California Professional Corporations

Background Information

In California there are only three legal ways to own an optometry practice: sole proprietorship, partnership, or professional corporation (PC). An optometrist cannot practice as a limited liability company (LLC) or a "regular" corporation. A PC may be registered with the IRS as either a "C corporation" or an "S corporation," that does not matter as far as the State Board rules or California law. (Note: Many states do permit optometrists to form an LLC. LLC's have some advantages over corporations, including fewer formalities and better asset protection. You should consult an attorney or CPA before deciding the best form for your practice.)

The principle difference between a regular corporation and a PC is that, in a PC, there are restrictions on who can be a shareholder, officer, or director of the corporation. Essentially, except for certain officers, these people must be licensed professionals, and a majority interest must be owned by an optometrist. This means there are restrictions on share transfers and sales, and these restrictions must be properly reflected in the corporate documents.

Keep in mind that you must also comply with the rules of the California Board of Optometry. Your corporation name should have in it the name of the optometrist/owner, or of at least one of them if there is more than one. In most cases it is best to use your name, such as John Doe, O.D., a Professional Corpration. Or for two doctors, Doe and Smith, Optometrists, a Professional Corporation. This will make state board compliance easier. If you'll do business using any, even slight, variation from the corporate name, you'll also need to obtain a Fictitious Name Permit (FNP) from the Board of Optometry. In nearly 100% of cases this is recommended.

Should I Form a Corporation?

The decision whether or not to incorporate your business is one that should be made after discussion and with the advice of your accountant and lawyer. For some there is no advantage in being a corporation. For others, especially where there are or may be two or more owners, there can be significant advantages in being incorporated. Though there are some added costs (annual tax of $800, cost of preparing corporate tax returns), most professionals prefer to own their businesses through a corporation because it separates their business assets and liabilities from their personal assets, and offers a considerable amount of privacy protection. For instance, if you are sued by an employee for wrongful termination, that lawsuit will not expose your personal assets, such as your home, and the other party usually cannot obtain information about your personal assets through the lawsuit.

What are the Costs for Incorporating?

Apart from legal fees, there are some filing fees required to be paid by everyone. The Secretary of State charges $100 to file your Articles. (Expedited fees for 24 hour service are an additional $350, otherwise it takes about 20 days to get your Articles back from the Secretary of State.) Purchasing a Corporate Book, which includes your stock certificates and corporate seal, costs about $60. There are additional fees for a filing service, postage, etc. In all, it typically costs about $260. Then you add to that the legal fees. Dr. Steinberg charges a fixed fee of $1,990 for preparing all the documents for your corporation, including the Articles, Bylaws, Organizational Minutes, Resolutions Notices, and minutes for Annual Meetings. He also provides, without additional costs, model employment and independent contractor agreements for use with both staff and associate doctors. All you'll need to do is sign a few pages where marked, obtain your Tax ID number from the IRS website, and complete an online form at the Secretary of State office (the "Statement of Information").

Basic Terminology

Before you get started, it is helpful to understand some terms.

• Incorporator - this is the PERSON that signs the Articles of Incorporation and starts the process of creating the entity. The incorporator will perform some basic initial steps, then will resign.
• Articles of Incorporation - this is the document that is filed with the Secretary of State to create the corporation.
• Bylaws - these are the rules of how the corporation operates. It must contain proper language for the corporation to be a valid professional corporation.
• Shareholder - shareholders must be licensed professionals. They elect the Directors to actually run the corporation.
• Director - directors must be licensed professionals. Directors make policy and appoint the officers of the corporation. 
• Officer - The required officers are President, Secretary, and Treasurer (CFO). They must be licensed. Vice-presidents are optional and do not need to be licensed. The officers run the day-to-day operations of the business.
• Registered Agent - this is a person or entity that resides in California and can accept service of process on behalf of the corporation.

Should I Hire an Attorney To Do This For Me?

The short answer is, probably. Not only will hiring an attorney insure that your corporation is correctly formed (if it isn't correctly formed, you won't find out until it's too late, and the mistake can be very costsly), but an attorney will be able to advise you on how to utilize the corporation, and answer all your questions about operating a corporation.

What Do I need to do to Incorporate?

Call or email Dr. Steinberg. He'll answer your questions. To form the corporation you'll only need to provide two things: a name and a business address. Dr. Steinberg will be able to handle all the rest from there.