Professional Corporation in USA
Professional Corporations are specific kind of corporations which allow professionals who belong to the same field to associate with each other for a particular purpose. These can be formed by professionals such as physicians, attorneys, accountants, etc. These corporations are owned and run by one or more members from the same field, and an entity can choose this structure to get certain benefits such as tax breaks.
Which professional can file under Professional Corporation Laws?
It is essential to check prescribed rules and guidelines before incorporating a Professional corporation in the USA, as every state in the USA has different state laws. Most of the states have strict criteria for professionals who can create a professional corporation in the USA. There is an only specific category of professional who can register Professional corporation in the USA, as mentioned below:
- Architects; etc
These professionals need specialized knowledge and extensive experience in a particular domain to start a corporation since the main intention behind incorporating a professional corporation in the USA is to provide professional services to individuals. By doing so, these professionals who acquire appropriate license can help workers to exchange ideas and expertise thereby enriching their knowledge.
How is Professional Corporation in the USA distinct from other corporations?
Professional corporations in the USA are way dissimilar to other corporations registered in the USA, such as Limited Liability Companies (LLCs) or partnership firms. There are below-mentioned variations as defined:
These corporations are taxed as like other corporations such as C Corp or Inc etc.
In Professional Corporation in the USA, even an individual professional can be held liable for violations of any rule as prescribed by law.
Further, a professional corporation in the USA has perpetual existence as, unlike a partnership firm, it continues to exist or persist even if any member or professional dies or leaves the company.
Professional corporation in the USA has individual liability unlike as Limited Liability Companies (LLCs).
What are the various advantages of Professional Corporation in the USA?
There are numerous advantages of Professional Corporation in the USA over other business entities such as LLC, proprietorship firms, or partnership firms as discussed below:
- Limited Liability of Professional Corporation in the USA: The owners of Professional Corporation in the USA bear limited liability as they are not personally liable for any business obligations, unlike LLCs or partnership firms. It means that in case Professional Corporation in the USA goes bankrupt, or there is an institution of any lawsuit against the corporation, owners do not have personal liability. However, in case of negligence or criminal act by owners themselves, no protection is given to them.
- Tax deduction saving: There is a comparatively lesser tax deduction in professional corporations in the USA than other corporations such as LLCs, partnership firms, etc. Like other business entities, professional corporations can also debit certain business expenses such as fringe privileges for employees, operating costs, equipment costs, etc. Taxes collected have comparatively much lesser value than the income earned.
- Retention of profit amount: The Government has given certain privileges to professional corporations in the USA w.r.t retention of a certain amount of profit generated from their overall income. This retention is given to improvise the condition of the corporation. After paying a certain amount of tax as prescribed by the state government, professional corporations in the USA are permitted to retain up to $150,000. This amount can be used by the professional corporation to invest in renovation activities, to buy appliances, for real estate investment, etc.
- Advantages for employees- Along with Professional Corporation, employees of the organization are also eligible to get perks for working with this entity. However, this benefit might not be available to you in case you are the sole owner of the organization and don’t have any employee engagement with the organization. Employees of the organization get many benefits, which include pension, health care benefit, welfare benefit, and much more.
- Division of income among family members: There is a provision of a division of income of Professional Corporation among its owners or even family member of the owner. Professional corporations in the USA get privilege in which owners can pay a dividend to their family members which are not available in any other type of corporation.
- Other benefits- There are many other perks or benefits which are available to professional corporations in the USA, such as dividend along with basic monthly salary.
What are the criteria to register a Professional Corporation in the USA?
As state laws vary with different states, so the procedure related to registration of the Professional Corporation in the USA also varies. But in order to incorporate Professional Corporation in USA, certain criteria need to be followed like:
Owners of professional corporation are required to get license in the same trade or profession;
For getting approval, owners are required to submit proof of license with authority;
Certain regulations w.r.t the industry can be applied to the company name;
Some states also provide guidelines w.r.t the entity name. For instance, to incorporate terms like PC or PLLC in the company name
You may also need to draft by-laws and submit with authority.
Procedure to form a Professional Corporation in the USA
The method of registration of Professional corporation in the USA is as mentioned below:
- Step-1: Appointment of a registered and authorized agent- The process of registration of Professional corporation in the USA is not so complicated and somehow similar for all states in the USA. However, only an authorized person or agent can start with registration of Professional corporation in the USA. So it is always advisable to appoint a qualified agent to initiate your Professional corporation in the USA. The respective agent is responsible for collection, documentation, and final submission of documents with the respective authority of the state.
- Step-2: Choosing the name of the corporation- The next step is to choose the name of an organization as per guidelines prescribed by the respective state. Corporation’s name needs to be unique and should not match with any preexisting corporation present in the state. You can appoint an agent as mentioned above to register Professional corporation in the USA. The agent’s work is to initiate with a name availability search with US trademark authority, and further to proceed with the name approval application before the authority. After name approval, the corporation can proceed further to register the name and logo of the corporation with a trademark authority.
- Step-3: Drafting of By-laws of the professional corporation in the USA- The next step is drafting of by-laws of the professional corporation as per prescribed guidelines given by respective state where the corporation is situated. Every Professional corporation in the USA is run by a set of rules and regulations called by-laws. It is not pertinent to submit these by-laws with respective authority while incorporating Professional corporation in the USA, however, as per the guidelines prescribed, every Professional corporation in the USA is required to draft the same and follow it efficiently. By-laws are the essence of a contract between a corporation and its owners. Specific guidelines are laid by by-laws, which help to run the business efficiently.
- Step-4: Appointment of Board of Directors: The agent is responsible for the collection and further submission of records of all the members, proposed directors or owners, or any other official of the company with the authority. But all the directors or officers in the corporation should be from the same field, and to prove the same, they need to submit their professional license with authority to conduct the licensed activity. Every state has different rules, w.r.t the number of directors. For instance, in California, every professional corporation needs to appoint directors, which should not be less than the total number of owners or shareholders in the corporation.
- Step-5: Conduction of board meetings- In few states in the USA, it is mandatory to conduct a board meeting once directors are appointed. To make an appointment of key managerial personnel and to implement by-laws, professional corporations in the USA hold this meeting.
- Step-6: Issuance of corporate shares: The next step is the issuance of shares of the company to its owners or shareholders in exchange for its shareholding contribution. This contribution is typically used by a company to run initial operations of the corporation and to meet initial expenses. Various guidelines as prescribed by states in regard to the issuance of these shares.
- Step-7: Once shares are issued, professional corporations in the USA are required to make certain compliances. For instance, in California state, professional corporations post-issuance of shares are required to file LEON, i.e., Limited Offering Exemption Notice, to check whether the corporation is eligible to be registered as a professional corporation in the USA or not.
- Step-8: Filing of statement of information- After filing of articles of incorporation, the professional corporation in the USA is required to register an account of data or information with the respective authority within the prescribed time.
- Step-9: Filing of necessary paperwork and documents with authority.
- Step-10: Getting of all the required licenses or permits as required by state
- Step-11: Getting of tax permits from the state- As state laws vary from state to state in the USA, so taxation rate also changes. It is essential to register the corporation with the state taxing authority and get all necessary tax permits. Further, a professional corporation in the USA needs to take and report taxes with the respective jurisdiction of the state after registration of a professional corporation in the USA.
- Step-12: Opening of a bank account: It is essential to open a USA based bank account to accept USA based payments. It is always advisable to take the assistance of an agent to open a bank account for a professional corporation in the USA.