Does a Nurse Need to Form a Professional Corporation or Can They Use an LLC?
As a specialist’s business attorney, Andy Gale often finds himself providing advisory services to other local professionals, such as CPAs and lawyers who specialize in other services.
In this example, Andy received the following question from a local CPA based in Irvine, Orange County CA.
Jean – “Hi Andy, we recently consulted with one of our clients who had formed a professional corporation. She had done so for the purpose of performing services as a registered nurse. However she was complaining and wanted to understand why, she as a nurse has to be an S-Corp versus an LLC and if she had any alternative options.
I am not sure who originally filed for incorporation but could you help clarify why a licensed professional (nursing services) needs to be S-Corp., specifically, is there a reason why a nurse would not be a Professional Services Corp.”
Jean, “Also – Is there a Code Section I can cite?”
Andy, “Yes, the answers can be found in a few places. Start with the California Corporations Code, the California Business, and Professions Code and the Board of Registered Nursing.
Whoever did the initial incorporation was correct in their filing. A nurse must use an S-Corp and should not try to make use of an LLC.
Your client is a licensed professional rendering professional services through her corporation. The professional service of nursing as a business entity is regulated by the Moscone-Knox Professional Corporation Act which is found in the corporations Code beginning at Section 13400.
There are very strict requirements to have the corporate records comply with law. They are easy to mess up.
It is the Corporations Code that regulates professional services:
As used in this part: (a) “Professional services” means any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act. (b) “Professional corporation” means a corporation organized under the General Corporation Law or pursuant to subdivision (b) of Section 13406 that is engaged in rendering professional services in a single profession, …
13401.5. …, the following licensed persons may be shareholders, officers, directors, or professional employees of the professional corporations designated in this section so long as the sum of all shares owned by those licensed persons does not exceed 49 percent of the total number of shares of the professional corporation so designated herein, and so long as the number of those licensed persons owning shares in the professional corporation so designated herein does not exceed the number of persons licensed by the governmental agency regulating the designated professional corporation.
(f) Nursing corporation.
(1) Licensed physicians and surgeons.
(2) Licensed doctors of pediatric medicine.
(3) Licensed psychologists.
(4) Licensed optometrists.
(5) Licensed marriage and family therapists.
(6) Licensed clinical social workers.
(7) Licensed physician assistants.
(8) Licensed chiropractors.
(9) Licensed acupuncturists.
(10) Naturopathic doctors.
(11) Licensed professional clinical counselors.”