Overview: Design Professional Corporations
California Corporations Code Section 13401 lists licensed professions that must use professional corporations. Architects and engineers seeking the liability protection and tax advantages of incorporation must form a professional corporation registered with the appropriate licensing board.
Why Professional Corporation?
Design professionals offering architecture or engineering services to the public must use specific business structures under California law.
- Limited personal liability for business debts
- Professional liability still applies personally
- Ownership restricted to licensed professionals
- S-Corp election enables tax savings
- Enhanced professional credibility
Governing Boards
Two primary boards regulate design professionals in California:
- California Architects Board (CAB)
- Board for Professional Engineers (BPELSG)
- Land Surveyors under BPELSG
- Geologists under BPELSG
- Each has specific PC requirements
Business Entity Options
Design professionals have several structure choices:
- Sole proprietorship (unlimited liability)
- General partnership (joint liability)
- Professional Corporation (PC)
- Limited Liability Partnership (LLP)
- LLC (with special restrictions)
Name Requirements
Professional corporation names must comply with board rules:
- Include licensee name or "Architects"/"Engineers"
- May use "A Professional Corporation"
- Cannot imply unlicensed services
- Must be distinguishable from existing entities
- Subject to SOS name availability
💡 California LLC Option for Engineers
Since 2020, California allows licensed engineers to form LLCs under Business & Professions Code Section 6738.1. However, strict requirements apply including that all managing members and officers must be licensed engineers, and the LLC must maintain professional liability insurance or other security. Architecture firms cannot use the LLC structure and must choose between PC, LLP, or sole proprietorship.
Engineering & Architecture License Types
California issues multiple license types for design professionals, each with specific practice authority and educational requirements. Understanding these distinctions is essential for proper corporation formation.
| License Type | Abbreviation | Governing Board | Key Practice Areas |
|---|---|---|---|
| Professional Engineer | PE / Civil (CE) | BPELSG | Civil, mechanical, electrical, chemical engineering |
| Structural Engineer | SE | BPELSG | Structural design, seismic analysis, building stability |
| Geotechnical Engineer | GE | BPELSG | Soil mechanics, foundation design, slope stability |
| Professional Land Surveyor | PLS | BPELSG | Property boundary surveys, subdivision mapping |
| Professional Geologist | PG | BPELSG | Geological assessments, hazard evaluation |
| Certified Engineering Geologist | CEG | BPELSG | Engineering geology, site characterization |
| Licensed Architect | AIA / RA | CAB | Building design, construction documents, observation |
Civil Engineer (PE/CE)
The most common engineering license covers general civil engineering practice:
- Site development and grading
- Water and wastewater systems
- Transportation and roadway design
- Basic structural for non-hospital buildings
- Cannot stamp hospital or essential facilities
Structural Engineer (SE)
California requires SE licensure for certain building types:
- Hospitals and healthcare facilities
- Schools (DSA jurisdiction)
- Essential services buildings
- High-rise structures over 160 feet
- Seismic-critical structures
Architect
Licensed architects have exclusive practice authority for:
- Building design and planning
- Construction document preparation
- Construction observation services
- Coordination of consultants
- Some exemptions exist for small structures
Land Surveyor (PLS)
Land surveyors perform legally-binding boundary work:
- Property boundary determination
- ALTA/NSPS land title surveys
- Subdivision mapping and filing
- Construction staking
- Corner record preparation
⚠️ Practice Authority Limitations
California strictly regulates overlapping practice between architects and engineers. While civil engineers can design building structural systems for most structures, only licensed architects can prepare complete building designs including architectural elements. Conversely, structural engineers (SE) have exclusive authority over hospitals and schools. Forming a multi-discipline firm requires careful attention to scope limitations and proper insurance coverage.
Professional Corporation Ownership Rules
California professional corporation statutes impose strict ownership requirements to ensure that only licensed professionals control entities offering professional services. These rules differ slightly between architecture and engineering corporations.
