# Professional Corporation in the USA: Ownership of Licensed Practice

> Professional corporations in the USA: PC, PLLC, PA, RLLP, and design professional corporation. Three admission tests, ownership rules (49% in California, 75% in New York).

Author: Alena Dunaeva — Lawyer, Family Office (https://wiki.private.law/en/authors/dunaeva)
Last modified: 2026-08-19T07:34:00.000Z
Canonical: https://wiki.private.law/en/professional-corporation-pc
Topics: structures
Jurisdictions: usa
Product tags: company, compliance
Semantic tags: company, compliance

---

A professional corporation in the USA is a family of state-level organizational-legal forms through which a licensed profession operates as a business: professional corporation \(PC\), professional service corporation, professional limited liability company \(PLLC\), professional association \(PA\), registered limited liability partnership \(RLLP\), design professional corporation \(DPC\). Such a company typically has two registrations: the form is registered by the state's secretary of state, and the right to provide the regulated service is issued by the relevant board—in the form of a firm registration, facility licence, certificate of authority, or fictitious-name permit.

There is no federal professional corporation in the USA. Each state decides which profession is permitted to use which form, who may own shares, and who is personally responsible for the work. California, for example, prohibits LLCs from providing professional services in principle—[Corporations Code §17701.04\(e\)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP&sectionNum=17701.04) explicitly states that nothing in this title permits a domestic or foreign LLC to provide professional services, so California practice operates through a professional corporation, and a neighboring state's PLLC is useless here. The name of the form also says nothing about the tax regime and does not describe the platform around the practice: how an investor and management enter a regulated industry is covered in the article on [management services organization for regulated practice](https://wiki.private.law/en/management-services-organization-mso).

This page follows the sequence of decisions: three admission tests that are checked before choosing a form; the forms themselves and ownership rules; the figure of the responsible professional; industry-specific regimes from medicine to pharmacy; tax status; transfer of shares, transactions, and financing. At the end—typical failures, scenarios, and the most frequently asked questions.

## Three Admission Tests

The "corporation or LLC" dispute is decided last. Before that, three independent checks are performed, and failure of any one makes the structure unsuitable regardless of the outcome of the other two.

| Test | What is examined | Typical failure |
| --- | --- | --- |
| Company's right to provide the service | Statutory purpose, permitted profession or combination of professions, name with professional designation, certificate of authority, foreign qualification, firm registration, premises and branches | Company is legally created under state corporate law but has no right to offer the stated service: form is covered, admission is not |
| Ownership and governance | Share of licensed owners, permitted related professions, composition of directors, managers, and officers, voting rights versus economic rights, options, convertible debt, creditor covenants | Shares formally belong to a licensed person, but the deciding voice actually belongs to an external investor through an option, budget veto, or management agreement |
| Responsible professional | Who is personally responsible for work, supervision, records, premises, seals, prescriptions, and client funds; how much time, information, and authority they have | Appointed professional exists in the registry and has no access to systems, budget, or authority to stop work |

Sometimes all three questions are answered by a single professional corporation: licensed physicians own it, manage it, and practice medicine in it. Sometimes an ordinary corporation owns a licensed facility—a pharmacy, clinic, veterinary clinic—but is required to appoint a pharmacist-in-charge or other responsible professional with their own authority. In construction, the license belongs to the company, but each classification requires a living qualifier. Therefore, "professional company" is an analytical category: it unites regimes that differ in structure, and no state issues a document with that name.

