Information regarding Professional Corporations and professional corporate structures is provided in the following sub-sections:
In some states, professionals are permitted to create corporations under specific regulations, this enables licensed professionals to have the benefit of a corporation while meeting ethical requirements.
When created, only professionals can own shares of the corporation. The corporation can only provide one form of service, Such as, a professional corporation of lawyers who are also accountants can provide legal services but not accounting services.
There are many other aspects of Professional Corporations that should be considered before venturing into this form of structure. You should obtain the advice of an attorney or accountant when decided on starting a professional corporation for your business venture.
In a corporation, the shareholders and officers are free from personal liability. However, this is a problem for professional corporations. If the corporation is created in order to protect themselves of responsibility for their professional actions (malpractice).
The Professional Corporate structure does not enable professionals to remove personal liability from the result of their professional actions. However, it does enable other shareholders or directors to be protected from the actions of another.
There are some significant differences between professional corporations and common corporations. In most cases only members of the same profession can be shareholders of professional corporations. The officers and directors of a professional corporation must generally be shareholders of the corporation as well. The professional corporation is generally subject to the investigative and regulatory powers of the regulatory body governing the profession. Professional corporate structures will not protect a professional against personal liability for negligence.
The services provided by Professional Corporations are generally restricted to the practice of the profession. As an employee of a professional corporation, you can access certain types of employee benefits that would otherwise not be available if you were a sole proprietor or a partner in a partnership including the ability to choose to receive a combination of salary and dividends.
Perhaps the most significant advantage of using a PC is the ability to defer taxes. Professional income earned through a corporation is taxed at two levels - once at the corporate level and then again at the shareholder level when the profits are distributed to you as dividend income. Since income at the corporate level is taxed at a lower rate than your personal income, a tax deferral opportunity exists when the income is taxed in the corporation and is not distributed to the shareholder.
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