California Corporations Code Section 13401 is the definitions statute that sets the ground rules for every professional corporation in the state. It tells you what a professional corporation is, who qualifies as a “licensed person” eligible to own and run one, and why a certificate of registration from a licensing board is as essential as the filing with the Secretary of State.1California Legislative Information. California Corporations Code 13401 – Definitions If you are forming, buying into, or running an entity that provides professional services in California, Section 13401 is the provision that controls who can be inside it.
What Section 13401 Defines
Section 13401 sits at the start of Part 4 of the Corporations Code and does three jobs. First, it defines a professional corporation as a corporation organized under California’s General Corporation Law that exists to provide professional services in a single profession. Second, it requires that the corporation operate under a certificate of registration issued by the government agency that regulates that profession. Third, it defines a “licensed person” as an individual holding a valid license under the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act to render the same professional services as the corporation.1California Legislative Information. California Corporations Code 13401 – Definitions
These definitions are not academic. They determine who can incorporate, who can hold shares, and who can serve as a director or officer. Everything else in Part 4 builds on them.
The Single-Profession Rule
A professional corporation can practice only one profession. You cannot combine, for example, legal services and accounting services inside one entity. The corporation’s articles of incorporation must state explicitly that it is a professional corporation and must identify the specific profession as its purpose.2California Legislative Information. California Corporations Code CORP 13404
Each licensing board also has its own naming requirements. Most require a designation such as “Professional Corporation” or “Prof. Corp.” in the corporate name, and the specific rules come from the board governing the profession, so check with that agency before settling on a name.3California Secretary of State. Articles of Incorporation of a Professional Corporation
The Healthcare Exception Under Section 13401.5
The companion statute, Section 13401.5, creates a limited exception for certain healthcare corporations. Licensed professionals from related fields can hold shares in a designated healthcare professional corporation, provided they collectively own no more than 49 percent of total shares and their number does not exceed the number of shareholders licensed in the corporation’s primary profession.4California Legislative Information. California Corporations Code 13401.5
A medical corporation, for instance, can include shareholders who are licensed psychologists, podiatrists, chiropractors, optometrists, registered nurses, and pharmacists, among others. A psychological corporation can include physicians and surgeons, marriage and family therapists, and clinical social workers. The statute lists the specific eligible professions for each type of healthcare corporation, and the combinations are not interchangeable.4California Legislative Information. California Corporations Code 13401.5
This exception does not reach law corporations, accounting corporations, engineering corporations, or other non-healthcare entities. For those, every shareholder must hold a license in the same profession the corporation practices.
Who Can Own, Direct, and Officer the Corporation
Because Section 13401 defines “licensed person” as someone licensed to render the same services the corporation provides, that definition carries through the rest of Part 4. Shares can only be issued to a licensed person or someone licensed to practice the same profession in another jurisdiction; shares issued in violation of this rule are void.5California Legislative Information. California Corporations Code 13406 Share transfers are similarly limited to licensed persons, existing shareholders, out-of-state licensees in the same profession, or another professional corporation, and any transfer that violates the restriction is void.6California Legislative Information. California Corporations Code CORP 13407
Voting trusts and proxy arrangements that would hand voting power to a non-shareholder are also void.5California Legislative Information. California Corporations Code 13406 The point of these constraints is to keep control in the hands of people who are professionally accountable for the corporation’s services.
When a Shareholder Stops Qualifying
The definition of “licensed person” has teeth when someone loses their license or dies. A shareholder who becomes disqualified from practicing (through revocation, suspension, or surrender of the license) has 90 days for the shares to be transferred. If a shareholder dies, the estate has six months to transfer the shares to an eligible person or back to the corporation.6California Legislative Information. California Corporations Code CORP 13407
If the transfer does not happen in time, the licensing board can suspend or revoke the corporation’s certificate of registration, at which point the corporation must stop providing professional services entirely.6California Legislative Information. California Corporations Code CORP 13407 The corporation can buy back its own shares to meet these deadlines without regard to the usual legal restrictions on share repurchases, so long as at least one share remains outstanding. Bylaws or a shareholder agreement should include a buy-sell provision addressing disqualification and death. Working out the mechanics of a forced transfer in the middle of a crisis is how corporations lose their registrations.
What Formation Actually Requires
Section 13401’s definition means formation has two legally separate steps. Filing Articles of Incorporation with the Secretary of State creates the corporation on paper, with the required statement that it is a professional corporation and identification of the single profession it will practice. The filing fee is $100.7California Secretary of State. Business Entities Fee Schedule
The second step is obtaining a certificate of registration from the licensing board that regulates the profession.1California Legislative Information. California Corporations Code 13401 – Definitions Medical corporations register with the Medical Board, law corporations with the State Bar, engineering corporations with the Board for Professional Engineers, and so on. Without that certificate, the entity is not legally a professional corporation regardless of what the articles say. Each board has its own application process and fees, so contact the relevant agency early.
What Section 13401 Does Not Do
Operating through a professional corporation gives the entity limited liability for general business debts, but it does not shield any licensed professional from personal liability for their own professional negligence or malpractice. The Corporations Code expressly preserves the professional relationship between a licensed person and the people they serve, along with all conduct standards and disciplinary provisions that apply to that relationship.8California Legislative Information. California Corporations Code CORP 13410
If a doctor in a medical corporation commits malpractice, the corporate structure will not block a lawsuit from reaching the doctor personally. The corporation itself may also be liable, but the individual professional cannot hide behind the entity. The licensing board retains full authority to investigate, discipline, and sanction the individuals practicing within the corporation, and it can restrict or prohibit any disqualified person from participating in management or sharing in income.8California Legislative Information. California Corporations Code CORP 13410 Section 13401 defines the box a professional practice sits inside; it does not change the professional’s own accountability for the work.