California professional corporations: the entity most professionals don't get to choose.

Who must use a professional corporation — and who's exempt#

Start with the rule that surprises almost every licensed professional: a California LLC cannot render professional services. Corporations Code section 17701.04(e) says so directly, and section 13401(a) defines “professional services” as services that may lawfully be rendered only under a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act. If your profession lives in that framework and incorporation is the goal, the vehicle is a professional corporation under the Moscone-Knox Professional Corporation Act — not an LLC, and usually not an ordinary corporation either.

The professions squarely in the professional-corporation lane include physicians and surgeons, dentists and dental hygienists, lawyers, accountants, psychologists, marriage and family therapists, clinical social workers, professional clinical counselors, physician assistants, chiropractors, acupuncturists, naturopathic doctors, optometrists, pharmacists, physical and occupational therapists, registered nurses, midwives, speech-language pathologists, audiologists, veterinarians, and court reporters.

But the statute isn't the end of the analysis — each profession's own practice act can open a different door, and several do:

• Contractors can use LLCs. The Contractors State License Law was amended in 2010 to license LLCs, with strings attached: a $100,000 surety bond for the benefit of employees on top of the standard $25,000 contractor's bond, plus liability insurance starting at $1 million.
• Engineers, land surveyors, and real estate brokers use ordinary corporations. Their practice acts authorize general stock corporations (with a licensee in responsible charge, and for brokers a corporate license from the DRE) — but not LLCs.
• Architects get a choice. An ordinary corporation with a licensed architect in responsible control, or a Moscone-Knox professional architectural corporation — either works; an LLC doesn't.
• Lawyers, accountants, and architects can also use LLPs, and engineers and surveyors have their own limited-liability-partnership authorization. For multi-owner professional practices, the LLP-versus-PC choice is a real conversation.
• Establishment-licensed businesses are outside the rule. Salons, barbershops, and similar businesses hold premises licenses that aren't “professional services” in the Moscone-Knox sense; they form LLCs routinely.

The honest test, in one sentence: it's not “do I have a license?” — it's “does my profession's own practice act let an LLC or ordinary corporation hold that license?” When the answer is no, you're reading the right guide.

What makes a professional corporation different#

A professional corporation is organized under California's General Corporation Law — it files articles, adopts bylaws, issues shares, and pays corporate taxes like any other corporation. Moscone-Knox then layers four things on top:

• A single profession. The corporation renders services in one profession, and its articles must state that it is a professional corporation within the meaning of the Act (Corporations Code section 13404).
• Licensed owners. Shares may be issued only to licensed persons, and any issuance in violation is void (section 13406(a)). Shareholders also can't park voting power with anyone who isn't a fellow shareholder — voting trusts and proxies that try are void too.
• Restricted transfers, with deadlines that bite. Shares may be transferred only to a licensed person, a fellow shareholder, or a professional corporation (section 13407). When a shareholder dies, the estate has six months to get the shares into licensed hands; when a shareholder becomes disqualified — license suspended, revoked, or surrendered — the deadline is 90 days. Miss it and the corporation's authority to practice is on the line.
• Board-controlled names. The corporate name follows the rules of the profession's regulating agency, not just the Secretary of State's availability check (section 13409). Law corporations, for example, must carry a corporate designator like “Professional Corporation,” “P.C.,” or “Inc.” under State Bar rules; medical practices operating under anything other than the physician's own name need a fictitious-name permit from the Medical Board.

One more difference worth naming because professionals often form corporations for the wrong reason: a professional corporation does not shield you from your own malpractice. You always answer personally for your own professional negligence. What the entity does is real but narrower — it insulates you from the business's contractual obligations and, in group practice, from your colleagues' malpractice exposure. Some boards add security requirements to that bargain: a law corporation, for instance, must carry professional liability insurance or its shareholders personally guarantee claims up to State Bar-set limits.

