When Teresa, a Canadian licensed pediatric physical therapist in the U.S., set her sights on opening a practice in California, she imagined a warm clinic full of kids rediscovering strength and joy. But soon, a legal question halted her plans:

Can a foreign physical therapist form an S-Corp, or must they choose C-Corp in California?

Like many non-U.S. professionals, Teresa quickly realized that the decision between C-Corp vs S-Corp for a foreign-owned California physical therapy corporation isn’t just about taxes—it’s the key to legal compliance, ownership rights, and long-term success.

Why Foreign-Owned California Therapy Corporations Must Start as C-Corps

If you’re a licensed therapist planning to open a California practice, state law requires you to form a Professional Corporation (PC). That means your professional corporation:

• Is governed by the Moscone-Knox Professional Corporation Act
• Must include “physical therapy” or “physical therapist” in its business name (CA Business and Professions Code Section 2693)
• All shareholders must be licensed physical therapists (with some exceptions for allied professionals)

For foreign-trained PTs, understanding the California professional corporation requirements for foreign physical therapists is the critical first step. This also positions your business with long-term success.

Forming a California physical therapy professional corporation provides legal and tax benefits, including business liability protection and potential tax optimization through proper structuring.

Can You Choose C-Corp vs S-Corp for Foreign-Owned Therapy Business in California?

Professional corporations are taxed as C-Corp by default unless the business owner elects S-Corp status. But the latter is not an option for Teresa.

While she’s licensed to practice as physical therapist in California, she’s a “nonresident alien” at the time she formed her professional corporation. Simply put, a California C-Corp for therapists was the only route that aligned with both state laws and federal IRS requirements.

C-Corp vs S-Corp: Key Differences for Foreign Physical Therapists in California

Teresa initially leaned toward an S-Corp after hearing about its tax advantages. But when she learned that non-resident aliens cannot own shares in an S-Corp, her path became clear: forming a C-Corp was the only compliant option.

Here are the key differences between C-Corp vs S-Corp for foreign-owned therapy business in California:

Factor	C-Corp	S-Corp
Eligibility	Foreign PT owners allowed	U.S. citizens or resident aliens only
Taxation	Corporate + dividend tax	Pass-through; must pay yourself a “reasonable salary”
PC Compliance	Fully compatible	Compatible after IRS Form 2553
Key Filings	Articles, EIN, BOI, CA Statement of Information	All C-Corp + IRS Form 2553
Best For	Nonresident therapists starting out	Foreign PTs who become U.S. residents

 

When Can You Switch to an S-Corp in California?

The good news is you can later elect an S-Corp tax status for your physical therapy business in California—exactly what Teresa did.

Foreigners must be a lawful permanent resident (green card holder) to qualify as a S-Corp shareholder. But that’s not the only path to S-Corp eligibility for non-US citizens.

You can also qualify for U.S. tax residency if you meet the IRS Substantial Presence Test, which is what allowed Teresa to switch her PC to S-Corp entity.

Who Can Pass the IRS Substantial Presence Test?

As the name suggests, this IRS test determines if an individual has had a substantial presence in the U.S. within one calendar year. More specifically, you have to be present in the U.S. for at least:

• 31 days during the current year, and
• Have a total of 183 days over the three-year period that includes the current year and the two preceding years

Two years after forming her physical therapy PC, Teresa passed the Substantial Presence Test (IRS Pub 519). With the help of her CPA, she filed IRS Form 2553 and successfully converted to an S-Corp.

Timing matters. The IRS has strict deadlines for S-Corp elections, so it’s critical to plan ahead with a tax advisor.

Step-by-Step: How to Form a Foreign-Owned California C-Corp as a PT

Forming a professional corporation in California as a foreign-trained physical therapist may sound intimidating, but the process is more straightforward when broken into clear stages.

By following the same path Tersea took, you can set up your practice correctly from day one: first by establishing the corporation, then by transitioning smoothly once you become a U.S. tax resident.

Formation of Physical Therapy Corporation (Before Residency):

1. Form a California Professional C-Corp.
2. File Articles of Incorporation under Physical Therapy Board rules.
3. Apply for an EIN (you don’t need an ITIN to get started).
4. Submit the Statement of Information to CA Secretary of State.
5. Complete the FinCEN Beneficial Ownership Information report.
6. Open a U.S. bank account (requirements vary by bank).
7. Set up payroll, accounting, and compliance systems.

After You Become a U.S. Tax Resident:

1. File IRS Form 2553 to elect S-Corp status.
2. Implement a reasonable compensation plan.
3. Stay compliant with PC and PT Board regulations.

Each step builds the legal and tax foundation your practice needs to grow—and stay protected. For example, Teresa focused on pediatric physical therapy practice formation, ensuring her corporate structure was compliant before she could welcome young patients into her clinic.

FAQs: C-Corp vs S-Corp for Foreign-Owned California PT Corporations

Can a Canadian physical therapist own an S-Corp in California?

Not unless you become a U.S. tax resident. S-Corp shareholders must be U.S. citizens or resident aliens (IRS §1361). This rule applies even if you’re a Canadian physical therapist in the US, so plan your corporate structure accordingly.

Do I need an ITIN to get an EIN?

No. You can apply for an EIN (Employer Identification Number) without an ITIN (Individual Taxpayer Identification Number). We recommend filing for your EIN as soon as the Articles of Incorporation are returned as filed by the California Secretary of State. Then you can update tax records later once you have an ITIN.

What are common filings new foreign PC owners forget?

Two of the most common missed filings are the California Statement of Information (required shortly after incorporation) and the FinCEN Beneficial Ownership Information (BOI) report. Forgetting either can lead to penalties or compliance issues, so it’s important to calendar these deadlines early.

Are there naming rules for California PT corporations?

Yes. Your corporate name must include “physical therapy” or “physical therapist,” per the Moscone-Knox Act. Choosing the right business entity for licensed professionals in California also means complying with both state law and professional board regulations.

C-Corp vs S-Corp Isn’t Just a Tax Decision—It’s a Growth Strategy 

For Teresa, choosing C-Corp vs S-Corp for her foreign-owned California physical therapy corporation was about more than paperwork—it was about whether she could practice at all. 

The C-Corp structure let her start legally and compliantly as a Canadian PT. Later, switching to S-Corp gave her the tax advantages she needed as her business grew and her residency status changed. 

If you’re a non-U.S. licensed physical therapist looking to launch your dream practice in California, this isn’t just a legal technicality. It’s your roadmap: Start with a C-Corp. Plan for S-Corp later. Build smart from the start. 

Contact Incorporation Attorney today to get personalized guidance on forming your California PT professional corporation!