## Forms of Professional Companies

| Form | What it is | What cannot be assumed |
| --- | --- | --- |
| Professional Corporation, Professional Service Corporation | A corporation specifically permitted for one profession or an allowed combination of professions; the most common form, the only one possible in states without PLLC | That a PC from one state is recognized by another or is suitable for any profession within its own state |
| Professional Limited Liability Company | An LLC with professional restrictions on ownership and management; convenient for flexible profit distribution and check-the-box classification | That the state permits PLLC at all: California closes this route for all licensed professions |
| Professional Association | An independent statutory form, common among medical and dental practices in Texas, Florida, New Jersey | That PA is equivalent to PC in ownership, management, and taxation rules |
| Registered LLP, Professional LLP | A partnership form with limited liability and professional conditions; typical for large law and audit firms | That limited liability covers a partner's own malpractice |
| Design Professional Corporation | A special New York form with mixed ownership for architecture, engineering, landscape architecture, surveying, and geology | That the permitted share of unlicensed owners is the same in other states |
| Alternative Business Structure | A licensed legal organization with permitted participation of unlicensed owners; operates in Arizona in the USA | That an ordinary law corporation becomes an ABS automatically or by contract |
| Ordinary corporation or LLC plus facility license | A general form owns the business, and regulation is attached to the premises, firm registration, or responsible person; this is how pharmacies and construction contractors are structured | That corporate ownership gives the right to give professional instructions |

The name of the form does not determine the result. The same abbreviation PLLC in two states can mean a different list of permitted professions and a different circle of permitted owners. Conversely, the same operational model in different states is implemented through PC, PA, partnership, or licensed facility. The name itself is checked separately: a professional company must carry a professional designation in its name, and operating under a brand different from the corporate name requires permission—in California, a medical practice obtains a [fictitious name permit](https://www.mbc.ca.gov/Licensing/Fictitious-Name-Permit/) from the Medical Board, without which the sign and website violate advertising rules.

## Ownership and Management

Strict regimes require that 100% of shares belong to persons with the required license. Relaxations exist, but are always described in law by a specific number. A California medical corporation may admit psychologists, registered nurses, optometrists, marriage and family therapists, clinical social workers, physician assistants, chiropractors, acupuncturists, naturopaths, clinical counselors, physical therapists, pharmacists, midwives, and occupational therapists as co-owners—but [Corporations Code §13401.5](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP&sectionNum=13401.5) limits their aggregate share to 49 percent and requires that the number of such co-owners not exceed the number of persons with the primary license. A New York design professional corporation operates on symmetrical logic with a different number: [Business Corporation Law §1503 as amended by NYSED](https://www.op.nysed.gov/advisory-notice-statutory-amendments-design-professional-service-corporations-dpc) requires that more than 75% of shares, more than 75% of directors, and more than 75% of officers remain with design professionals, and that the president, chairman, and chief executive officer be licensed professionals; the remaining up to 25% is available to employees without a license.

| Ownership model | Where it is found | What holds the structure |
| --- | --- | --- |
| Only licensed owners | Medicine and dentistry in states with strict corporate practice doctrine, law firms in Model Rule 5.4 jurisdictions | Restrictions on transfer of shares, buyback mechanism upon death and loss of license, professional composition of the board |
| Licensed majority and permitted minority | Multidisciplinary medical corporations in California, design DPCs in New York | Checking percentages and number of owners after each issuance, securing key positions, controlling dilution |
| Approved external ownership | Arizona ABS and regimes where the regulator approves the owner by fit & proper criteria | Owner approval, appointment of compliance lawyer, ongoing notifications to regulator of changes |
| Ordinary corporate owner and responsible professional | Pharmacies, construction contractors, veterinary premises, diagnostic centers | Facility license, appointment of PIC or qualifier, real authority of this person over operations |
| Professional company alongside investor platform | Professions with prohibition of external ownership, where capital enters through a service company | Services agreement, list of reserved decisions, limitation on size and structure of management fee, working exit |

Legal title and actual control are read separately. A call option to buy shares at par, an irrevocable voting proxy, budget veto right, creditor covenant on hiring approval, or a perpetual management agreement with a prohibitive termination fee give an external party power that the law did not grant them—with a formally impeccable shareholder registry.

> ⚠️ **The regulator reads authority, information, and economics; the shareholder registry is not enough.** The Medical Board of California includes in the [zone of physician control](https://www.mbc.ca.gov/Licensees/Corporate_Practice.aspx) not only diagnosis, treatment, and referrals, but also medical records, hiring and firing of clinical staff, parameters of contracts with payers, coding and billing, physician workload, and equipment selection. Each of these levers is formally economic, and it is through them that a contract is requalified as prohibited management of practice.

