Professional corporations are operated by a group of professionals such as lawyers, accountants, dentists and engineers. There are several advantages to operating this type of business over other entities such as sole proprietorship and general partnerships. Professional corporations in USA are entitled to favorable tax treatments, liability protections and other benefits provided under the corporate structure.
Advantages of a Professional Corporation
- Limited Liability of Professional Corporation in the USA
- Tax deduction saving
- Retention of profit amount
- Advantages for employees
- Division of income among family members
Main advantages is the limit on liability for the misconduct or malpractice of others who are part of the corporation. The benefits do not end there, however. There are some tax benefits, including the ability to contribute higher amounts to 401(k) plans. These types of corporations may also be able to provide certain benefits to employees on a tax-free basis, including life and health insurance. Shareholders may also gain tax benefits; however, it is important to note that the tax rate for a professional corporation in 2017 is 35%. Unlike a corporation where the tax rate is graduated, this applies to all earnings.
When compared to partnerships, there are other advantages that must be taken into consideration. For example, ownership is easier to transfer, even though it is restricted. Typically, restrictions may be explained in the shareholder agreement. In addition, while a partnership may have to dissolve when an owner dies or leaves the partnership, a professional corporation is able to move on in perpetuity. This is a significant advantage over other types of ownership. In addition, the fact that members may leave or new members may be added over time is often seen as a benefit. Keep in mind that adding or removing members may require you to file updated articles of incorporation with the state.
