Drs. Alex and Maria Valdez are a married couple, both licensed psychologists practicing in California. Maria focuses on trauma therapy in a clinical setting, while Alex engages in consulting and forensic psychology. Like many professionals in 2025, they juggle multiple 1099 income streams, complex taxes, and liability concerns. 

They asked whether they could consolidate their practices under one professional corporation. And the answer is yes! Read on and learn how Alex and Maria established their group practice through California psychological corporation.

Why You Should Consider Forming a Corporation for a Psychologist Group Practice in California

Forming a professional corporation (PC) with multiple owners offers advantages that solo ownership or informal partnerships can’t provide. Under the Moscone-Knox Professional Corporation Act, PCs exist specifically to regulate licensed professionals who want to practice together while protecting the public.

Key benefits include:

• Tax optimization: An S corporation election allows owners to split income between salary and profit distributions for potential tax savings.
• Liability separation: Owners’ personal assets are shielded from most business claims (though not from their own malpractice).
• Income consolidation: Especially valuable when multiple 1099 revenue streams need to flow through one entity.
• Centralized administration: One entity manages payroll, bookkeeping, insurance, and compliance.
• Professional credibility: A joint corporation strengthens reputation with clients, insurers, and courts.
• Future expansion: Adding new psychologist-owners or eligible allied professionals becomes legally straightforward.

For the Valdezes, forming a single PC allowed them to unify their trauma therapy and forensic consulting services under one professional structure, reducing administrative chaos.

Business Entity Options: What Psychologists Can and Cannot Choose When Forming a Corporation

California is strict about what business entities licensed psychologists may use. The Business and Professions Code §§ 2995–2999 and the California Corporations Code make clear the allowed business entity for professional corporations:

• Permitted: A Professional Psychological Corporation is the only corporate form available for practicing psychology.
• Prohibited: Psychologists cannot practice through a general stock corporation or a limited liability company (LLC). These structures are legally unavailable for psychology practices in California.

Key Rules When Forming a Psychological Corporation

• Majority ownership: Licensed psychologists must hold at least 51% of the outstanding shares (Cal. Corp Code § 13401.5(c)).
• Allied health professionals allowed as shareholders: Certain other licensed health professionals may own minority shares (up to 49% only), including physicians, MFTs, LCSWs, RNs, chiropractors, acupuncturists, optometrists, naturopathic doctors, professional clinical counselors, midwives, and podiatrists.
• Maintaining numerical balance: The number of allied health professionals with shares in the corporations must never exceed the number of licensed psychologist shareholders (also stated in Cal. Corp Code § 13401.5).

For Alex and Maria, both being psychologists, made compliance straightforward — they could divide ownership equally while still satisfying the statutory psychologist-majority rule.

Solo PC vs. Group PC vs. Separate PCs: Options for California Psychologist Group Practice Corporation

Alex and Maria can only form a professional psychologist corporation, but it doesn’t end there. They also needed to decide whether they should form a solo PC and operate separately or establish a group PC together, where they would be co-owners. Here’s how they compare:

Can Multiple Psychologists Co-Own a Corporation?

Yes. Two or more psychologists may share ownership of one PC, so long as they remain majority shareholders. Equity can be split 50/50 or customized through a shareholder agreement.

In our client case, they decided to funnel all of their non-W2 income into the PC. This simplified their tax reporting and allowed them to present a single, professional brand to clients and referral sources.

Buy-Sell Agreements: Must-Have for Multi-Owner Professional Psychological Corporation in California

California law allows corporations to place restrictions on the transfer of shares. Without those restrictions, ownership disputes or ineligible transferees could destabilize the practice.

A buy-sell agreement for psychologist PC with multiple owners is a must-have because it spells out what happens if a shareholder:

• Wants to leave the practice.
• Becomes disabled and cannot continue working.
• Passes away, leaving heirs who may not qualify to own shares under state law.

It also sets valuation methods (appraisal, formula, or book value) and defines redemption or transfer procedures. Without one, disputes can destabilize the corporation.

Name Style Rules for California Psychological Corporation You Must Know

There are specific rules you should know and follow when choosing a name for your multi-owner professional psychological corporation in California. 

Under Business and Professions Code § 2998 and § 2902(c) your psychological corporations name must include one of the following approved terms:

• Psychology
• Psychological
• Psychologist
• Psychology consultation
• Psychology consultant
• Psychometry
• Psychometrics
• Psychometrist
• Psychotherapy
• Psychotherapist
• Psychoanalysis
• Psychoanalyst

The name must also include wording or abbreviations that denote corporate designation, such as:

• “Inc.”
• “Corp.”
• “PC”
• “A Professional Corporation”

You still have the freedom to craft your corporation’s name to make sure it truly represents your brand. But these name style rules are required for all official filings to ensure public transparency and distinguish licensed professional entities.

Group Practice, Individual Brands: Using DBAs to Stay Compliant

Alex and Maria have different specializations as licensed psychologists. Understandably, they want that to be represented well in their individual brands even as they operate under the same PC.

