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In most states, licensed professionals (architects, accountants, doctors, lawyers, therapists, etc.) offering professional services cannot form a “regular” California LLC, but instead must form a Professional LLC (PLLC).
California is unique in that not only are professionals prohibited from forming an LLC (with minor exceptions), but the state doesn’t even have a PLLC entity type.
The reason for this is that professionals are held to a higher standard and have a responsibility to uphold the public’s safety. Therefore, the California Legislature doesn’t allow professionals to limit their personal liability for their mistakes.
This begs the question, “Which California professionals can and cannot form an LLC?”
Accountants, architects, attorneys, chiropractors, clinical social workers, court reporters (shorthand reporters), dentists, dental hygienists, doctors, marriages and family counselors, nurses, optometrists, pharmacists, physical therapists, psychologists, and veterinarians cannot form an LLC.
But what about the 150+ additional licensed professionals in California?
We wish there was a simple list that we could provide you. Unfortunately, things get a little complicated. We’ll explain the details below, but our recommendation is to speak with an attorney to determine your professional requirements and restrictions in California.
The evolution of California laws for licensed professionals
1. As per Section 17701.04(e) of the California Corporations Code:
“Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state.”
Simplified: California LLCs can’t provide professional services.
2. As per Sections 13401(a) and 13401.3 of the California Corporations Code:
“‘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.”
“As used in this part, ‘professional services’ also means any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Yacht and Ship Brokers Act.”
3. The above definition created confusion. So in 2004, the California Secretary of State requested an opinion letter from the California Attorney General. The Attorney General opinion letter is worth a read (takes 5-10 minutes), however, the Attorney General’s summary was as follows:
“… a business that provides services requiring a license, certification, or registration pursuant to the Business and Professions Code may conduct its activities as an LLC if the services rendered only require a nonprofessional, occupational license.”
Simplified: Nonprofessional, occupational licensees can form an LLC.
Note: Although this opinion letter was issued in 2004, this doesn’t mean this is “outdated”. In fact, the California legal community references this letter and it holds weight in court.
4. So naturally, this begs the question, “What is a nonprofessional, occupational license?”
Within the AG’s opinion letter, while looking at multiple sections of California law, in addition to a few California court cases, the consensus of what makes someone a “professional” versus a “non-professional” is by looking at how extensive and “rigorous” their education, training, and testing was.
One example used is that of a Food Processor’s License. This is considered a nonprofessional, occupational license since there is no extensive education needed and it can be obtained without certain skill requirements. As an alternative example, think about the education, training, and testing that would be required for a nurse.
5. In later years, the LLC Act was amended a few times. As a result, section 17701.04(b) of the California Corporation Code reads:
“…A domestic or foreign limited liability company may render services that may be lawfully rendered only pursuant to a license, certificate, or registration authorized by the Business and Professions Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers Act, if the applicable provisions of the Business and Professions Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers Act authorize a limited liability company or foreign limited liability company to hold that license, certificate, or registration.”
Simplified: A California licensed professional can form an LLC if the bodies of relevant law state an LLC can hold that license.
6. In summary, not only do you need to evaluate your education, training, and testing (to see if you’re a professional versus a non-professional), but you also need to review the applicable sections of California law to see if your activities are expressly allowed to operate within an LLC. This means, along with the recommended assistance of an attorney, you’ll need to review the relevant California laws:
- Corporations Code
- Professional Corporation Act
- Business and Professions Code
- Code of Regulations
- Chiropractic Act
- Osteopathic Act
- Yacht and Ship Brokers Act
Contractors can form California LLCs
As of January 1st, 2012, contractors and construction companies can form LLCs in California.
This change came about from Senate Bill 392, which amended multiple sections of the LLC Act and the Business and Professions Code.
The new laws specifically allow California LLCs to become licensed contractors with the California Contractors State Licensing Board.
There are a number of requirements a contractor must meet before the California State Licensing Board will grant a license to the LLC.
You can find those here: CSLB: Licenses for Limited Liability Companies.
General Engineering Contractors (classification A) and General Building Contractors (classification B) can operate their business through an LLC in California.
