Many people engaged in professional practices simply hang out a shingle, doing business under their own name. While this might seem fine for solo practitioner attorneys, accountants, and physicians, it is not an ideal situation. They may be missing out on many of the benefits afforded by forming a professional corporation here in Pennsylvania. The Commonwealth actually has one of the broader professional corporation laws, allowing many different professions to incorporate using this business entity type, such as registered nurses, psychologists, chiropractors and engineers. However, there are some drawbacks to incorporation, which is why you should use an experienced business attorney to help you with this process.
The Benefits of Forming a Professional Corporation
There are a number of benefits for a professional planning to do business under a professional corporation. First, owning a professional corporation will protect you from personal liability for debts incurred by the corporation. This limited liability is similar to other business entity types like limited liability companies (LLC) and business corporations. So, if your business is evicted by its landlord, unless you signed a personal guaranty, the landlord cannot come after you personally for the unpaid rent of your professional corporation. These general creditors can only look to the assets of the business.
Professional corporations that are formed as Subchapter S corporations can also provide certain tax benefits. In this situation, the professional corporation is a pass through entity, so only you and your fellow shareholders will have to pay taxes. If you formed your professional corporation under Subchapter C, then you will also be subject to double taxation. This means that the corporation will pay taxes on its profits, and if you receive a dividend payment, that will also be subject to income taxes. In addition, running a payroll through your professional corporation will help you avoid paying a self employment tax.
Organizing your practice as a professional corporation also gives you a certain amount of credibility in the marketplace. This shows to prospective customers and clients that your business is in it for the long run.
The Drawbacks of Forming a Professional Corporation
Forming a professional corporation is not without its downside. For one thing, you are going to incur costs in forming and maintaining the corporation. This involves having to pay an accountant to do a return for the professional corporation, as well as your personal tax return. You are also required to file annual reports with the Pennsylvania Department of State. This added administrative burden can cost you time and money.
You will also need to do internal compliance work. Operating your business as a professional corporation requires you to maintain a separate bank account and pay all expenses for the business through a separate account. Commingling your personal funds with those of the business can defeat the limited liability protections afforded by a professional corporation.
Even though you are protected from the general obligations of the business, forming a professional corporation will not protect you from malpractice and negligence claims. So, if you are sued for malpractice, your professional corporation status will not protect you from personal liability. This is why most professional corporations require its shareholders to keep and maintain professional malpractice insurance.
Forming a Professional Corporation
Forming a professional corporation is fairly straightforward. Much like forming a business corporation, you need to choose an available corporation name, appoint a registered agent for service of process, file the Articles of Incorporation with Pennsylvania, and pay the requisite filing fee. However, you will also need to specify a business purpose for a profession permitted by law to form a professional corporation, and every shareholder must hold a license for such profession. You will need to provide evidence with the Articles of Incorporation showing that each such individual holds the license in good standing in Pennsylvania. After the Commonwealth has granted your incorporation, you must publish notice of the incorporation in two newspapers in Pennsylvania, with one being a legal journal.
Regulatory Requirements for Professional Corporations
After forming your professional corporation, there are still things you must do to keep it in effect. First, you will need to maintain your professional license, as this is a requirement to own and operate a professional corporation in Pennsylvania. Second, you will have to file an annual report with the Pennsylvania Department of State, including the payment of a nominal fee. There is also a decennial report for professional corporations that must be filed every ten years. Failure to file either report in a timely fashion can result in your professional corporation being administratively dissolved, cancelled or terminated.
Contact Our Experienced Pennsylvania Professional Corporation Attorneys
If you are a professional doing business in Pennsylvania, forming a professional corporation might give you the benefits you need to help grow your business. The experienced business attorneys at Jones, Gregg, Creehan & Gerace can help you form a professional corporation and remain compliant with the rules and regulations.