## Responsible Professional

Even where an ordinary corporation has the right to own the business, the law usually appoints a natural person who is personally responsible to the regulator. This figure has different names and different content, but one common feature: they must have time, information, access, and authority to fulfill the role established by law.

| Industry | Who is responsible | What the law actually requires |
| --- | --- | --- |
| Medicine | Medical director, licensed directors and officers | Control of clinical hiring, protocols, quality, incidents, and records; budget sufficient to fulfill these duties |
| Pharmacy | Pharmacist-in-charge | Daily management of drug dispensing, controlled substances, inventory, counseling, and records; change of PIC requires separate notification |
| Construction | Responsible Managing Officer, Member, Manager, or Employee | Real participation in operations: [CSLB rule](https://web.cslb.ca.gov/Resources/LawsAndRegulations/2022/CCR823FinalApprovedLanguage.pdf) requires RME to be employed full-time for at least 32 hours per week or 80% of the company's working hours—*whichever is less*—and direct supervision of quality of work |
| Design | Architect or engineer in responsible charge | Personal project management, signature and seal, control of delegated design and subcontracting |
| Audit | Signing CPA, engagement partner | Acceptance and termination of engagement, planning, evidence, quality control and independence |
| Legal services | Supervising partner, in Arizona—ABS compliance lawyer | Supervision of legal work, conflicts, client accounts, privilege, interaction with disciplinary body |

The CSLB rule is a rare case where the law directly quantified the boundary between real and nominal presence, and the threshold is floating: with a 40-hour company week it equals 32 hours, with a 30-hour week—24 hours, since the lesser of the two is taken. In other industries, the same idea is expressed qualitatively but checked identically: through calendar, correspondence, system access rights, and decision protocols.

## Industry Map

| Profession | Typical form | Who is professionally responsible | Main structural risk |
| --- | --- | --- | --- |
| Medicine and dentistry | Medical or dental corporation, PA, PLLC—according to state rules | Licensed owners, directors, and clinicians; sometimes payer approvals and facility license | Ownership by unlicensed person or actual clinical control from outside |
| Legal services | PC, PLLC, partnership, licensed ABS where it exists | Attorney-owners, supervision under ethical rules, client funds and conflicts | Fee splitting with unlicensed person, loss of privilege, pressure on professional judgment |
| Audit and accounting | CPA firm in form of PC, PLLC, or partnership; often attest firm separate from non-audit company | CPA owners and signing professionals; independence and quality management | Investor economics or common operations undermine independence |
| Architecture and engineering | PC, PLLC, RLLP, DPC, or registered design firm | Licensed owners and persons in responsible charge | Impermissible form, use of seal without actual project management |
| Construction | Licensed corporation, LLC, partnership, or individual contractor | Qualifier for each classification and actual supervision of work | Departure of qualifier, license suspension, liability at project level |
| Pharmacy | Licensed facility owned by permitted person or company | Pharmacist-in-charge and licensed pharmacy staff | Corporate policy overrides PIC authority over dispensing and compliance |
| Veterinary medicine | Veterinary corporation or other permitted practice plus premises registration | Licensed veterinarians and professional supervision | Ownership, prescriptions, records, and premises duties diverge among different persons |
| Investment advisory | Corporation, LLC, or partnership with registered or exempt adviser status | CCO, investment adviser representatives, fiduciary procedures | Service company becomes actual adviser or one registration is used by entire group |

### Medicine: Company Ownership and Physician Control

California provides the strictest version of the corporate practice of medicine doctrine. The Medical Board's logic is that an artificial entity does not possess professional rights, and a person without a license cannot influence medical judgment. Hence the practical conclusion: a medical corporation that only holds a provider number does not comply with the requirement. A working structure includes:

- permitted shareholders, licensed directors and officers;
- real physician management and the practice's own budget;
- contracts with patients in the name of the practice itself;
- credentialing and clinical supervision;
- storage of medical records and access control;
- quality procedures and complaint handling;
- professional liability insurance.
The investor platform can provide premises, technology, non-clinical staff, finance, and billing support. The distribution of functions between practice and platform is detailed in the article on [management services organization for regulated practice](https://wiki.private.law/en/management-services-organization-mso), and the application of the same model in consolidation transactions—in the material on AI roll-up.