Additionally, Speciality Contractors (classification C) can also operate their business through an LLC in California. As per the CSLB: Licensing Classifications page, the following classifications are allowed:
- C-2 – Insulation and Acoustical Contractor
- C-4 – Boiler, Hot Water Heating and Steam Fitting Contractor
- C-5 – Framing and Rough Carpentry Contractor
- C-6 – Cabinet, Millwork and Finish Carpentry Contractor
- C-7 – Low Voltage Systems Contractor
- C-8 – Concrete Contractor
- C-9 – Drywall Contractor
- C10 – Electrical Contractor
- C11 – Elevator Contractor
- C12 – Earthwork and Paving Contractors
- C13 – Fencing Contractor
- C15 – Flooring and Floor Covering Contractors
- C16 – Fire Protection Contractor
- C17 – Glazing Contractor
- C20 – Warm-Air Heating, Ventilating and Air-Conditioning Contractor
- C21 – Building Moving/Demolition Contractor
- C22 – Asbestos Abatement Contractor
- C23 – Ornamental Metal Contractor
- C27 – Landscaping Contractor
- C28 – Lock and Security Equipment Contractor
- C29 – Masonry Contractor
- C31 – Construction Zone Traffic Control Contractor
- C32 – Parking and Highway Improvement Contractor
- C33 – Painting and Decorating Contractor
- C34 – Pipeline Contractor
- C35 – Lathing and Plastering Contractor
- C36 – Plumbing Contractor
- C38 – Refrigeration Contractor
- C39 – Roofing Contractor
- C42 – Sanitation System Contractor
- C43 – Sheet Metal Contractor
- C45 – Sign Contractor
- C46 – Solar Contractor
- C47 – General Manufactured Housing Contractor
- C50 – Reinforcing Steel Contractor
- C51 – Structural Steel Contractor
- C53 – Swimming Pool Contractor
- C54 – Ceramic and Mosaic Tile Contractor
- C55 – Water Conditioning Contractor
- C57 – Well Drilling Contractor
- C60 – Welding Contractor
- C-61 – Limited Specialty
- ASB – Asbestos Certification
- HAZ – Hazardous Substance Removal Certification
California professionals can form an LLC for other reasons
Just because you’re a licensed professional doesn’t mean you can’t form an LLC for other reasons. You just can’t form an LLC to offer professional services.
For example, if you want to form an LLC to invest in real estate or to open a coffee shop, you can certainly do so.
Registered Limited Liability Partnership (RLLP) and Professional Corporation (PC)
Besides an LLC, there are two primary alternative entities for professionals.
- Registered Limited Liability Partnership (RLLP)
- Professional Corporation (PC)
A Registered Limited Liability Partnership (RLLP) is, at times, loosely referred to as a “Professional LLP”. “Registered” simply means that the entity is registered with the California Secretary of State.
A California Registered Limited Liability Partnership used to be available for 3 types of professionals (architects, attorneys and public accountants), however, since 2019, architects have been removed (as per Section 16101 of the California Corporations Code).
Only attorneys and public accountants can form a California RLLP.
A California RLLP is formed by filing Form LLP-1 with the Secretary of State.
For other professionals, the most commonly used alternative is the Professional Corporation. A California Professional Corporation is formed by filing Form ARTS-PC.
Professional Corporation
While a Professional Corporation is similar to a regular Corporation, it differs in a number of ways:
- Only licensed professionals can form a Professional Corporation
- It must be formed for the sole purpose of rendering professional services
- The director, president, vice president, treasurer and secretary must be licensed professionals
- The shareholders must be licensed professionals
- The shares of stock can only be transferred to other licensed professionals
- A shareholder cannot delegate his/her powers to a non-licensed person
- While a Professional Corporation may employ non-licensed workers, they are not allowed to provide professional services in the business
- The Professional Corporation has to follow the rules of the licensing body or government agency that regulates it
Fees and registration with your board or governing body
If you form a Professional Corporation with the California Secretary of State, you’ll then need to have your Professional Corporation apply for a license with the board or governing body that regulates your profession.
A license from the board or governing body is needed before a corporation can practice a profession. Processing time, filing fees and documentary requirements may vary, so be sure to call your profession’s board/governing body for details.
Insurance
Professionals are not shielded from malpractice claims simply by forming a business entity. Therefore, it’s important to make sure you are adequately covered.
In addition, make sure to speak with your attorney about any insurance requirements that have been set by applicable laws and/or your regulatory board.
Taxation of a Professional Corporation
If you decide to form a Professional Corporation is needed for your business, know that you can leave it taxed in its default status (taxed as a C-Corporation) or you can elect to have your Professional Corporation taxed as an S-Corporation. This may save you money on self-employment taxes once your business’ net income is substantial.
While we don’t have an article on Professional Corporations being taxed as S-Corporations, we do have an article on LLCs being taxed as S-Corporations (while not exactly the same, the principles still apply). After checking out that article, we also recommend speaking with an accountant to see if S-Corporation taxation is a fit for your California Professional Corporation.
Summary & recommendation
The California laws governing licensed professionals is complex and challenging to navigate. Furthermore, there’s over 150 different types of professional and nonprofessional licenses in California.
We recommend speaking with an attorney to determine if you can or cannot operate your professional services business with a California LLC.
