Professional Corporations (PC)

Professional Corporations (PC)

A professional corporation (PC) is a corporate entity that is used for a narrow set of licensed professionals - such as lawyers, architects, engineers, accountants, and doctors.


Overview

Main Guide: Starting a Business.

A professional corporation (PC) is a corporate entity that is used for a narrow set of licensed professionals - such as lawyers, architects, engineers, accountants, and doctors. Professional corporations differ from traditional corporations because they do not afford their owners limited liability from professional negligence or malpractice claims. However, owners are not liable for the malpractice or negligence of other owners.

Most states require that all shareholders be actively involved in the business, and the PC must be formed solely to provide professional services.


Related Services


Taxes

Main Article:taxes

PCs are normally taxed at the maximum federal corporate income tax rate of 35%, unless the entity qualifies and elect for "S-Corporation" status. However, PCs still enjoy certain tax benefits that normal corporations do not. For example, a PC can purchase a certain amount of group term life insurance per employee and deduct the cost of premiums from their taxable income. PCs can also purchase health and accident insurance for it's employees and deduct the cost of those premiums its taxable income.


Pros & Cons of PC

Pros:

  • Corporate Tax Treatment.
  • Limited Liability. Shareholders are not responsible for business debts and actions of other professionals in the group.

Cons:

  • Money & Time. Corporations are costly and time-consuming to start & operate.
  • Double Taxation. Some corporations are taxed twice. First when the company turns a profit and second when shareholders pay personal income tax on the dividends.
  • Limitation on Scope of Business. Ordinary corporations can have "any lawful purpose." A professional corporation, by contrast, must limit its corporate purpose to the practice of the profession that its shareholders are licensed to perform.
  • Paperwork. Corporations are highly regulated by federal, state, and local agencies - which results in a lot of record-keeping and paperwork.