The form is not portable. A California professional medical corporation, a New York professional service corporation, and a medical PLLC from a third state are three different legal products. Foreign qualification of an ordinary corporation does not fix prohibited ownership, incorrect professional purpose, unlicensed directors, absence of regulator consent, impermissible name, or unregistered facility. Practice in several states is usually built as a "profession × state" matrix with a separate local company in each cell under a common operating platform.

### Legal Services: Model Rule 5.4 and Arizona ABS

In most American jurisdictions, ABA Model Rule 5.4 applies: a lawyer does not share fees with an unlicensed person, does not create a partnership with them to provide legal services, and does not permit external management of professional judgment. Therefore, a legal PC or PLLC requires attorney ownership and management according to the rules of the specific state.

Arizona took a different path. As of January 1, 2021, the state repealed its ER 5.4 rule and introduced licensing of [Alternative Business Structure](https://www.azcourts.gov/accesstolegalservices/Questions-and-Answers/abs)—an organization in which persons without a law license have an economic interest or decision-making authority. An ABS is licensed by the state Supreme Court under Rule 31.1 and [ACJA §7-209](https://www.azcourts.gov/cld/Alternative-Business-Structure/Resources), must appoint a compliance lawyer responsible for rule compliance, and must disclose in the application the practice areas, attorney-owners, beneficial owners with 25% or more, contributions, and identities of unlicensed investors. This is an independent licensing route that cannot be replicated by contract to an ordinary PLLC in another state.

Designing a legal group separately answers the questions of who acts as the client-facing firm, who signs the engagement letter, where conflict checks are conducted, who stores privileged files, where client accounts are located, how fees and referral compensation are distributed, who supervises legal work, and what of this is visible to a platform employee without attorney status. The standard set of documents for such a group is covered in [corporate documents](https://wiki.private.law/en/corporate-documents).

### Audit: Attest Firm and Alternative Practice Structure

CPA firm rules combine state ownership requirements, individual licenses, the right to attest work, and independence. External capital enters through an alternative practice structure: investments go to a non-audit company, while the attest practice remains in a separate professional firm and receives administrative services under a comprehensive agreement. The PCAOB maintains a special interpretation on the impact of such structures on independence in ET Section 101.

Legal separation alone does not create independence. Six groups of decisions are subject to review.

| Decision group | What is examined |
| --- | --- |
| Engagements | Acceptance and termination of engagements, audit planning, work with evidence |
| Personnel | Hiring, promotion, and discipline of auditors |
| Economics | Investor compensation and return, debt and guarantees |
| Brand and clients | Use of brand and client data, cross-selling of non-audit services |
| Documents | Access to working papers and inspection materials |
| Quality control | Right to terminate relationship with client, quality management system |

The gap between legal scheme and operational reality here costs more than in most other professions: it calls into question all issued audit opinions.

### Design and Construction

Design professions often require both a professional form and firm registration. A New York DPC demonstrates two principles at once: external ownership is possible only because the law specifically permitted it with a specific percentage, and permitted minority economics do not cancel professional management and responsible charge. In other states, a design bureau can operate as an ordinary corporation with a firm permit or as a strictly professional PC or PLLC. The following are subject to review:

- list of professions in the charter purpose;
- firm certificate in each state of work performance;
- appointed responsible architect or engineer;
- procedure for applying seals and signatures;
- delegated design and subcontracting;
- branches and additional offices;
- fate of ownership after transaction;
- storage of design records.
Construction is structured differently. The company receives the license, but each classification is qualified by a specific person: California CSLB distinguishes Responsible Managing Officer, Member, Manager, and Employee, and a quantitative employment threshold is set for RME. For a group, this means that the license does not automatically follow the sale of assets, a change in organizational-legal form may require a new application, departure of a qualifier requires timely replacement, the classification matrix must match actual projects, and a central estimating department does not replace on-site supervision.

### Pharmacy and Veterinary Medicine

The pharmacy regime is built on a facility license. The California Board of Pharmacy permits a pharmacy license for a natural person, partnership, corporation, LLC, trust, and other listed owners, but each pharmacy must have a [pharmacist-in-charge](https://www.pharmacy.ca.gov/applicants/phy.shtml) responsible for daily operations. The structure fundamentally differs from a medical corporation: corporate ownership is permitted here, the premises itself is licensed, and the PIC and staff bear personal professional duties. Change of owner, address, or PIC requires separate filings. A retail or online platform has the right to centralize procurement, logistics, customer support, and IT, but has no right to deprive the PIC of authority over drug dispensing, shift staffing, and records.