Engineering Corporation Ownership
Under Bus. & Prof. Code § 6738:
- All shareholders must be licensed engineers, land surveyors, geologists, or architects
- Directors must be licensed in one of the above professions
- Officers may be unlicensed except for professional practice roles
- At least one shareholder must hold the specific license for services offered
- Can include licensed professionals from related disciplines
Architecture Corporation Ownership
Under Bus. & Prof. Code § 5610.3:
- All shareholders must be licensed architects
- Or licensed in a "related" profession (engineers, landscape architects)
- Majority of shares must be held by architects if offering architecture services
- At least one director must be a licensed architect
- CEO/President overseeing practice must be licensed
💡 Combined Architecture-Engineering Firms
A single professional corporation can offer both architecture and engineering services if ownership requirements for both professions are satisfied. The firm must have licensed shareholders for each discipline offered, maintain separate professional liability coverage, and ensure that work is performed by appropriately licensed individuals. Many successful A&E firms operate under this combined structure.
Permitted Shareholders
- Licensed professional engineers (PE, SE, GE)
- Licensed land surveyors (PLS)
- Licensed architects
- Licensed geologists (PG, CEG)
- Licensed landscape architects
- Other professionals in allied disciplines
Prohibited Shareholders
- Unlicensed individuals (even spouses)
- Other corporations or LLCs
- Investment entities or private equity
- Trusts (with narrow exceptions)
- Unlicensed heirs (grace period applies)
- Foreign professionals not CA-licensed
⚠️ Death or License Loss of Shareholder
If a shareholder dies or loses their license, the corporation has a limited period (typically 90 days) to redeem or transfer those shares to a qualified licensee. Failure to comply can result in administrative dissolution. Include mandatory redemption provisions in bylaws and shareholder agreements to address this scenario.
Formation Process: Step by Step
Forming a California architecture or engineering professional corporation requires coordination with both the Secretary of State and the relevant licensing board. Here's the complete process.
Verify License Status
Confirm that all proposed shareholders hold current, valid California licenses. Check license status through:
- BPELSG License Lookup for engineers, surveyors, geologists
- California Architects Board verification for architects
- Ensure no pending disciplinary actions
Select Corporate Name
Choose a name that complies with professional corporation rules:
- Check availability with California Secretary of State
- Include profession indicator or licensee name
- May include "A Professional Corporation" or "PC"
- Avoid misleading or deceptive terms
File Articles of Incorporation
Prepare and file Articles with specific professional corporation provisions:
- State the professional purpose (architecture/engineering)
- Reference Corp. Code Section 13401(a)
- Include required professional corporation language
- File with Secretary of State (Form ARTS-PC)
- Filing fee: approximately $100
Obtain Board Registration
Register the professional corporation with the appropriate licensing board:
- Engineering/surveying corporations: File with BPELSG
- Architecture corporations: File with California Architects Board
- Provide certified copy of filed Articles
- Submit shareholder/officer license information
- Pay board registration fees
Adopt Corporate Documents
Prepare essential governance documents:
- Bylaws with mandatory redemption provisions
- Shareholder agreement addressing license loss
- Organizational board resolutions
- Stock certificates and ledger
- Initial board minutes
Tax Elections and Registrations
Complete required tax filings:
- Apply for Federal EIN (Form SS-4)
- Consider S-Corp election (Form 2553)
- Register with California Franchise Tax Board
- Obtain local business licenses
- Register with Employment Development Department if hiring
Obtain Professional Liability Insurance
Secure appropriate coverage for your practice areas:
- Professional liability (E&O) insurance is essential
- General liability coverage
- Coverage limits based on project types
- Many clients contractually require minimum limits
Multi-Discipline Firm Structures
Many design firms offer services across multiple disciplines—architecture, civil engineering, structural engineering, landscape architecture. California law permits these combined practices with specific requirements.
Combined A&E Corporation
A single professional corporation can offer both architecture and engineering:
- Must have licensed shareholders for each discipline
- Register with both CAB and BPELSG
- Maintain insurance covering all services
- Each discipline stamps own work
- Common structure for full-service firms
Affiliated Entity Structure
Separate entities with common ownership or affiliation:
- Architecture PC + Engineering PC
- Common administrative services
- Shared office and support staff
- Inter-company consulting agreements
- Maintains clear liability separation
Design-Build Considerations
Design-build projects require careful structure:
- PC cannot hold contractor's license
- Separate construction entity needed
- Teaming agreements common
- Joint venture structures
- Clear scope delineation required
Landscape Architecture
Including landscape architecture services:
- Licensed landscape architects can be shareholders
- Register with Landscape Architects Technical Committee
- Often combined with architecture or civil engineering
- Site planning coordination benefits
- Similar ownership rules apply
✅ Benefits of Multi-Discipline Structure
- Coordination: Better integration between architectural and engineering design
- Efficiency: Single point of contact for clients
- Liability: Corporation shields personal assets (though professional liability remains)
- Marketing: Full-service capability attracts larger projects
- Tax Planning: Consolidated entity simplifies S-Corp benefits
Professional Liability Insurance
Professional liability insurance (E&O insurance) is essential for design professionals. While California doesn't mandate coverage minimums for PCs, client contracts and prudent practice require adequate protection.