References
California FTB: Business type – Limited Liability Partnership
California Office of the Attorney General: Opinion No. 04-103
California Secretary of State: Limited Liability Company filing tips
California Secretary of State: Limited Liability Partnership filing tips
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
Hi there! I am an SLP and want to provide tele-health services to clients in California. Can I open an LLC in another state (my state does not allow SLPs to open Professional Corporations) and then register as a foreign LLC in CA to provide Telehealth services?
Hi Megan, unfortunately, no. You’d run into the same issues.
Hello! I’m a Licensed Hearing aid dispenser in California and thinking of opening up a hearing aid store, can it be an LLC? Also, a business that is currently an LLC, can it be changed to an S corp? and if so, is the change easy or complicated? Many thanks in advance!
Hi Emily, we can’t say for sure 100%, however, if it were me, I’d open the hearing aid store using a California LLC. And yes, an LLC can elect to be taxed as an S-Corporation. However, because S-Corp treatment has additional requirements and expenses, we only recommend exploring that as an option (with a good accountant) once there is consistent, and substantial profit (to justify the added expenses and requirements). You can read more in our LLC taxed as S-Corporation page. Hope that helps :)
I am Nurse Practitioner in California. I am trying to open a mobile iv hydration clinic and possibly telehealth services. What options do I have to forming my own business? I hear different things. I hear that I can do a Medical Corporation with a Medical Director having 51% ownership or I can do a Nursing Corporation. What is the difference? I am so confused and don’t know where to begin. So many things to learn such as Medical Corporation, Nursing Corporation, DBA, MSO, etc.
Also, can I have an LLC or holding company in Wyoming and register is a foreign entity and have it own the Medical Corporation or Nursing Coporation in California?
Hi Scott, I hear you. So many things. And the state has never provided clear guidance. So it’s really annoying, and it puts us in a challenging situation. We’d prefer to tell readers what is best practice, however, we’re left giving vague replies. Having said that, I’d look into a California Professional Corporation. And if helpful, you could speak with a business attorney (or a few) who are very familiar with the “professional services” law.
Regarding a DBA, it isn’t required. It’s a personal choice. To learn more, this page will be helpful: Do I need a DBA for my LLC?
And no, if you formed an LLC in Wyoming – or any other state – and you registered it as a Foreign LLC in California to render “professional services” in California, you’d still be in the same situation. Said another way, it won’t help, and you technically can’t do it.
Hi, I live in California. Can I form a LLC for a Bookkeeping business?
Hi Symphony, yes, you can. In fact, the LLC is the most common business entity used for bookkeeping businesses. Hope that helps.
In CA may a business providing both dental x-ray procedures (32 hours of course study at City College) and medical x-ray procedures be an LLC? Confusing…
Thank you,
Peggy
Hi Peggy, we can’t make comment on items like this due the grayness and ambiguity. We recommend asking an attorney or two. Thank you for your understanding.
I’ve owned my own landscaping business in CA for several years. It’s a DBA with no employees – just myself. I’d like to convert it to an LLC to reduce my personal liabilities. I don’t yet have a landscaping contractor license in CA. Am I able to convert to an LLC without that license? Will my LLC shield me from liability if I’m unlicensed?
Thanks
Hi Joe, you’ll want to check with the licensing board, as typically there is a process to either license the LLC or connect your personal license to your LLC.
Hi,
Can a tax preparation office become an LLC?
Hi Eduardo, do you – or any staff members – have a professional license or certification with the state? Have you gone through any type of training or education in regards to tax preparation?
Hi Matt
Thank you for the clear and concise information.
I’m a practicing physician in California. I plan to start a business selling surgical instruments. Is this considered a professional service?
Hi Joe, you are very welcome. We recommend confirming this with an attorney familiar with healthcare law in California, however, as per our research, we believe surgical sales would fall below the threshold of what constitutes “extensive” and “rigorous” education, training, and testing. Therefore, you should be able to form a regular California LLC for surgical sales (of course not for practicing as a physician, as that would be considered a professional service). I wish we could provide a more “black and white” answer, but I hope that helps and thank you for your understanding.
We are a LLC Engineering firm based out of MN we want to offer engineering services in CA. Do we have to change our Company from an LLC to a Professional Corporation to offer this? Can I get more info on how to go about this?
Hi Adrianne, we don’t specialize in Professional LLCs and aren’t able to provide such statements regarding California. We recommend speaking with a few attorneys on this. Thank you for your understanding.
can a transportation ( vehicle/Motorcycles) business be consider a LLC
Hi Allen, yes, an LLC can be formed for a transportation business.
If I live in California and want to open LLC because I want to invest in a couple of condo properties in Neveda, is it best to open LLC in California or Neveda?
Hi Sherry, in this situation, the LLC is going to be doing business in both states. It’ll be doing business in Nevada because that is where the business activities will be taking place (i.e. collecting rents, advertising properties, etc.) and it’ll be doing business in California because you reside there and California has very strict rules (please see when is an LLC doing business in California).
