Tip #1: Verify You Need a Professional Corporation or Professional Service Corporation



State law determines whether a professional in your field can form a regular corporation or (alternatively) needs to form a professional corporation or a professional service corporation.

Accordingly, your first business incorporation step is to figure out whether you need to incorporate as a professional corporation.

You can typically answer this "professional corporation versus regular corporation" question by telephoning the state government agency or affiliated organization that grants your professional license. If you're a physician, for example, you probably call the state medical board. And if you're a lawyer, you probably call the state bar association.

Note: You can also look at what other local professional peers are doing. But be careful! Sloppy professionals sometimes form a regular corporation when by law they're really supposed to form a professional corporation--A mistake that usually reduces the liability protection that the professional corporation provides.

Tip #2: Clearly Designate Your Corporation as "Professional"

Usually, you incorporate a profession in the same basic way as you incorporate any other business. You simply file articles of incorporation with the secretary of state's corporations division.

However, the naming rules for professional corporations differ from those for regular corporations.

A regular corporation identifies itself as a corporation by using an acronym like "Inc" or "Corp" or by using a phrase like "corporation" or "incorporated" as part of the name.

A professional corporation, in contrast, needs to use an acronym like "PC" (which stands for professional corporation) or "PS" (which stands for professional service corporation) or the phrases "professional corporation" or "professional service corporation."

Check with your secretary of state to determine which phrases and acronyms are acceptable in your state.

A related tip: If you will practice your profession in multiple states, verify your professional corporation's name works in each of the states where you'll operate. The naming rules do differ between the states.

Tip #3: Confirm Shareholders Possess Professional Licenses

A quick point: The shareholders of a professional corporation typically must hold the relevant professional license in order to be corporate shareholders.

For example, a professional corporation that practices dentistry must be owned by dentists. A professional corporation that provides civil engineering services must be owned by professional engineers.

Tip #4: Verify You Follow Any Other Naming Rules for Your Profession

In same states for same professions, the licensing state agency also has other naming requirements for professional corporations. For example, the name or names of the shareholder or shareholders owning the corporation and practicing via the corporation may need to be used in the corporate name.

Research this possibility by calling your state licensing entity--and then carefully follow the rules they provide.

Tip #5: Secure Professional Liability Insurance, If Required

A final and often missed business incorporation task concerns securing professional liability insurance.

A handful of states stipulate that the professional corporation buy malpractice insurance in order to receive legal liability protection from incorporating. State law, for example, might require the professional corporation to purchase a million dollar malpractice insurance policy.

Be sure to check for this possibility--and then talk with your insurance agent or your professional association about getting any required coverage.