What Is a Professional Corporation?

Why Professional Corporations Exist as a Separate Category

Many states don't let licensed professionals, such as physicians, attorneys, accountants, architects, or engineers, practice their licensed profession through an ordinary business corporation or LLC. Instead, these states created a separate entity category, the professional corporation, specifically for licensed practices, governed by its own statute rather than the general corporation law. California's version, for example, is the Moscone-Knox Professional Corporation Act, covering any profession that can only be practiced under a state license, certification, or registration. Texas addresses professional entities under Title 7 of its Business Organizations Code.

Who Actually Needs to Use One

Whether a given professional must use a professional corporation, rather than a standard corporation or an LLC, depends on both the specific profession and the specific state, since each state's licensing boards and corporation statute define which professions are covered. A solo accountant in one state might be required to form a professional corporation, while a consultant doing similar-sounding work but without a state license might be free to use a standard LLC in the same state. Check your state's professional corporation statute and your specific licensing board's rules before assuming either way.

Ownership Restrictions

Most professional corporation statutes limit ownership to individuals who hold the same professional license the corporation is formed to provide, meaning a law firm's professional corporation generally can't have a non-lawyer as a shareholder, and a medical practice's professional corporation generally can't have a non-physician owner. Some states allow limited exceptions, such as permitting licensed professionals in closely related fields to jointly own a professional corporation, but the general rule restricts ownership to the licensed profession itself.

Liability Protection Works Differently

A professional corporation still generally shields its owners from the corporation's ordinary business debts and from vicarious liability for a different owner's malpractice, the same baseline protection a standard corporation offers. But it doesn't, and generally can't, protect an individual professional from personal liability for their own malpractice or professional negligence. If a doctor is sued for malpractice, forming a professional corporation doesn't shield that doctor personally from the claim; it mainly protects the other owners from being personally liable for that specific doctor's malpractice.

Naming and Formation Requirements

Most states require a professional corporation's name to include a specific indicator, such as "Professional Corporation," "P.C.," or in some states "P.A." for professional association, rather than the standard corporate indicators like "Inc." or "Corp." used by business corporations. Formation generally follows a similar process to a standard corporation, filing articles or a certificate of incorporation with the state, but often requires attaching proof of the incorporators' professional licenses or certification from the relevant licensing board.

Tax Treatment

A professional corporation is taxed the same way a standard corporation of the same type is: as a C corporation by default, or as an S corporation if it qualifies and elects that status. Professional corporation status is about who can own the entity and what it's licensed to do, not a distinct tax category of its own.

Professional LLCs as an Alternative

Many states that require a professional corporation for certain licensed professions also offer a professional LLC, or PLLC, as an alternative structure with similar ownership restrictions but LLC-style taxation and management flexibility. Whether your state offers this option, and whether your specific profession can use it, depends on your state's professional entity rules.

Multi-Disciplinary Practices Face Added Complexity

A practice that wants to combine more than one licensed profession under one roof, such as a medical practice that also employs licensed physical therapists, often runs into restrictions, since many professional corporation statutes limit ownership and sometimes even services to a single profession. Structuring a multi-disciplinary practice correctly often requires more than one entity or a careful read of your state's specific allowances for related professions.

Check Your Specific Licensing Board's Rules, Not Just the Corporation Statute

Beyond the state's corporation statute, your profession's own licensing board often has additional rules about how a professional corporation must be structured, who can own it, and what disclosures it must make. Confirm both sets of rules before forming your entity, since the corporation statute alone may not capture every requirement your licensing board imposes.

A Change in Ownership Can Trigger a Problem

If a shareholder in a professional corporation loses their license, retires, or dies, most states require their shares to be transferred to someone who holds the required license within a set period, since the corporation can generally only be owned by licensed individuals. Plan for this contingency in a shareholder agreement rather than leaving it unaddressed.

Multiple Professionals Practicing Together Still Need Individual Coverage

Even though the entity shields owners from each other's malpractice, each individual professional practicing through the corporation still needs their own professional liability insurance, since the entity structure doesn't protect any individual from their own malpractice claims.

This Is Not Legal Advice

Whether your profession requires a professional corporation, what ownership restrictions apply, and what your licensing board separately requires depend on your specific state and profession. Talk to a business attorney familiar with your profession's licensing rules before choosing between a professional corporation, a professional LLC, or another structure.

Renewing Your Entity's Standing Also Means Renewing Licenses

Keeping the professional corporation itself in good standing with the state, through its registered agent and annual report, is separate from keeping each individual professional's own license current with the licensing board. Track both calendars independently, since a lapse in either one can create a problem even if the other is fully up to date.

Selling or Merging a Professional Practice Has Its Own Rules

Because ownership is restricted to licensed individuals, selling a professional corporation or merging it with another practice typically requires more care than a standard business sale, since the buyer must hold the same license and the transaction often needs structuring around that restriction from the outset.