Professional Corporations

Professional Corporations

Under the laws of most states, certain types of services can only be rendered by a corporation if it is a professional association (P.A.) or professional service corporation (P.C.). These include such professionals as attorneys, physicians, certified public accountants, veterinarians, architects, life insurance agents, and chiropractors. For simplicity, these will be referred to as professional service corporations. A professional service corporation typically has specific rules under the state incorporation statutes.

A professional service corporation must usually have one specific purpose spelled out in the Articles of Incorporation, and that purpose must be to practice a specific profession. It may not engage in any other business, but it may invest its funds in real estate, stocks, bonds, mortgages, or other types of investments. A professional service corporation may change its purpose to another legal purpose, but it will then no longer be a professional service corporation.

In most states, the name of a professional service corporation must contain the words "chartered," "professional association," or "professional corporation," or the abbreviations "P.A." or "P.C." Typically, it may not use the words "company," "corporation," "incorporated," or any abbreviation of these.

According to the law in most states, only persons licensed to practice a profession may be shareholders of a professional service corporation engaged in that practice. A shareholder who loses the right to prac­tice must immediately sever all employment with, and financial interests in, such a corporation. If such a shareholder does not sever these ties, the corporation may be dissolved by the state. No shareholder may enter into a voting trust or other similar arrangement with anyone.

A professional service corporation may not merge with any other corporation except a professional service corporation that is licensed to perform the same type of service.

Most states have very specific requirements for the formation of professional service corporations. They often require specific language in the articles, charter, or bylaws. For this type of corporation, you should consult an attorney.