Overview: CPA Professional Corporations
California CPAs may practice through several business structures, including sole proprietorships, partnerships, LLPs, and professional corporations. Under Business & Professions Code § 5079 and Corporations Code § 13401, CPA firms must register with the California Board of Accountancy (CBA) regardless of entity type.
Why Form a CPA PC?
A professional corporation provides significant advantages for accounting practices:
- Limited liability for business debts
- S-Corp election reduces self-employment tax
- Easier succession and ownership transfer
- Multiple CPA owners possible
- Professional credibility and permanence
Regulatory Framework
CPA corporations are governed by:
- California Board of Accountancy (CBA)
- CA Business & Professions Code § 5000-5155
- CA Corporations Code § 13401-13410
- CBA Regulations (Title 16 CCR)
- AICPA Professional Standards
Business Structure Options
CPAs may practice through:
- Sole proprietorship (CPA permit holder)
- General partnership (CPA partners)
- Limited Liability Partnership (LLP)
- Professional Corporation (PC)
- Limited Liability Company (LLC) - with restrictions
Liability Considerations
Professional corporations have specific liability rules:
- Professional negligence remains personal
- Corporation shields from business debts
- Supervisory liability for staff work
- Professional liability insurance essential
- Corporate formalities must be maintained
💡 CPA Firm Registration Requirement
Any firm (including sole proprietorships) offering or performing accounting services to the public must register with the California Board of Accountancy. This applies regardless of entity type. Registration must be renewed every two years, and the firm must designate a licensed CPA as the firm's "owner" responsible for CBA compliance.
Ownership & Shareholder Requirements
California has specific ownership requirements for CPA firms that offer attest services (audits, reviews, compilations). The rules vary depending on whether the firm provides attest services to the public.
Majority CPA Ownership (Attest Firms)
Firms offering attest services must:
- Simple majority (>50%) owned by CPAs
- CPAs must be licensed in any U.S. state
- One owner must be California-licensed
- Non-CPA owners permitted (minority)
- Board/officer majority must be CPAs
Non-Attest Firm Ownership
Firms NOT offering attest services:
- More flexible ownership permitted
- Still must register with CBA
- At least one CPA owner required
- May have non-CPA majority owners
- Tax/consulting-only practices
⚠️ Non-CPA Owner Restrictions
While California permits non-CPA ownership in CPA firms (minority for attest firms), important restrictions apply:
- Non-CPA owners must actively participate in the firm
- They cannot sign attest reports or use CPA title
- Background checks may be required
- Ownership disclosure required in registration
- Non-CPAs cannot control firm policies on attest services
Director & Officer Rules
Corporate governance requirements:
- Majority of directors must be CPAs
- President/CEO must be a licensed CPA
- Secretary/Treasurer may be non-CPA
- One person may hold multiple offices
- Annual meetings required
Multi-State Considerations
For firms with multi-state practice:
- At least one CA-licensed CPA required
- Other CPA owners may hold out-of-state licenses
- Must comply with mobility rules
- Registration in client states may be needed
- Peer review requirements may vary
Formation Process: Step by Step
Forming a California CPA professional corporation involves coordination between the Secretary of State, California Board of Accountancy, and tax agencies. Here's the complete process.
Verify CPA License Status
Confirm all proposed CPA shareholders hold active licenses:
- CBA License Lookup for California CPAs
- Verify licenses in other states for non-CA CPAs
- Confirm no pending disciplinary actions
- Check CE compliance status
Select Corporate Name
Choose a compliant name for your CPA corporation:
- May include CPA/partner names
- Can include "CPAs," "Accountants," or similar
- Must include "A Professional Corporation" or "PC"
- Cannot use misleading terms
- Check SOS and CBA name availability
File Articles of Incorporation
Prepare and file Articles with specific PC provisions:
- State professional purpose (accountancy)
- Reference Corporations Code § 13401(a)
- Include required PC statutory language
- File with Secretary of State
- Filing fee: approximately $100
Register with Board of Accountancy
Complete CPA firm registration with CBA:
- Submit Accountancy Corporation Application
- Provide certified copy of filed Articles
- List all shareholders with license numbers
- Designate responsible CPA owner
- Pay registration fees ($280 initially)
Adopt Corporate Documents
Prepare essential governance documents:
- Bylaws with mandatory share redemption
- Shareholder agreement (buy-sell provisions)
- Organizational board resolutions
- Stock certificates and ledger
- Initial board meeting minutes
Tax Elections and Registrations
Complete required tax filings:
- Apply for Federal EIN
- File S-Corp election (Form 2553) if desired
- Register with CA Franchise Tax Board
- Obtain local business licenses
- Register with EDD if hiring employees
Establish Practice Operations
Set up your accounting practice:
- Open corporate bank accounts
- Obtain professional liability insurance
- Enroll in peer review (if attest services)
- Set up practice management software
- Establish quality control policies
Professional Corporation vs. LLP
CPAs commonly choose between professional corporations (PCs) and limited liability partnerships (LLPs). Each structure has distinct advantages depending on your practice size, growth plans, and tax situation.