Veterinary medicine combines several regulated subjects at once:

- ownership of a professional company and individual veterinarian licenses;
- clinic premises registration;
- veterinarian-client-patient relationship;
- prescription writing and handling of controlled substances;
- maintenance of medical records;
- delegation to technicians and assistants;
- emergency care and continuity of treatment obligations.
A group can buy non-special assets and a brand, but the local practice must remain a real licensed operator with its own succession plan in case of loss of owner's license, shortage of veterinarians, or revocation of premises permit.

## Tax Status

State form and tax regime are chosen independently. A professional corporation is taxed as a C corporation by default, can elect S corporation status if it meets requirements for number and type of shareholders; a PLLC uses general check-the-box rules. Hence the most common terminology error: PC is a state form, S corporation is a federal tax status, and one does not replace the other.

The actual tax consequences of professional status come down to three rules. [IRC §448\(d\)\(2\)](https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section448&num=0&edition=prelim) defines a qualified personal service corporation through two tests: services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and ownership of substantially all stock by employees performing these services, former employees, their heirs, and their estates. Such a corporation retains the right to the cash method of accounting regardless of revenue.

There has been no separate higher rate for personal service corporations since 2018: [IRC §11](https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section11&num=0&edition=prelim) after the 2017 tax reform establishes a uniform corporate tax rate of 21% and does not single out professional corporations. The flat 35% that used to scare professional practices was abolished along with the old corporate bracket.

The third rule works against professions. [IRC §199A](https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section199A&num=0&edition=prelim) gives owners of pass-through structures a deduction of up to 20% of qualified income, but classifies health care, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage as specified service trades / businesses \(SSTB\), for which the deduction is phased out when the taxable income threshold is exceeded. The threshold is indexed annually: for 2025, [Rev. Proc. 2024-40, §2.27](https://www.irs.gov/pub/irs-drop/rp-24-40.pdf) sets $197,300 for a single return and $394,600 for a joint return. Architecture and engineering are explicitly excluded from the SSTB list and retain the deduction. For tax periods beginning after December 31, 2025, [H.R. 1, P.L. 119-21](https://www.congress.gov/bill/119th-congress/house-bill/1/text) expanded the phase-out range from $50,000 to $75,000 for a single return and from $100,000 to $150,000 for a joint return, which softens the cliff in the middle income zone.

## Transfer of Shares, Death, and Loss of License

Shares in a professional company do not trade like ordinary stock. An event that in an ordinary corporation generates a dispute about price, here generates a question about the legality of ownership itself.

| Event | What happens to the share | What should be in documents in advance |
| --- | --- | --- |
| Death of owner | Heir without license usually cannot remain a shareholder; law gives limited time for buyback | Automatic buyback, price formula, payment term, life insurance to secure buyback obligation |
| Suspension or revocation of license | Owner loses right to share and, as a rule, voting rights immediately | Basis for automatic disqualification, temporary voting, time to restore compliance |
| Divorce or bankruptcy of owner | Share risks passing to a person who has no right to own it | Prohibition on transfer to unqualified person, company's buyback right, spousal consent |
| Sale of share to third party | Buyer must meet professional criteria, sometimes board consent required | List of permitted acquirers, right of first refusal, obligation to notify regulator |
| Departure of responsible professional | Company license or individual classification may be suspended | Time and procedure for replacement, backup candidate, regulator notification, plan for period without qualifier |
| Inability to restore compliance | Company is subject to liquidation or loses professional status | Liquidation procedure, transfer of clients and records, fate of unfinished engagements |

A buy-sell agreement, trust, power of attorney, or option that is impeccable in one profession creates prohibited control in another. Particularly sensitive is a unilateral call option by the platform on professional shares: the right to buy a share at any time at a fixed price is economically equivalent to ownership, and the regulator reads it exactly that way.

