There is a fairly wide range of business entity options from which you can choose from when starting a new business. Depending on the type of business you are planning for and who will be owning and operating the business, there may be further options still. A professional corporation, for instance, may be an option for some. Let’s take a closer look here at what a professional corporation entails.
What is a Professional Corporation?
Essentially, a professional corporation is a corporation that is both owned and operated by licensed professionals. Licensed professionals often include doctors, lawyers, and certified public accountants, among other occupations requiring licensure. This is one of the biggest defining characteristics of the professional corporation.
The running of a professional corporation and its formation requirements are much the same as those of a regular, non-professional corporation. Yes, the directors and officers of a professional corporation must all be licensed professionals, but it is still a type of corporation and this means that it offers liability protection for owners. It is important to note, however, that the licensed professional owners may enjoy this shield from liability afforded by the corporate structure, the corporate structure will not shield the owners from malpractice liability.
Should you choose to form a business with others of the same profession requiring licensure, you may decide to choose a professional corporation structure. All of your fellow co-owners must be certified or licensed in the same profession and in the same state in which you are trying to incorporation. In order to form a professional corporation, you will need to file a certificate of formation with the Texas Secretary of State. This can be done through SOSDirect. The certificate of formation will detail both the management structure of the business as well as the professional service that it will offer.
You should also decide whether or not you wish the professional corporation to be an S corporation. Being structured as an S corporation can avoid double taxation. Double taxation occurs when a business owner is taxed on both business income and personal income generated from the corporation.
Those looking to form a professional corporation should be aware of some of the unique tax issues that can be faced in structuring a business this way. For instance, federal tax law can be difficult for professional corporations. The IRS dubs some professional corporations to be “personal services corporations.” If this is the case, then the corporation will be taxed differently, at a flat rate of 35%. This is less favorable tax treatment than other corporations generally experience as they are most often taxed at graduated tax rates. For some, the possibility of having to deal with this kind of tax problem is enough to avoid forming a professional corporation altogether.
Austin Business Law Attorney
A professional corporation structure may or may not be right for your business. The Kumar Law Firm can give you all of the information and provide trusted business law counsel to help you select the best business structure to suit the needs of your entrepreneurial endeavor. We want to see you and your business succeed. Contact us today.