Starting a business as a licensed professional in California can be a rewarding but complex journey. Whether you’re a doctor, lawyer, architect, or accountant, your business structure matters—not only for tax reasons but also for liability protection. If you’re researching how to start an LLC in California, it’s important to know that the state has specific rules for licensed professionals when it comes to forming a business entity.
In this guide, we break down what licensed professionals should know about LLC formation, which entity types are allowed, and how to take the next step with confidence.
Can Licensed Professionals Form an LLC in California?
The short answer is: not exactly. While researching how to start an LLC in California, it’s important to know that the state restricts many licensed professionals from forming a traditional LLC. If you hold a license issued by the state’s Department of Consumer Affairs (such as for medicine, law, engineering, or accounting), you’re not allowed to form a standard Limited Liability Company.
Instead, California allows such professionals to form a Professional Corporation (PC). However, there are limited exceptions for certain licensed service providers (like marriage and family therapists) who may be able to explore alternative business structures, such as a Professional Limited Liability Company (PLLC), if permitted by their governing board and state rules. But again, California does not broadly recognize PLLCs.
That said, the rules vary based on your profession. Always check with your licensing board before deciding how to structure your business.
Why Licensed Professionals Consider Business Formation
Even if forming an LLC isn’t permitted, licensed professionals often seek entity formation for benefits like:
- Separation of personal and business assets
- Tax flexibility
- Brand credibility
- Liability protection for business debts or lawsuits (excluding personal malpractice)
In California, the go-to structure for licensed professionals is the Professional Corporation, which functions similarly to an LLC in some respects but meets the state’s legal requirements for regulated services.
Key Differences Between an LLC and a Professional Corporation
| Feature | LLC | Professional Corporation (PC) |
| Liability Protection | Yes (not for licensed services) | Yes (not for malpractice) |
| Management Flexibility | Member or Manager-managed | Officers & Board of Directors |
| Taxation Options | Default pass-through or Corp Tax | Default Corporate Tax |
| Ownership Limitations | Few restrictions | Licensed professionals only |
| Permitted for Professionals | Not in CA for many license types | Yes, per state board approval |
Understanding these distinctions is crucial when determining the best legal structure for your practice.
Steps to Start a Professional Corporation in California
Although a traditional LLC might not be allowed, if you’re a licensed professional, you can still legally form a Professional Corporation in California. Here’s how:
1. Choose Your Business Name
Your professional corporation’s name must reflect the nature of your profession and usually must include a corporate suffix like “PC” or “Professional Corporation”. Always check with your licensing board for naming rules.
2. File Articles of Incorporation
To start a PC, you’ll file Articles of Incorporation with the California Secretary of State. This form establishes your business officially and outlines basic information like name, address, and business purpose.
3. Designate a Registered Agent
California law requires all corporations to have a registered agent with a physical address in the state. This person or service receives official legal and tax documents on behalf of your business.
4. Create Corporate Bylaws
Bylaws outline how your corporation will operate, covering management, voting rights, shareholder roles, and more. While not filed with the state, they are required for internal governance and are often requested by banks when opening a business account.
5. File Statement of Information
You must file a Statement of Information (Form SI-200) within 90 days of forming your professional corporation. It must be updated every year to keep the state informed about your officers and business address.
6. Obtain Professional Licenses
Ensure that all shareholders and officers hold valid professional licenses in California. Many licensing boards also require that you submit specific paperwork notifying them of your intent to incorporate.
7. Apply for an EIN
An Employer Identification Number (EIN) is required for tax filing, hiring employees, and opening bank accounts. You can obtain this from the IRS or use a business filing service like MyCorporation to handle this step for you.
Tax Considerations for Licensed Professionals
If you’re wondering how to start an LLC in California but discover you’re not eligible, you may still want to understand the tax implications of forming a PC.
- PCs are typically taxed as C-corporations, which means profits are taxed at the corporate level and again when distributed to shareholders (double taxation).
- However, S-corporation status can be elected if eligible, allowing profits to pass through to personal income to avoid double taxation.
- Consulting with a tax advisor is essential before choosing your tax treatment.
Alternatives to an LLC or PC
If you’re a professional who cannot form an LLC or PC, consider other alternatives:
- Sole Proprietorship: Easy to start but offers no liability protection.
- Partnership: Can be structured as a general or limited partnership, but liability can still be a concern.
- Limited Liability Partnership (LLP): Some professions (like law and accounting) may be eligible to form an LLP in California, which allows for limited liability protection similar to a PLLC.
Can You Form a PLLC in California?
Unlike other states, California does not recognize PLLCs for most licensed professionals. If you’ve seen other states offering PLLC structures for engineers, psychologists, or veterinarians, remember that these rules are state-specific. In California, the Professional Corporation remains the recognized entity for regulated services.
Final Thoughts
Choosing the right business structure is critical for licensed professionals in California. While forming a traditional LLC may not be an option, alternatives like a Professional Corporation or Limited Liability Partnership can offer the benefits of liability protection and formal business recognition. Knowing your profession’s specific rules—and getting professional help with filing—can set your practice up for long-term success.
If you’re ready to get started, reach out for expert help or begin your formation process online today with companies like MyCorporation.
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