## Transactions and Financing

### Purchase of Shares

The buyer checks whether they themselves have the right to become an owner, whether approval of indirect owners is required, and whether the target company retains a valid form. Change of control can trigger regulator consent, notification, re-registration with payers, client consent, or loss of professional status. In medicine, notification of a transaction in a number of states is filed in advance and covers, among other things, contracts with a management organization.

### Purchase of Assets

Assets do not carry licenses. Each element is transferred or created anew by a separate procedure:

- **Permits**—firm registration, facility license, accreditations.
- **Contracts**—professional contracts, relationships with payers and panels, lease and equipment.
- **People**—employment relationships with responsible professionals.
- **Intangibles**—trade names, client and professional records.
- **Risk**—professional liability insurance policies and loss history.
A construction license does not transfer at all in an asset sale—the buyer needs their own application with their own qualifier.

### Purchase of Platform Only

Acquisition of a service company can shift actual control over the practice or create a reportable affiliation. After such a transaction, the professional company's contracts, ownership succession mechanism, and degree of economic dependence on the platform are re-examined.

> ⚠️ **A creditor does not receive ordinary means of protection through a pledge of professional shares.** Foreclosure will transfer the share to a person without a license, which is prohibited, so the pledge is either unenforceable or requires regulator approval and a pre-selected permitted acquirer. Debt is usually placed above or alongside the practice, but even then upstream cash flows and guarantees must leave the licensed company solvent and staffed.

## Technology and Professional Responsibility

A professional company has the right to license software and use a group AI platform. Responsibility remains with it, so decisions about using the model are made by it.

| Decision subject | What the professional company establishes |
| --- | --- |
| Use scenarios | List of permitted scenarios and professional owner of each |
| Data | Boundary of confidential data, vendor's rights to train models, retention periods |
| Result quality | Required scope of result verification, competence threshold and acceptable error |
| Decision management | Mechanism to override model decision and escalate to human |
| Records and disclosure | Composition of retained records, disclosure to client, incident response procedure |
| Third-party access | Conditions of vendor access and regulator access |

The model does not sign a document, does not affix a seal, does not write a prescription, does not make a diagnosis, does not certify an audit opinion, does not give final legal advice, and does not assume responsible charge just because its output passed through a licensed company. The professional company must be able to explain its own decision and support it with records—this requirement existed before the advent of generative models and has not changed with them.

## Typical Mistakes

| Mistake | Why it doesn't work |
| --- | --- |
| PC is understood as a tax choice | State form is confused with S corporation status. A professional corporation can be both C and S corporation, and the tax choice says nothing about the right to provide the service. Result—a company with a correct tax return and no admission to practice |
| Form is chosen before analyzing profession and state | LLC is registered first, then it turns out the state does not permit it for the profession. In California this is a dead end by law, and the practice starts over through a professional corporation, losing months and already concluded contracts |
| Foreign qualification is considered sufficient | Registration of a foreign company in a new state confirms the existence of a legal entity and says nothing about professional admission. The destination state can reject the form, name, and composition of owners, and work before eliminating these defects constitutes unlawful practice |
| Only the shareholder registry is examined | Control arises through options, convertible debt, budget veto, creditor covenants, and rights in information systems. The totality of such rights requalifies the structure even when all shares are recorded to a licensed person |
| Responsible professional is appointed nominally | Person is listed as PIC, medical director, or qualifier but has no time, system access, or authority to stop work. For California RME this is checked arithmetically—at least 32 hours per week or 80% of company working hours, whichever is less—and the discrepancy is discovered at the first inspection |
| Facility license is confused with company admission | Permit for pharmacy, clinic, veterinary premises, and design firm registration are independent acts with separate conditions and terms. Presence of one does not replace the other, and expiration of any stops operations entirely |
| All assets are held in the platform | Records, phone numbers, domains, access, and client relationships belong to the service company. In a dispute, the practice can neither work nor exit, which the regulator reads as lack of independence and the buyer—as lack of business |
| Restrictions on share transfer are not specified | Death, divorce, bankruptcy, or license revocation transfer the share to an unqualified holder. Company finds itself in a state of prohibited ownership without a buyback mechanism and is forced to negotiate price under threat of loss of status |
| Pledge permits impermissible foreclosure | Creditor's remedy cannot be executed: transfer of a professional share to a person without a license is prohibited. Security looks executed and has no practical value, and an attempt to realize it creates a violation |
| One company is used nationwide | Professional forms and registrations are tied to the state, including name, composition of owners, and appointment of responsible persons. A single national company creates unlawful practice in every state where there is no own admission |
| Transaction is closed before obtaining approvals | Change of control without prior notification or regulator consent entails sanctions and can interrupt client service. Buyer receives a structure that will have to be unwound and is liable for the period when admission was absent |

