Our Charleston corporate attorneys provide legal counsel to business owners and entrepreneurs seeking to establish professional corporation or restructure an existing one in South Carolina. Our business law firm offers reasonable flat-fee or fixed-fee services for the majority of business organizational matters. Please contact one of our attorneys for more information if you are starting a new business and have questions as to whether a professional corporation is the best entity for your business.
South Carolina Professional Corporation
Our law firm often receives client inquires as to whether his or her business should be formed as a professional corporation. In order to determine whether a business may (or should) be incorporated as a professional corporation, it is important to review both the South Carolina Professional Corporation Supplement and the licensing statutes found in Title 40 of the Code. The following discussion is a brief overview of the Professional Corporation and Title 40.
The Professional Corporation Supplement defines “professional services” as: …a service that may be rendered lawfully only by a person licensed or otherwise authorized by a licensing authority in South Carolina to render the service and that may not be lawfully rendered by a corporation under the statute. Further, the supplement provides that a corporation may elect professional corporation status solely for the rendering of professional services, including services ancillary to them, within a single profession. Therefore, in order to form a professional corporation in South Carolina you must first determine whether your profession is authorized under the supplement. For example, stock brokers are not governed by the provisions of Title 40.
Unlike some states, the South Carolina Professional Corporation Supplement does not require any professions (lawyers, doctors, accountants, etc.) to practice through a professional corporation. Unless a regulatory board under Title 40 requires its professionals to render services through a professional corporation, professionals may choose a different entity in which to conduct their business. In other words, lawyers, doctors, accountants, etc… may form limited liability companies (LLCs) and partnerships to render professional services. Therefore, it is important to review (or contact one of our business attorneys) Title 40 to determine which professions must render services in the professional corporation format, as opposed to the regular corporate, limited liability company, or partnership format. For example, the practice of law by corporations is unlawful pursuant to Section 40-5-320 of Title 40.
Articles of Incorporation
There are several important items required by the articles of incorporation for a professional corporation or PC. The articles of incorporation must be signed by a duly licensed attorney in South Carolina to be approved by the Secretary of State.
Corporate Name
A professional incorporating a professional corporation in South Carolina may reserve the exclusive use of a corporate name by delivering an application to the Secretary of State for filing. If there is no other South Carolina using the proposed name, the corporate name will be reserved. The name of the professional corporation must include the designation PC, P.C., Professional Corporation, Professional Association, PA, or P.A. Note, the statute allows the a professional corporation to use the personal name or surname of a shareholder or former shareholder even though other provisions of the general corporation law might prohibit such use.
CAUTION: Although the selection of the PC’s name may be available and approved by the Secretary of State, this does not mean that the name is available for use under federal and state trademark laws. Any new business owner in the preliminary stages of forming a corporation should engage a trademark attorney to conduct a thorough screening of the proposed corporate name on all state trademark databases and the federal database to ensure the name is available for use. It often happens that a business owner will organize a corporation only later to receive a cease and desist or trademark infringement claim. Therefore, it is very important to ensure that the corporate name is not only available with the Secretary of State but also available in the state and federal trademark databases.
Corporate Purpose
The is likely one of the most important items required by the articles of incorporation for a professional corporation. Unlike the general corporation laws, the PC’s articles must designate the specific purpose for which it is incorporated. The PC may only practice one profession unless it is authorized by the professional licensing authorities (Title 40). The professional corporation may only practice that profession which is specified in its purpose clause, conduct those activities ancillary to the services of the profession, and invest its money in investments. The PC may not engage in any other business activities.
Capitalizing the Professional Corporation
Unlike the general corporation laws of South Carolina, a PC may only be owned by persons qualified to practice the professional corporation’s particular profession. Licensing authorities under Title 40 are given statutory authority to restrict how professional corporations are to issue shares to its shareholders who are licensed to practice in the profession. Similar to the Close Corporation, if a shareholder dies or no longer is licensed to practice the profession, the statute provides an extensive redemption procedure.
Similar to general corporations, professional corporations may create multiple classes of shares and determine whether such shares will be voting or nonvoting stock. Most professional corporations will be labeled “personal service corporations” by the IRS and will therefore be subject to a flat tax rate. Therefore, most new professional corporations will elect to be taxed as an S Corporation. However, by electing this tax structure, the professional corporation foregoes much of its flexibility in creating different classifications of ownership, shares, and financial rights.
Mandatory Professional Corporation Buy-Out Provisions
Similar to the Close Corporation, the PC is required to redeem the shares of tis shareholders on the happening of certain events – e.g., death, resignation, loss of license. Since these redemption provisions are mandatory, professional incorporating professional corporations should insure that the professional corporation has adequate funding to purchase insurance to address mandatory buy-out situations.
Corporate Agreements
Identical to the general corporation, the professional corporation must develop and execute the articles of incorporation, bylaws, shareholder agreement (if necessary), buy-out agreements (if appropriate), and other ancillary corporate instruments and agreements. Further, the PC must hold annual meetings of the shareholders and directors and institute procedures for holding and document corporate meetings. See Corporations for more information on this topic.
Contact our Charleston Corporate Lawyers
If you are deciding whether a professional corporation is the best choice of business entity for your company in South Carolina, please contact our Charleston corporate lawyers by giving us a call, filling out the contact form to your right, or sending one of our lawyers an email.