So during our consultation, they asked, “What about brand identity? Can we still work independently?”

And the answer is yes! They can form an incorporated group psychology practice in California and still establish their separate brand identities. How? By filing DBAs (Doing Business As) to support independent branding while complying with naming rules.

Here’s an example:

• Corporate Name of Group Practice: “Valdez Psychological Group, PC”
• DBA 1: “Trauma Recovery Psychotherapy”
• DBA 2: “Forensic Psychology Consulting”

The key is making sure that each DBA includes one of California’s approved “magic words” as listed above to stay compliant.

How Liability Protection Works in a California Psychology Corporation

Professional corporations offer limited liability protection, but not in the same way an LLC does. Here’s what that means in practice:

• You are not protected from your own malpractice or professional negligence.
• You are protected from liability arising from malpractice committed by your co-owners or employees.

Remember: a PC entity doesn’t shield you from malpractice claims from your own professional negligence. That’s why we recommend that every PC should carry Errors & Omissions (E&O) insurance / malpractice insurance policy, issued in the corporate name. All licensed shareholders must be listed to ensure complete coverage.

What Are the Advantages of S-Corp for Multi-Owner PC

Most psychology PCs elect S corporation tax status with the IRS. This allows income to be divided between:

• W-2 salary (subject to payroll taxes)
• Profit distributions (not subject to the 15.3% self-employment tax)

Keep in mind that the IRS requires S-corp shareholders to take a reasonable salary, which should be based factors such as:

• Credentials and years of experience
• Market compensation data in the region
• Actual roles and workload in the practice

For example, Maria and Alex drew different salaries reflecting their distinct specialties but shared distributions evenly.

Governance Rules and Ongoing Costs of a California Psychology PC

Running a psychological corporation in California requires more than just filing the Articles of Incorporation. To stay in good standing, group PCs must follow strict governance rules and budget for recurring costs that come with maintaining corporate compliance.

H3 Tag: Governance and Compliance Requirements

Under the Moscone-Knox Professional Corporation Act, psychology corporations must observe the same formalities as other corporations, including:

• Electing officers such as President, Treasurer, and Secretary.
• Holding annual shareholder and director meetings, with minutes properly recorded.
• Filing Statements of Information with the California Secretary of State every year.

Failure to observe these formalities risks “piercing the corporate veil,” which can expose shareholders to personal liability despite having incorporated.

Costs and Ongoing Maintenance for California Psychological Corporation

Beyond compliance procedures, psychological corporations carry both state-mandated and professional operating costs. These typically include:

• Articles of Incorporation filing fee ($100)
• Statement of Information filing fee ($25)
• California Franchise Tax, which is required for of all corporations under Cal. Rev & Tax Code §23153(d)(1) ($800 annual minimum)
• Errors & Omissions (E&O) insurance: Costs vary depending on specialty, coverage, and claims history.
• CPA/legal fees: For drafting agreements, tax strategy, and ongoing compliance support.

Factoring in these obligations from the outset helps ensure the corporation remains both compliant and financially sustainable. You can check the CA Secretary of State website for the latest schedule of filing fees.

FAQs About Group Practice Psychological Corporation in California

What corporate entity can a psychologist form in California?

Licensed psychologists in California may only practice through a Professional Corporation (PC) under the Moscone-Knox Professional Corporation Act and the Psychology Licensing Law (Bus. & Prof. Code §§ 2995–2999). You can also elect an S- Corp tax status. But you cannot form an LLC or a general stock corporation for psychology services.

Can a licensed psychologist and an allied health professional co-own the same professional corporation in California?

Yes. California Corporations Code §13401.5 allows certain allied professionals, including physicians—to own minority shares (up to 49%) in a psychology corporation. However, licensed psychologists must always maintain at least 51% ownership.

Can a psychological corporation operate multiple offices in California?

Yes. A psychology PC may maintain more than one practice location, as long as all offices comply with California Board of Psychology regulations and local business licensing requirements.

What happens if one shareholder in a psychological corporation loses their license?

California PC shareholder rules require that if a co-owner who becomes unlicensed, they must divest their shares (Cal. Code Regs. Tit. 16, § 1345). This is why a well-drafted buy-sell agreement is essential—it provides procedures for mandatory redemption or transfer in these situations.

Do psychologists in a group PC still need individual malpractice insurance?

Yes. A professional corporation does not shield you from claims based on your own professional negligence. So it’s commonly recommended that each psychologist should maintain individual malpractice coverage, in addition to corporate-level E&O coverage.

Build a Sustainable Group Practice With California Psychologist Corporation

For Drs. Alex and Maria Valdez, forming a professional corporation transformed how they managed their trauma therapy and forensic consulting practices. Instead of navigating separate filings, scattered tax documents, and duplicate insurance policies, they consolidated under one California-compliant entity—streamlining operations while protecting their professional brand identities through DBAs.

With help from expert business lawyers, you and your colleagues can also have a thriving psychologist group practice corporation in California. Start today—call Incorporation Attorney at (714) 634-4838 or schedule a consultation online!