Doctors, lawyers, accountants, therapists — California does not let licensed professionals pick any entity off the shelf. If your services require a professional license, the LLC most founders reach for is probably off the table, and the entity you can use comes with its own statute, naming rules, and ownership restrictions. Here is who must form a professional corporation, and what the rules actually require.
The framework: Moscone-Knox
Professional corporations are governed by the Moscone-Knox Professional Corporation Act, Corporations Code § 13400 et seq., layered on top of the general corporation law. Under § 13401, "professional services" are services that lawfully may be rendered only under a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act. A professional corporation is a corporation formed to render those services — and it may render them only through licensed persons. Each profession's own licensing statute then adds specifics: what the corporation must be named, who may own shares, and whether registration with the licensing agency is required (law corporations, for example, must register with the State Bar).
Why not an LLC?
California's LLC statute is blunt: an LLC may not render professional services. The Revised Uniform Limited Liability Company Act carries forward that prohibition, so covered professionals cannot practice through a California LLC even though colleagues in other states use PLLCs — a structure California does not offer. The practical menu for a California professional practice is therefore: sole proprietorship, general partnership, a registered limited liability partnership (available only to lawyers, accountants, architects, engineers, and land surveyors), or a professional corporation. For a solo or small group practice that wants an entity, the professional corporation is usually the vehicle.
Who is covered
The requirement follows the license, not the industry label. Professions that practice through professional corporations in California include, among others:
- Physicians, surgeons, dentists, optometrists, pharmacists, veterinarians, and podiatrists;
- Lawyers (law corporations, registered with the State Bar);
- Accountants (accountancy corporations);
- Psychologists, marriage and family therapists, clinical social workers, and professional clinical counselors;
- Physical and occupational therapists, speech-language pathologists and audiologists, registered nurses, and chiropractors.
Two boundary notes. First, some licensed occupations — contractors, real estate brokers, engineers — are governed by their own statutes that permit ordinary corporations rather than professional corporations and, in the case of contractors, LLCs, so do not assume every license forces a professional corporation; check the specific licensing law. Second, medicine adds the corporate practice of medicine doctrine: unlicensed persons and ordinary corporations may not employ physicians to practice, which is why MSO structures exist and why getting this wrong is more than a formality.
The special rules: names, shares, and directors
A professional corporation is a standard California corporation with three overlays:
- Name. The corporate name must comply with the profession's licensing statute — medical corporations, for instance, must generally include a physician's name or surname and a designation like "Medical Corporation" or "M.D., Inc.," and law corporation names must comply with State Bar rules;
- Ownership and officers. Under § 13406, shares may be owned only by licensed persons — and § 13401.5 permits limited minority ownership by certain allied licensed professionals for some corporation types. Share transfer restrictions are mandatory in substance: if a shareholder dies or loses the license, the shares must be transferred to a qualified holder or repurchased within the statutory period. Directors and officers generally must be licensed as well, with limited exceptions for small corporations;
- No shield for malpractice. The corporation protects shareholders from ordinary business liabilities — the lease, vendor contracts, an employee dispute — but a professional always remains personally liable for their own negligence. Malpractice insurance is used to address that risk (and law corporations with more than one shareholder generally must maintain specified security for claims, through insurance or a shareholder guaranty).
Why professionals form them anyway
If the entity cannot block malpractice claims, why bother? Because the rest of the package is valuable: the corporate shield against non-malpractice liabilities, the ability to elect S-corporation taxation (most professional corporations do, paying California's 1.5% S-corp franchise tax rather than the 8.84% C-corp rate), retirement-plan and fringe-benefit structuring, continuity of the practice, and a clean vehicle for adding shareholder-partners with a buy-sell agreement that respects the licensing restrictions. The formation itself has more moving parts than a standard incorporation — profession-specific articles and bylaw provisions, agency registration where required, and share certificates bearing the statutory transfer legend — which is why it belongs with a business formation attorney who works with the professional rules rather than a generic online filing service.
Talk to a California business attorney
If your license is the business, the entity has to be built around the licensing rules from day one. Itkin Law forms California professional corporations and keeps them compliant. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