Ownership: the 51/49 rule most group practices get wrong#

For the healing-arts professions, section 13401.5 designates nineteen types of professional corporations — medical, dental, psychological, nursing, marriage and family therapist, physical therapy, optometric, and the rest — and allows specified allied licensees to hold minority positions in each. A medical corporation doesn't have to be 100% physician-owned; a dental corporation doesn't have to be 100% dentist-owned. But the statute draws two lines, and group practices routinely miss the second one:

• The 49% limb: allied licensees' shares, all of them combined, cannot exceed 49% of the corporation's total shares. The core profession keeps 51% — always.
• The headcount limb: the number of allied-licensee shareholders cannot exceed the number of shareholders licensed in the corporation's own profession. A medical corporation with one physician shareholder can have at most one allied-professional shareholder — no matter how small their stakes.

Which allied licenses qualify is profession-by-profession — each of the nineteen subdivisions carries its own list, and they don't match. Before issuing shares to anyone outside the core profession, the specific subdivision gets read, not assumed. Two frequently-asked edge cases: a nurse practitioner — including one with full practice authority — can own up to 100% of a nursing corporation, since NPs are registered nurses; and as an RN, an NP can hold a minority stake in a medical corporation within the two limits above. Law and accountancy corporations live outside section 13401.5 entirely: law corporation shares stay with licensed attorneys, and accountancy firms have their own, separate minority-ownership regime.

Governance when the practice is small#

Moscone-Knox is unusually accommodating to the solo and two-owner practices that make up most of California's professional corporations (section 13403):

• One shareholder: one director suffices — the shareholder — who also serves as president and treasurer. The other offices can be filled by people who aren't licensed, which is how a practice's spouse-bookkeeper legitimately becomes corporate secretary.
• Two shareholders: two directors — the two shareholders — who between them hold all four offices: president, vice president, secretary, and treasurer.

Beyond that, the General Corporation Law's ordinary machinery applies: annual meetings (or written consents), minutes, and the corporate hygiene that keeps the entity's separateness respectable. For professionals, the bylaws carry extra weight — the share-transfer restrictions and divestiture deadlines belong there and, under most boards' rules, on the share certificates themselves.

Forming a California professional corporation, step by step#

1. Clear the name with two gatekeepers#

The Secretary of State checks availability; the licensing board's rules decide what the name may contain — designators, licensee surnames, fictitious-name rules. Clear both before printing anything.

2. File Articles of Incorporation on Form ARTS-PC#

The professional-corporation form, $100 filing fee, naming the single profession and including the section 13404 statement. An agent for service of process is designated here.

3. Adopt bylaws built for a professional corporation#

Generic bylaws are where template formations fail: the bylaws should carry the licensed-shareholder requirement, the section 13407 transfer restrictions, the 90-day and six-month divestiture clocks, and any board-specific provisions. Issue shares only to licensed persons, with the restrictions noted per your board's rules.

4. Register with the licensing board — if your board still requires it#

This is the step the internet gets wrong most often. The statute exempts corporations practicing under fourteen boards — including the Medical Board, Dental Board, Board of Registered Nursing, Board of Behavioral Sciences, Optometry, Pharmacy, and Veterinary Medical Board — from any certificate of registration. Medical corporations do not register with the Medical Board, despite what several high-ranking articles still say. Law corporations do register (State Bar, $265 application, $106 annual renewal); accountancy corporations do (California Board of Accountancy, $770 in application and initial license fees); chiropractic corporations do. A handful of boards sit in a gray zone where the statute doesn't exempt them but no registration program operates in practice — confirm directly with your board rather than a blog, including this one.

5. Get the EIN, file the Statement of Information, open the accounts#

EIN from the IRS; then California's Statement of Information within 90 days — and note that corporations file annually ($25), not every two years like LLCs, with penalties up to $250 for missing it.

6. Decide the tax election — on a deadline#

The S election is generally due within two months and fifteen days of the start of the tax year it's to take effect — for a new corporation, that clock starts fast. The decision itself is the next section; the point here is that it belongs in the formation sequence, not the first tax-season scramble.

