An Overview Of The South Carolina Professional Corporation

Understanding The Professional Corporation

For entrepreneurs and business owners in South Carolina, understanding the nuances of a Professional Corporation is important, especially for licensed professionals like doctors, accountants, architects, engineers, and lawyers. Governed by the Professional Corporation Supplement (SC Code of Laws Section 33-19-101 et. seq.) these corporations are tailored for professionals looking to incorporate their practices.

Like a traditional corporation, a Professional Corporation in South Carolina is a separate legal entity. This means it can independently own property, enter into contracts, sue, or be sued. However, a standout feature of this entity is its requirement that all key members – shareholders, directors, officers, and employees – must be licensed in the same profession. This is a significant departure from other business structures that don’t mandate specific professional licenses for their principal members.

One of the primary benefits of a Professional Corporation is limited personal liability. Shareholders are typically not personally liable for the corporation’s business debts and obligations. However, it’s crucial to remember that this doesn’t extend to personal liability for professional malpractice. Each professional within the corporation remains personally responsible for their own actions.

Tax considerations are also a key aspect of a Professional Corporation. You have the choice to be taxed either as a C Corporation, which involves the corporation paying tax on its income and shareholders paying tax on dividends (potentially leading to double taxation), or as an S Corporation, if eligible. The S Corporation status allows income, deductions, and credits to pass through to shareholders for federal tax purposes, often circumventing the issue of double taxation.

For licensed professionals in South Carolina, deciding to form a Professional Service Corporation should involve a careful consideration of these unique features. It’s a decision that should align with your professional aspirations, financial situation, and the particular risks associated with your field of work. Understanding these key aspects helps in making an informed choice about whether this business entity aligns with your long-term professional objectives.

Benefits Of Operating A Professional Corporation

Operating a Professional Corporation (PC) in South Carolina presents unique advantages and challenges, especially when compared to other business structures like Limited Liability Companies (LLCs) and traditional corporations. Understanding these can help professionals make informed decisions about their business structure.

A significant advantage of a PC over LLCs and traditional corporations is the personal liability protection it offers to its owners. Similar to a traditional corporation, a PC shields its owners from the corporation’s debts and obligations. However, a distinctive aspect of PCs is the requirement for all shareholders, directors, officers, and employees who provide professional services to be licensed in the same profession. This fosters a strong professional identity and a unified standard within the corporation.

From a taxation perspective, PCs have potential benefits. If they meet certain criteria, PCs can choose to be treated as S corporations. This status allows for pass-through taxation, where the corporation’s income and losses are directly passed on to the shareholders’ personal tax returns. This avoids the double taxation common with C corporations.

Despite these advantages, PCs do come with some drawbacks. One notable concern is the personal liability each professional in the PC carries for their own malpractice. This risk, also present in LLCs, differs from traditional corporations where individual liability for professional malpractice is not an issue.

Furthermore, PCs are subject to more stringent operational formalities compared to LLCs. These include holding regular board of directors and shareholder meetings, maintaining minutes of these meetings, and issuing stock. Failure to adhere to these formalities can compromise the liability protections of the corporate structure. In contrast, LLCs offer more flexibility in operations with fewer mandated formalities.

Another limitation for PCs is the restriction on ownership and management. Since all involved in the corporation’s professional services must be licensed in the same profession, this restricts who can own shares and participate in management. This could be a hindrance when seeking to bring in investment or management expertise from non-licensed individuals or entities.

For professionals in South Carolina considering a PC, it’s important to weigh these pros and cons in the context of your specific professional goals and circumstances. The choice of business entity has significant implications for your professional practice, liability, and financial health.

Organizing a Professional Corporation In South Carolina

When establishing a Professional Corporation (PC) in South Carolina, there are several critical steps to follow for proper organization. This process, guided by the South Carolina Business Corporation Act and the Professional Corporation Supplement, involves detailed legal documentation and compliance with both state and federal requirements.

Firstly, the process begins with filing the Articles of Incorporation with the South Carolina Secretary of State. This document is fundamental and must include specific information about the corporation, such as its name, the professional service it will offer, the authorized number of shares, and the details of the initial directors. The corporation’s name should follow specific designations, like “Professional Corporation”, “Service Corporation”, “Chartered”, “Professional Association”, or abbreviations such as “PC”, “P.C.”, “PA”, or “P.A.”. The Articles must also affirm that all shareholders, directors, and officers are licensed for the specified professional service. In addition to submitting this form, a filing fee is required.

After the Secretary of State approves these Articles, the PC is officially recognized. However, professionals should also be mindful of trademark laws when choosing their corporation’s name. It’s prudent to conduct thorough searches in state and federal trademark databases to ensure the chosen name doesn’t infringe on existing trademarks.

Beyond these initial steps, drafting internal governance documents is crucial, even though they are not required for registration. Bylaws are essential, outlining the corporation’s internal rules, such as roles of directors and officers, meeting protocols, and shareholder rights. Though they are not filed with the state, Bylaws are key in defining the PC’s internal operations.

For PCs with multiple shareholders, creating a Shareholder Agreement is highly advisable. This document governs aspects like share transfers, buying or selling shares, and resolving shareholder disputes.

Moreover, obtaining the necessary licenses and permits is essential for both the individual professionals and the corporation. This includes applying for an Employer Identification Number (EIN) from the IRS, registering with the South Carolina Department of Revenue, the South Carolina Department Labor, Licensing, and Regulation Department, and securing permissions to operate in the specific city or county where the corporation will function.

In summary, organizing a Professional Corporation in South Carolina is a multifaceted process involving legal documentation, compliance with state and federal laws, and internal governance. Proper attention to these details ensures the corporation is set up effectively, allowing professionals to focus on delivering their services within a structured and legally sound framework.

Contact Our Charleston Business Attorneys

Are you organizing a Professional Corporation in South Carolina, our Charleston business attorneys can assist!  We handle all types of business organizations, including professional service organizations.  We invite you to give us a call or complete our online contact form.  We will make every effort to respond to all inquiries within one business day.