## Scenarios

### Clinic in California with External Investor

Practice is conducted through a professional medical corporation with a physician-owner; psychologists and physical therapists are admitted to capital within 49 percent and with a number limitation. The investor owns the platform, which holds premises, non-clinical staff, billing, and technology.

**Key risk:** requalification under the corporate practice of medicine doctrine through control over records, contracts with payers, and physician workload.

### Design Bureau in New York

An architecture-engineering firm operates as a design professional corporation: more than 75 percent of shares, directors, and officers are licensed design professionals, the remaining share is distributed among employees without a license and an employee stock ownership plan \(ESOP\), president and CEO are licensed.

**Key risk:** dilution in a new issuance or partner departure drops the professional share below the threshold and deprives the company of the right to operate.

### Construction Roll-up

The group buys contractors directly, licenses remain with the acquired companies, each classification is assigned to a specific qualifier. Estimating, procurement, fleet, and finance are centralized.

**Key risk:** departure of RME or their formal employment stops the license, and purchase of assets instead of shares zeros out the admission and requires a new application.

## Q/A

### **How does a professional corporation differ from an ordinary corporation?**

By charter purpose, circle of permitted owners, and composition of governing bodies. An ordinary corporation has the right to engage in any lawful activity, a professional one—only in the stated profession or permitted combination of professions, and its shareholders, directors, and officers must meet license requirements. In addition to registration with the secretary of state, it receives admission from the relevant board.

### **Can a PLLC be created in any state?**

No. California prohibits LLCs from providing professional services in principle, so only a professional corporation is available there. Other states permit PLLCs, but each with its own list of professions: a form permitted for engineers may be closed for physicians in the same state.

### **Can an investor without a license own a share in a professional company?**

Only where the law explicitly permitted it and named a number. A New York DPC leaves up to 25 percent to employees without a license, a California medical corporation permits up to 49 percent to listed allied professions, Arizona ABS licenses external ownership by a separate procedure. In all other cases, capital enters through a service company alongside the practice.

### **Does the PC form protect against professional negligence lawsuits?**

It never protects against one's own negligence. Limited liability shields the owner from company debts and from colleagues' errors, but the professional is personally liable for work they performed or supervised. That is why professional liability insurance is mandatory both under board rules and by common sense.

### What happens to the share if the owner loses their license?

As a rule, they immediately cease to be a permitted holder, and the company receives a limited time by law to buy back the share or restore compliance. If the buyback mechanism is not described in advance, the parties are forced to agree on price under threat of loss of professional status of the entire company.

### **Is a separate company needed in each state?**

Usually yes, when the state requires a professional form. Foreign qualification solves the question of legal entity presence and does not solve the question of professional admission: name, composition of owners, and firm registration are checked under the law of the state of performance. Practice in several states is built as a matrix of local professional companies under a common platform.

### **Are PC and S corporation the same thing?**

No, these are different things from different areas of law. PC is a state form that determines who can own the company and what service it has the right to provide. S corporation is a federal tax status that a professional corporation can elect if it meets shareholder requirements. The same company can be both PC and S corporation simultaneously.