7. Paper the security and insurance your board expects#

Malpractice coverage appropriate to the profession; for law corporations, the State Bar's insurance-or-guarantee requirement; a fictitious-name permit ($70, Medical Board) where the practice name requires one.

Taxes: the C-versus-S decision, and a first year most articles miss#

A professional corporation is a C corporation by default: a flat 21% federal rate, plus California franchise tax at the greater of 8.84% of net income or the $800 minimum. (The old federal penalty rate for “personal service corporations” is gone — since 2018, professional C corporations pay the same 21% as everyone else, though PSC status still affects technical items like required tax years.) The C structure means profits distributed as dividends are taxed twice, which is why most professional practices that incorporate also elect S status.

An S corporation passes profits through to the shareholders and pays California a 1.5% franchise tax on net income, subject to the same $800 minimum. The classic professional-practice pattern — reasonable salary plus S-corporation distributions — is what makes the PC-plus-S-election combination the default recommendation from most CPAs, with the usual caution that the salary has to be genuinely reasonable for the work.

Two first-year rules worth knowing in 2026, because they cut in the professional corporation's favor:

• No $800 minimum in year one — permanently. Every corporation that incorporates in California owes no minimum franchise tax for its first taxable year (Revenue and Taxation Code section 23153(f)(1)) — a permanent rule, not an expiring break. The corporation still pays the measured tax (8.84% or 1.5%) on whatever it actually earns in year one.
• SB 122 didn't include corporations — and they don't need it. The 2026 budget deal's much-discussed $400 first-year rate applies to LLCs, LPs, and LLPs for 2027–2029. A new professional corporation's first-year minimum is already $0 under the permanent rule.

One more tax fact that surfaces in exit planning: stock in a professional-services business generally can't qualify for the federal qualified-small-business-stock exclusion — the statute excludes health, law, accounting, and similar service businesses — and California doesn't offer a QSBS exclusion in any event. None of this is tax advice; the C-versus-S decision, the salary number, and the election mechanics are a conversation with your CPA that should happen at formation, not after.

The corporate-practice line — and what changed in 2026#

Layered over everything above sits California's corporate-practice doctrine: Business and Professions Code section 2400's rule that corporations “shall have no professional rights, privileges, or powers.” In practice it means unlicensed persons and entities can't control clinical judgment — the professional corporation exists precisely so that licensed professionals own the entity that practices.

That line got statutory teeth on January 1, 2026. SB 351 (Stats. 2025, ch. 409) prohibits private equity groups and hedge funds involved with physician or dental practices from interfering with professional judgment — diagnostic testing, referrals, treatment options, patient-volume targets — and from controlling enumerated operations: medical records, clinical hiring and firing, payor contracting, coding and billing decisions, and medical equipment selection. Management companies can still assist with business operations; they can't control the clinical ones — that control-versus-assist line is now written into statute, enforceable by the Attorney General. The same law voids noncompete and nondisparagement clauses in management and asset-sale agreements with those investors, outside a genuine sale of the business. A companion law, AB 1415, extended California's health-care transaction review so that private equity groups, hedge funds, and management services organizations must give 90 days' advance notice of material transactions.

For an independent practice, the practical reading: the professional corporation isn't a formality to be engineered around — it's the structure regulators now police with specific statutory text. Any MSO, management, or investment arrangement touching a California medical or dental practice should be drafted against SB 351's enumerated list, not against the pre-2026 folklore.

What's next#

Moscone-Knox keeps growing: the Legislature has been weighing a professional fiduciary corporation (AB 1939, held in committee this session), and the allied-ownership lists in section 13401.5 get adjusted as scopes of practice evolve. If your practice straddles professions — a med spa, an integrated behavioral-health group, a dental practice adding hygienist ownership — the ownership tables deserve a fresh read against current law at every restructuring, not just at formation.