| Factor | Professional Corporation (PC) | Limited Liability Partnership (LLP) |
|---|---|---|
| Liability Protection | Shareholder liability limited to investment | Partners protected from other partners' negligence |
| Tax Treatment (Default) | C-Corp (can elect S-Corp) | Pass-through partnership taxation |
| Self-Employment Tax | Salary subject to payroll tax; S-Corp distributions not | All partner income subject to SE tax |
| Ownership Transfer | Stock transfers relatively simple | Requires partnership agreement amendments |
| Formalities | Corporate minutes, annual meetings, resolutions | Less formal; partnership agreement controls |
| Insurance Required | No state minimum (recommended) | $1M minimum for LLP liability protection |
| Best For | Solo/small practices, S-Corp tax planning | Multi-partner firms, simple profit splits |
When to Choose PC
- Solo practitioner seeking liability protection
- S-Corp tax election benefits desired
- Planning for future equity sales
- Prefer corporate governance structure
- Clear salary/distribution separation
When to Choose LLP
- Multi-partner firm with equal ownership
- Flexible profit/loss allocation needed
- Simpler governance preferred
- Partners want pass-through taxation
- Converting from existing partnership
✅ LLP Insurance Requirement
California LLPs must maintain at least $1,000,000 in professional liability insurance (or an equivalent security deposit) to receive liability protection. Without this coverage, partners have unlimited liability. PCs have no statutory minimum insurance requirement, though professional liability coverage is strongly recommended for any CPA firm.
CBA Firm Registration & Compliance
All CPA firms in California must register with the California Board of Accountancy. Registration requirements include ongoing compliance obligations for license renewal and peer review.
Initial Registration
To register your CPA firm:
- Complete Firm Registration Application
- Provide entity formation documents
- List all owners with ownership %
- Designate responsible CPA
- Pay $280 registration fee
- Submit peer review enrollment (if applicable)
Biennial Renewal
Every two years, you must:
- File renewal application
- Pay renewal fee ($280)
- Update ownership information
- Confirm peer review compliance
- Report any disciplinary actions
- Verify insurance coverage (LLPs)
Peer Review Requirements
Firms providing attest services must:
- Enroll in AICPA peer review program
- Complete review every three years
- Report results to CBA
- Address any deficiencies noted
- Maintain quality control policies
Reporting Requirements
Ongoing reporting obligations:
- Ownership changes (30 days)
- Address/name changes
- New branch offices
- Criminal convictions
- Disciplinary actions in other states
- Malpractice judgments/settlements
⚠️ Attest vs. Non-Attest Services
The distinction between attest and non-attest services significantly affects your compliance obligations:
- Attest services: Audits, reviews, compilations, agreed-upon procedures requiring peer review
- Non-attest: Tax preparation, consulting, bookkeeping—no peer review required
- Firms must accurately represent their service offerings to CBA
- Adding attest services later requires peer review enrollment
CPA Firm Service Offerings
California CPA firms offer a range of services, each with specific regulatory and compliance implications. Understanding these categories helps structure your practice appropriately.
Attest Services
Services requiring peer review:
- Financial statement audits
- Financial statement reviews
- Compilations (with or without disclosures)
- Agreed-upon procedures
- Examinations of prospective info
- SOC reports (System & Organization Controls)
Tax Services
Tax practice offerings:
- Individual income tax preparation
- Business tax returns (corps, partnerships)
- Tax planning and consulting
- IRS representation and audits
- State and local tax matters
- Estate and gift tax planning
Advisory Services
Consulting and advisory:
- Business valuation
- Litigation support/forensic accounting
- M&A due diligence
- Financial planning
- Management consulting
- Technology advisory
Bookkeeping & Accounting
Ongoing accounting services:
- Monthly bookkeeping
- Payroll processing
- Controller/CFO services
- Financial statement preparation
- Cash flow management
- Accounts receivable/payable
Frequently Asked Questions
Yes, California permits non-CPA ownership in CPA firms with restrictions. For firms providing attest services, CPAs must hold a simple majority (>50%) of ownership. Non-CPA owners must actively participate in the firm's business and cannot sign attest reports or use the CPA title. For non-attest firms (tax only, consulting), ownership rules are more flexible, but at least one owner must be a licensed CPA.
No. Peer review is only required for firms that perform attest services (audits, reviews, compilations). If your firm only prepares tax returns, provides bookkeeping, or offers consulting services, peer review is not required. However, you must still register with the CBA as an accountancy corporation and maintain your individual CPA license with required continuing education.
It depends on your situation. Choose a PC if you're a solo practitioner, want S-Corp tax treatment, or prefer clear salary/distribution separation. Choose an LLP if you have multiple equal partners, want flexible profit allocation, and prefer simpler governance. Note that LLPs require $1M minimum professional liability insurance to maintain liability protection, while PCs have no statutory minimum (though insurance is recommended).
California has adopted CPA mobility provisions, allowing CPAs from other states to practice in California without obtaining a separate California license (subject to conditions). Similarly, California CPAs may practice in other mobility states. However, for ongoing practice in other states, you may need to register your firm in those states. At least one owner of your California firm must hold an active California CPA license.
If you're a shareholder in a CPA PC and your license lapses or is revoked, you must dispose of your shares within a reasonable time (typically 90 days). Your bylaws and shareholder agreement should address this with mandatory redemption provisions. The firm must maintain CPA majority ownership and have at least one active California CPA at all times. Report the change to CBA within 30 days.
To add a CPA shareholder: (1) Verify their license status with CBA; (2) Determine share purchase price and terms; (3) Authorize share issuance via board resolution; (4) Execute shareholder agreement amendments; (5) Issue stock certificates; (6) Update CBA firm registration within 30 days of the ownership change. Ensure the addition maintains CPA majority ownership if your firm provides attest services.