So you can form an LLC in California and register it as a foreign LLC in Nevada or you can form an LLC in Nevada and register it as a foreign LLC in California. Either way, the LLC will have to pay California LLC franchise tax and file a California LLC Return of Income (Form 568).
Another setup to consider is forming a California LLC to act as a holding company and that LLC owns a Nevada LLC. In this setup, the California LLC wouldn’t need to register as a foreign LLC Nevada and the Nevada LLC wouldn’t need to be registered as a foreign LLC in California.
Furthermore, you could form a California LLC that owns multiple Nevada LLCs if you want to separate liability risk across your properties. This setup is also helpful if you buy real estate in another state. For example, if you buy real estate in Idaho, you can form an Idaho LLC (that is owned by your California LLC). A lot to think about/digest, I know. Hope that helps though.
In California, if my partner and I have an LLC together and we take on a couple of members at 1% each and potentially switch out those members every couple of years, are those people considered employees? My understanding is that LLCs can pay its members through profit distributions and guaranteed payments which require the member to pay self-employment taxes but they are not considered to be employees of the LLC.
Please let me know your perspective on this scenario. Thank you!
Hi Kami, no, those people are not considered employees. They are simply Members. An employer-employee arrangement is created by an agreement as well as the employer paying a W-2 wage/salary, withholding taxes, and paying federal and state unemployment taxes. There are also state rules and requirements to adhere to as well if your California LLC becomes an employer. An LLC Member actually cannot be an employee in an LLC taxed in its default status (a Single-Member LLC taxed like a Sole Proprietorship or a Multi-Member LLC taxed like a Partnership). In order for a Member to become an employee-Member, the LLC would need to change its tax classification to an LLC taxed as an S-Corporation or an LLC taxed as a C-Corporation. You are correct. In a Multi-Member LLC (taxed like a Partnership), owners receive money via distributions of profits and/or guaranteed payments. However, neither of those are considered an “employee’s salary”. Hope that helps.
Can a plumbing company become LLC??
Hi Miguel, yes, a plumbing company in California can operate through an LLC. We recently updated the article with this information. Here is the link to the licensing requirements: CSLB: Licenses for Limited Liability Companies. Hope that helps.
I have a very specific question I have not been able to find an answer to. I am a licensed Engineer in California, and want to start an LLC, but to render Engineering Consulting services only. This means that I would only be consulting and providing recommendations, never being the engineer of record, and never stamping drawings with my professional license stamp. Am I able to therefore form an LLC, since technically, it is not providing “professional” services?
Hi Marvin, we’re unable to answer these types of questions. We recommend speaking with a few attorneys. If you’d like, feel free to circle back around. I’m curious to hear what you learn. Thanks.
Hello,
Can a single owner physical therapy business become an LLc in California?
I am a physical therapist in my first year of business. Thus far, I have created a PC and was planning to switch to S Corp but am learning that an LLc may be less paperwork and fees. Your website listed the professional licensing areas that cannot become an LLc. I am licensed by the Physical Therapy Board of Ca which is not on that list. Can I switch to an LLc before year end and, if so, can I avoid the minimum $800 fee if I chose to be taxed as an S Corp? Also, is the difference, besides a lengthy tax return and reporting requirements for S Corp, the ability to split income, and save on self employment taxes, once I’m making enough to substantiate doing so. It may take several years to reach a significant income, ie $100k, and wondering if LLC is better until then. Your input would be greatly appreciated as I can’t seem to get a straight answer.
Thank you very much!
Hi Lauren, apologies for our slow reply. We just updated this page with more details. The Physical Therapy Board of California references the Attorney General’s opinion letter (linked above in article). A physical therapist, because of their education, training, and testing, is considered to be providing professional services and therefore cannot form an LLC in California. If you decide to form a Professional Corporation, you can still elect S-Corporation taxation. Hope that helps!
I ha e a DBA but am tryi g yo turn it into a LLC because I figure ive had it since 2010 and maybe that looks good on paper… How do I make the Dba into LLC and use other name ?
My apologies for the mistakes in my question. My question is can I turn a DBA inro an LLC? And use the same method that you discussed regards to using two names?
Technically, this would be turning a Sole Proprietorship into an LLC… more specially, you’d be cancelling the Sole Proprietorship (with a DBA) and forming an LLC. We have info on that here: convert a Sole Proprietorship to an LLC. Hope that helps.
Do you cover DBA’s and the steps to register your business with you city, county or state? Placing an ad in the local paper?
Hey Bob, we don’t cover DBAs at this time, however, we have published an article called Do I need to file a DBA. In California, DBAs are filed at the county-level, so you’ll need to get in touch with your county clerk’s office to check on the filing instructions and forms. Hope that helps.