Coverage Types Needed
- Professional liability (E&O) - core coverage
- General liability (CGL)
- Workers' compensation (if employees)
- Auto liability (company vehicles)
- Cyber liability (increasingly important)
- Employment practices liability (EPLI)
Typical Coverage Limits
- Small firm: $250K-$500K per claim
- Mid-size firm: $1M-$2M per claim
- Large firm: $5M+ with umbrella
- Public projects often require $2M minimum
- Hospitals/schools may require $5M+
Claims-Made vs. Occurrence
E&O policies are typically claims-made:
- Coverage applies when claim is made
- Must maintain continuous coverage
- Tail coverage needed if policy lapses
- Prior acts coverage important for new firms
- Retroactive date affects coverage
Engineering LLC Insurance
LLCs under B&P Code § 6738.1 must maintain:
- $2M minimum E&O coverage, OR
- $2M security deposit with state, OR
- $2M surety bond
- Annual certification to BPELSG
- Failure terminates LLC authority
⚠️ Limitation of Liability Clauses
California courts generally enforce contractual limitations of liability in design professional agreements. Consider including provisions that cap liability to fee amount or insurance limits. However, these clauses are unenforceable for gross negligence, fraud, or willful misconduct. Review limitation clauses carefully with legal counsel.
Frequently Asked Questions
No, California does not permit LLCs for architecture practice. Licensed architects must operate as sole proprietors, partnerships, LLPs, or professional corporations. The 2020 law allowing engineering LLCs (B&P Code § 6738.1) specifically applies only to professional engineers, not architects. The California Architects Board has not pursued similar legislation.
Only if your spouse holds a qualifying license (engineer, architect, surveyor, or geologist). California professional corporation law requires all shareholders to be licensed professionals. Community property rules do not override this requirement—shares must be held in the licensed spouse's name alone. Some practitioners use prenuptial or post-nuptial agreements to clarify this limitation.
If you're the sole shareholder of a professional engineering corporation and your license lapses, you must either reinstate your license, transfer shares to a licensed professional, or dissolve the corporation. California provides a limited grace period (typically 90 days) to resolve the situation. Operating without proper licensure can result in administrative dissolution and potential disciplinary action.
Yes, many successful firms operate as combined A&E professional corporations. Requirements include: (1) shareholders licensed in both disciplines (or shareholders with each license type); (2) registration with both the California Architects Board and BPELSG; (3) professional liability insurance covering all services offered; and (4) each discipline's work stamped by appropriately licensed individuals. This structure is common for full-service design firms.
Converting involves: (1) forming the new PC with Secretary of State; (2) registering with BPELSG or CAB; (3) obtaining new EIN and bank accounts; (4) transferring assets and contracts to the corporation; (5) updating professional liability insurance; (6) notifying clients of the entity change; (7) filing S-Corp election if desired. Consider a legal assignment agreement for existing contracts and ensure insurance coverage continuity during the transition.
Since 2020, California engineers can choose between PC and LLC. Key differences: PC: Traditional corporate structure, bylaws and stock, well-established case law, no mandatory insurance. LLC: Operating agreement flexibility, pass-through taxation by default, BUT requires mandatory $2M professional liability insurance (or bond/deposit), annual BPELSG certification, all managing members must be licensed. Many engineers prefer PC for its familiarity and lack of mandatory insurance minimums.
Shareholders must be licensed in California or another qualifying profession. An engineer licensed only in another state cannot be a shareholder unless they also hold a California PE license. However, engineers with multi-state licenses (including California) may be shareholders even if practicing primarily elsewhere. Consider reciprocity options through NCEES for obtaining California licensure.