> 🍓 A professional corporation in the USA exists only at the state level and breaks down into three independent questions: does the form have the right to provide the service, are the owners and governing bodies permitted, is there a real responsible professional. Numbers are set by the law of the specific state: Corporations Code §13401.5 in California limits allied professions to 49 percent in a medical corporation, §17701.04\(e\) closes the LLC form for professions entirely, New York BCL §1503 requires more than 75 percent of shares, directors, and officers to be design professionals, CSLB regulation measures the reality of a qualifier by the lesser of two values—32 hours per week or 80% of company working hours. Arizona since January 1, 2021 licenses external ownership of a law firm through ABS, the pharmacy regime is built around pharmacist-in-charge, the audit regime—around separation of the attest firm. Taxes live separately: IRC §448\(d\)\(2\) gives the cash method, §11 since 2018 taxes all corporations at 21 percent, §199A classifies most professions as specified service trades / businesses \(SSTB\) and phases out the deduction above the threshold of $197,300 and $394,600 for 2025 values, leaving architecture and engineering in the exceptions.

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## FAQ

### How does a professional corporation differ from an ordinary corporation?

By charter purpose, circle of permitted owners, and composition of governing bodies. An ordinary corporation has the right to engage in any lawful activity, a professional one—only in the stated profession or permitted combination of professions, and its shareholders, directors, and officers must meet license requirements. In addition to registration with the secretary of state, it receives admission from the relevant board.

### Can a PLLC be created in any state?

No. California prohibits LLCs from providing professional services in principle, so only a professional corporation is available there. Other states permit PLLCs, but each with its own list of professions: a form permitted for engineers may be closed for physicians in the same state.

### Can an investor without a license own a share in a professional company?

Only where the law explicitly permitted it and named a number. A New York DPC leaves up to 25 percent to employees without a license, a California medical corporation permits up to 49 percent to listed allied professions, Arizona ABS licenses external ownership by a separate procedure. In all other cases, capital enters through a service company alongside the practice.

### Does the PC form protect against professional negligence lawsuits?

It never protects against one's own negligence. Limited liability shields the owner from company debts and from colleagues' errors, but the professional is personally liable for work they performed or supervised. That is why professional liability insurance is mandatory both under board rules and by common sense.

### What happens to the share if the owner loses their license?

As a rule, they immediately cease to be a permitted holder, and the company receives a limited time by law to buy back the share or restore compliance. If the buyback mechanism is not described in advance, the parties are forced to agree on price under threat of loss of professional status of the entire company.

### Is a separate company needed in each state?

Usually yes, when the state requires a professional form. Foreign qualification solves the question of legal entity presence and does not solve the question of professional admission: name, composition of owners, and firm registration are checked under the law of the state of performance. Practice in several states is built as a matrix of local professional companies under a common platform.

### Are PC and S corporation the same thing?

No, these are different things from different areas of law. PC is a state form that determines who can own the company and what service it has the right to provide. S corporation is a federal tax status that a professional corporation can elect if it meets shareholder requirements. The same company can be both PC and S corporation simultaneously.
🍓 A professional corporation in the USA exists only at the state level and breaks down into three independent questions: does the form have the right to provide the service, are the owners and governing bodies permitted, is there a real responsible professional. Numbers are set by the law of the specific state: Corporations Code §13401.5 in California limits allied professions to 49 percent in a medical corporation, §17701.04(e) closes the LLC form for professions entirely, New York BCL §1503 requires more than 75 percent of shares, directors, and officers to be design professionals, CSLB regulation measures the reality of a qualifier by the lesser of two values—32 hours per week or 80% of company working hours. Arizona since January 1, 2021 licenses external ownership of a law firm through ABS, the pharmacy regime is built around pharmacist-in-charge, the audit regime—around separation of the attest firm. Taxes live separately: IRC §448(d)(2) gives the cash method, §11 since 2018 taxes all corporations at 21 percent, §199A classifies most professions as specified service trades / businesses (SSTB) and phases out the deduction above the threshold of $197,300 and $394,600 for 2025 values, leaving architecture and engineering in the exceptions.

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## Factual claims

- Strict regimes require that 100% of shares belong to persons with the required license.
- Even where an ordinary corporation has the right to own the business, the law usually appoints a natural person who is personally responsible to the regulator.
- There has been no separate higher rate for personal service corporations since 2018: IRC §11 after the 2017 tax reform establishes a uniform corporate tax rate of 21% and does not single out professional corporations.
- Practice is conducted through a professional medical corporation with a physician-owner; psychologists and physical therapists are admitted to capital within 49 percent and with a number limitation.