Forming a New Jersey Professional Services Corporation

Forming a New Jersey Professional Services Corporation

A professional services corporation (PSC) is a special type of business entity that may be formed exclusively by licensed professionals. Some examples are certified public accountants, architects, optometrists, professional engineers, land surveyors, land planners, chiropractors, physical therapists, registered professional nurses, dentists, physicians, and veterinarians.

Photo courtesy of Sean Pollock (Unsplash.com)

A professional services corporation closely resembles a regular corporation in many ways, but a PSC has certain special requirements. In New Jersey, professional services corporations are governed by the New Jersey Professional Service Corporation Act (Title 14A, Chapter 17, New Jersey Statutes) and the Business Corporation Act of New Jersey (Title 14A, Corporations, General, New Jersey Statutes).

Requirements for Professional Services Corporations

Under New Jersey law, one or more persons, each of whom is duly licensed or otherwise legally authorized to render the same or closely allied professional service within the state, may organize and become a shareholder or shareholders of a professional corporation. “Closely allied” professional areas are defined as architecture, professional engineering, land surveying and land planning; and any branch of medicine, surgery, optometry, optician, physical therapy, registered professional nursing, and dentistry.

A professional corporation cannot engage in any other business activity other than rendering the professional service for which it was incorporated. Below are several other key requirements: 

• Corporate name: The corporate name must contain the full or last names of one or more of the shareholders or a name descriptive of the type of professional service in which the corporation will be engaged. It must also contain the words “chartered,” “professional association” or “a professional corporation,” or the abbreviation “P.A.,” “P.C.,” “PA,” or “PC.” The use of the word “company,” “corporation” or “incorporated,” or any other words indicating that it is a corporation, in the corporate name of a professional corporation is specifically prohibited.  However, a PSC can register an alternate name with the New Jersey Secretary of State, that omits the above designations, provided that the alternate name contains the full or last name of one or more of the shareholders or adequately describes the type of professional service in which the professional corporation will be engaged. 
• Professional service limited to licensed personnel: A PSC may only render professional services through its officers, employees and agents who are duly licensed or otherwise legally authorized to render such professional services within the State of New Jersey. The prohibition does not apply to employees, such as clerks, secretaries, administrators, bookkeepers, technicians and other assistants, who provide non-professional services to the business.
• Directors: At least one director must also be a shareholder and be licensed by New Jersey to provide the professional service for which the corporation is formed.
• Liability of officers and shareholders: Officers, shareholders, agents and employees of a professional corporation remain personally and fully liable for any negligent or wrongful acts or misconduct they commit while rendering professional service on behalf of the corporation. However, the personal liability of shareholders of a PSC is limited to that of a shareholder-employee of a traditional corporation.
• Liability of corporation: A professional corporation is liable up to the full value of its property for any negligent or wrongful acts or misconduct committed by any of its officers, shareholders, agents or employees while they are engaged on behalf of the corporation in the rendering of professional service.
• Shareholders: All shareholders must be duly licensed or legally authorized to render the professional service for which the professional corporation was incorporated. In addition, shareholders are prohibited from transferring shares to anyone other than the professional corporation or a person duly licensed or legally authorized to render the professional services for which the professional corporation was incorporated.
• Disqualification to render service: In the event that any officer, shareholder, agent or employee of the PSC becomes legally disqualified to render the professional service as that for which the corporation was organized, he or she must sever all employment with the corporation and may not, directly or indirectly, participate or share, as a shareholder, in any earnings or profits realized by the corporation on account of professional services rendered on or after the effective date of such disqualification. 

Establishing a New Jersey PSC

All New Jersey corporations must register with the State of New Jersey Department of the Treasury. You may complete the required forms online or print and mail the forms to the Treasury Department. In either case, you will need to provide the following information to register your professional services corporation:

• The name of your corporation; and
• The specific purpose for your professional services corporation; and
• The total number of stock shares; and
• The name and address of a registered agent; and
• The PSC’s primary business address in New Jersey; and
• The name and address of the board of directors; and
• The name and address of the incorporator, which may be a person or business other than the PSC being registered; and
• The signature of at least one incorporator.

For professionals considering a PSC, it is always a good idea to consult with an experienced accountant and attorney who can fully advise you regarding the best legal structure for your New Jersey business, including the most advantageous structure in terms of flexibility, taxes, and limited liability.

For more information about PSC’s or if you have any questions, please contact me, Michael A. Jimenez, Esq., Counsel in Scarinci Hollenbeck’s Corporate Transactions & Business Group, at 201-806-3364.