4917
General Discussion:
A California professional corporation organized to engage in the practice of veterinary medicine is controlled generally by all of the provisions of the California Corporations Code and specifically by the provisions of §§ 13400-13410 (Professional Corporations) of that Code. Additionally, the corporation is subject to the statutory requirements of § 4800 through § 4917 of the Business and Professions Code.
In addition to the above named statutory requirements, a professional corporation organized to engage in the practice of veterinary medicine is subject to the rules and regulations of the California Veterinary Medical Board.
A professional corporation organized to engage in the practice of veterinary medicine is formed by the filing of Articles of Incorporation with the Secretary of State.
The following are applicable to a professional corporation organized to engage in the practice of veterinary medicine are:
1. The name of a professional corporation organized to engage in the practice of veterinary medicine must contain the words “veterinary corporation” or words or abbreviations which denote its corporate existence. A professional corporation may adopt any name permitted by a law expressly applicable to veterinary medicine or by a rule or regulation of the Veterinary Medical Board.
2. Each director, shareholder, and officer of a professional corporation organized to engage in the practice of veterinary medicine MUST be a veterinarian licensed to practice in the State of California.
3. However, if a professional corporation organized to engage in the practice of veterinary medicine has only one shareholder (who must be licensed to practice veterinary medicine), then it is required to have only one director. The sole shareholder shall be the President and the Treasurer of the corporation. The other officers need not be licensed.
4. If a professional corporation organized to engage in the practice of veterinary medicine has only two shareholders, then it is required to have only two directors. The two shareholders shall, between them, hold the offices of President, Vice-President, Secretary, and Treasurer.
5. A professional corporation organized to engage in the practice of veterinary medicine may render professional services only through employees who are licensed to render the professional services of a professional optometrist.
6. Shares of stock in a professional corporation organized to engage in the practice of veterinary medicine may be issued only to a person who is licensed to practice veterinary medicine. Any shares issued in violation of this restriction are void.
7. Shares in a professional corporation organized to engage in the practice of veterinary medicine may be transferred only to a person who is licensed to engage in the practice of veterinary medicine, to a shareholder of the corporation, or to the professional corporation itself. Any transfer in violation of this restriction is void.
8. The income of a professional corporation organized to engage in the practice of veterinary medicine attributable to professional services rendered while a shareholder is a disqualified may not in any manner accrue to the benefit of that shareholder for his shares in the corporation.
9. No shareholder of a professional corporation organized to engage in the practice of veterinary medicine may enter into a voting trust, proxy, or any other arrangement vesting another person (other than another person who is a shareholder of the same corporation) with the authority to exercise the voting power of any or all of his or her shares. Any such purported voting trust, proxy or other arrangement is be void.
10. If a professional corporation organized to engage in the practice of veterinary medicine fails to acquire all of the shares of a shareholder who is disqualified or of a deceased shareholder, or if a disqualified shareholder or the representative of such a deceased shareholder fails to transfer the subject shares to the corporation, to another shareholder of the corporation, to a person licensed to practice veterinary medicine in California within 90 days following the date of disqualification, or within six months following the date of death of a deceased shareholder, then the certificate of registration of the corporation may be suspended or revoked by the Veterinary Medical Board. In the event of a suspension or revocation, the corporation must immediately cease to render professional services in California.
11. A professional corporation organized to engage in the practice of veterinary medicine is subject to the applicable rules and regulations adopted by the Veterinary Medical Board and all the disciplinary provisions of the Business and Professions Code expressly governing the practice of veterinary medicine. Statutory provisions do not affect or impair the disciplinary powers of the Veterinary Medical Board over persons licensed to practice veterinary medicine or any other law, rule or regulation pertaining to the standards for professional conduct of licensed persons or to the professional relationship between any licensed person furnishing professional services and the person receiving such services.
12. A professional corporation organized to engage in the practice of veterinary medicine may not do or fail to do any act the doing of which or the failure to do which would constitute unprofessional conduct under any statute, rule or regulation now or hereafter in effect.
THEMES AND PRACTICALITIES
It should be noted that with some exceptions, such as the involvement of the California Bar in setting requirements for attorneys, the same basic structure and restrictions applies to all of the types of professional corporations and that includes those professions not specifically discussed above. Put simply, the State wishes the owners and beneficiaries of such entities be members of the professions who comply with the various restrictions and obligations imposed by the various licensing bureaus.
The typical area of tension is when non professionals wish to set up businesses providing services actually rendered by the professionals. Various techniques seek to evade the requirement that owners must be members of the professions and while such structures can be legally created, the structure must be carefully thought out to conform to the requirements of the law.
Further, the various professional regulatory entities often impose requirements upon the owners of such entities which lower the limited liability protection available. Thus, the owner attorney may be individually liable for his or her negligence even if the services were rendered by the limited liability entity he or she created, though the limited liability is usually available for liabilities not related to professional negligence.
And, as with all corporations and limited liability entities, it is vital for the owners to maintain the bookkeeping and record keeping and avoid commingling personal and corporate assets or the danger of piercing the corporate veil can arise.
When all is said and done, however, the limited liability structure has tremendous advantages not only to limit most liability, but for ease in creating transfer of ownership, buy and sell agreements, and formalizing the power and distribution of profits within a professional company. As in all areas of business, we strongly recommend adopting such a structure…with the caveat that the complications and requirements exceed those of the typical business corporation.