What is Professional Corporation?

Professional corporations or professional service corporations are corporate entities that are established by a group of professionals such as doctors, lawyers, architects, engineers, etc. They are established for specific purposes that are pre-defined. Specific rules and regulations are laid down by the concerned authority in the USA; these laws must be followed by individuals who want to start a professional corporation in USA. The state laws in the USA are different, thus individuals must ensure that they follow specific rules of the state where the corporation will be situated. In this article, we will talk about important aspects with regard to corporations set up by professionals and specialized individuals.

A major difference between a professional corporation and a corporation is that setting up a corporation involves only professionals, whereas, a corporation involves individuals from different professional fields

Corporations set up by a group professional are incorporated for certain purposes. One of the major objectives of professional corporations is to offer professional and good quality services.

Types of Professional Corporations in United States of America (USA)

It is significant to understand several categories of corporations that exist.

S-Corporation

Also known as small business corporations, it is a special tax status granted by the IRS that allows corporations to pass their corporate income, credits, and deductions through to their shareholders.

C-Corporation

A C-corporation is referred to as any corporation that is taxed separately from its owners.

Limited Liability Company (LLC)

A limited liability company is a company in which the liability of the company’s members is limited to the shared held by them.

Benefits of Professional Corporations

Professional corporations can be established in two ways, Limited Liability Company (LLC) or a Limited Liability Partnership (LLP).

Below mentioned are certain benefits of corporations which comprise of a group of professionals –

• Transferability of ownership

The shareholders of a professional corporation can easily sell their shares to the public.

• Tax benefits

Professional corporations in USA provide life and health insurance to employees as a tax-free benefit. They can also provide tax deductions for disability insurance, dependent care, and other unconventional benefits to employees. In most cases, such benefits are tax-deductible for the corporation and are not considered taxable income for the employees.

• Perpetual existence

Professional corporations can continue its functions even if one of the employees dies. It can also function without shareholder’s interference.

• Limited liability of members

The shareholders in a professional corporation established in the USA have limited liability. They enjoy protection from all kinds of liability for debts incurred by the corporation.

What are the minimum requirements for Professional Corporations?

It is mandatory for individuals to follow all minimum requirements for the proper functioning of the corporation.

• Individuals who are a part of a professional corporation must hold licenses and permits in the field of their specialization.
• The state laws of the country must be understood before establishing a professional corporation.

How to establish a Professional Corporation?

The formation of a professional corporation involves steps that must be followed by individuals in a proper manner.

• Appointment of a registered and authorized agent

An agent is a professional who has knowledge of all aspects of professional corporations. Thus, it is advisable for individuals to appoint a professional individual. The agent undertakes crucial activities such as collection, documentation, and submission of important documentation to the concerned authority.

• Preparation of articles of incorporation

Articles of incorporation must be prepared in which the owners of the corporation must mention that they want to start a professional corporation. This document must also include the purpose of the corporation.

• Selection of company name

It is important to select a unique name for the corporation. The name of the company is required to end with "Professional Corporation" or "Service Corporation" or "Professional Association" or "professional service corporation. One of the responsibilities of an agent is to register the name availability search with the US trademark authority. He must file an application for name approval to the approval.

• Preparation of By-laws

we must be prepared as per guidelines mentioned by the state where the corporation is established. Bylaws consist of rules and regulations which are important in the functioning of the corporation. Therefore, rules must be mentioned in an efficient manner.

• Appointment of Board of Directors

The rules, with regards to the appointment of the board of directors, are different in every state. Thus, the appointment must be done according to the guidelines mentioned by the authority. The proposed directors must present all the documents required by the concerned authority.

• Holding board meetings

Meetings are crucial for any corporation. Similarly, board members in a professional corporation must ensure that meetings are held at regular durations.

• Issuance of corporate shares

The shares of the company are issued to the owners and shareholders. The contribution received is utilized in undertaking the initial operations of the corporation.

• Professional corporation compliances

Following certain compliances regarding Professional Corporation is important and thus must be taken into consideration by members of the corporation.

• Statement of information filing

A statement of information must be filed by the members of the corporation.

• Obtain tax permits and creation of a bank account

The corporation must be registered with the tax authority as it is mandatory. A corporation in USA must report taxes with the jurisdiction. Lastly, the corporation must create a bank account to accept USA payments.

Conclusion

The establishment of a professional corporation is different from traditional corporation establishments. The member of the company must take important aspects into consideration and follow steps accordingly.

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