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Overview: Psychology Professional Corporations

California psychologists seeking the benefits of incorporation must form a professional corporation (PC) under Corporations Code Section 13401. Unlike general corporations, psychology PCs have specific ownership restrictions and regulatory requirements under the Board of Psychology.

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Why Form a Psychology PC?

A professional corporation provides significant advantages for mental health practitioners:

  • Limited liability for business debts
  • S-Corp election reduces self-employment tax
  • Multiple licensed owners possible
  • Employ associates and supervisees
  • Enhanced professional credibility
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Regulatory Framework

Psychology corporations are governed by:

  • California Board of Psychology (BOP)
  • Board of Behavioral Sciences (BBS) for LMFTs/LCSWs
  • CA Corporations Code § 13401-13410
  • Business & Professions Code § 2903
  • Psychology Licensing Law regulations
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Business Structure Options

Psychologists may practice through:

  • Sole proprietorship (individual practice)
  • General partnership (licensed partners)
  • Professional corporation (PC)
  • LLC is permitted for psychologists
  • Multi-disciplinary PC (with other licensees)
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Liability Considerations

Professional corporations have specific liability rules:

  • Malpractice liability remains personal
  • Corporation shields from business debts
  • Supervisory liability for trainees
  • Professional liability insurance essential
  • Corporate formalities must be maintained

💡 Psychologists Can Form LLCs

Unlike some other healthcare professions, California does permit licensed psychologists to form Professional Limited Liability Companies (PLLCs) under Business & Professions Code § 2903. However, many psychologists still prefer the professional corporation structure for its familiarity, established case law, and broader acceptance by insurance panels. The ownership restrictions apply equally to both entity types.

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Mental Health License Types in California

California has multiple mental health license types under two primary boards. Understanding these distinctions is essential for multi-disciplinary practice and proper supervision structures.

License Type Governing Board Scope of Practice Can Own PC Shares?
Licensed Psychologist Board of Psychology Psychological testing, diagnosis, psychotherapy Yes (primary owner)
LMFT BBS Marriage and family therapy, psychotherapy Yes (minority only)
LCSW BBS Clinical social work, psychotherapy Yes (minority only)
LPCC BBS Professional clinical counseling Yes (minority only)
LEP BBS Educational psychology, school settings Yes (minority only)
Psychological Associate Board of Psychology Psychology under supervision No (must be supervised)
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Licensed Psychologist Requirements

To become licensed by the Board of Psychology:

  • Doctoral degree (Ph.D. or Psy.D.) in psychology
  • 3,000+ supervised professional experience hours
  • Pass EPPP (national exam)
  • Pass California psychology law exam
  • Complete continuing education requirements
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BBS License Requirements

LMFT, LCSW, and LPCC licensees:

  • Master's or doctoral degree
  • 3,000 supervised hours (104 weeks minimum)
  • Pass California law and ethics exam
  • Pass clinical licensing exam
  • 36 hours CE per renewal cycle

⚠️ Scope of Practice Differences

Licensed psychologists have broader practice authority than BBS licensees, including psychological testing, formal diagnosis (DSM-5), and supervising psychology trainees. While LMFTs, LCSWs, and LPCCs can provide psychotherapy and treat mental disorders, they cannot administer psychological tests or supervise psychology doctoral students/associates. Multi-disciplinary practices must ensure each clinician works within their authorized scope.

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Ownership & Shareholder Requirements

California professional corporation law imposes strict ownership requirements to ensure that licensed professionals control clinical practice. For psychology corporations, the Board of Psychology oversees compliance.

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Permitted Shareholders

The following may hold shares in a psychology PC:

  • Licensed psychologists (must hold majority)
  • LMFTs, LCSWs, LPCCs (minority ownership)
  • Physicians/psychiatrists
  • Licensed clinical social workers
  • Other licensed mental health professionals
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Prohibited Shareholders

The following cannot own psychology PC shares:

  • Unlicensed individuals (spouses, family)
  • Other corporations or LLCs
  • Associates or trainees
  • Non-mental health licensees
  • Out-of-state licensees (CA license required)

✅ Multi-Disciplinary Practice Structure

A psychology professional corporation can include shareholders from multiple mental health disciplines. However, the practice must be structured appropriately:

  • Licensed psychologists should hold majority ownership if psychological services are offered
  • Each discipline provides services within their scope
  • Proper supervision for associates of each license type
  • Consider whether single PC or affiliated entities work better
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Director & Officer Rules

Corporate governance requirements:

  • All directors must be licensed shareholders
  • President must be a licensed psychologist
  • Secretary/Treasurer may be unlicensed
  • One person may hold multiple offices
  • Annual meetings required
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Shareholder Agreement Terms

Essential provisions to include:

  • Mandatory redemption on license loss
  • Death/disability buyout provisions
  • Non-compete limitations (CA restrictions)
  • Valuation methodology
  • Dispute resolution procedures
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Formation Process: Step by Step

Forming a California psychology professional corporation involves coordination between the Secretary of State, Board of Psychology, and tax agencies. Here's the complete process.

1

Verify License Status

Confirm all proposed shareholders hold active California licenses:

  • Board of Psychology License Lookup for psychologists
  • BBS License Lookup for LMFTs, LCSWs, LPCCs
  • Verify no pending disciplinary actions
  • Confirm licenses are active and in good standing
2

Select Corporate Name

Choose a compliant name for your psychology corporation:

  • May include psychologist name(s) or practice name
  • Can include "Psychology" or "Psychological"
  • Must include "A Professional Corporation" or "P.C."
  • Check Secretary of State name availability
  • Cannot use protected terms without license
3

File Articles of Incorporation

Prepare and file Articles with specific PC provisions:

  • State professional purpose (psychological services)
  • Reference Corporations Code § 13401(a)
  • Include required PC statutory language
  • File with Secretary of State (Form ARTS-PC)
  • Filing fee: approximately $100
4

Register with Board of Psychology

Complete corporate registration with the Board:

  • Submit Application for Registration
  • Provide certified copy of filed Articles
  • List all shareholders with license numbers
  • Disclose corporate officers and directors
  • Pay registration fees
5

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
6

Tax Elections and Registrations

Complete required tax filings:

  • Apply for Federal EIN (Form SS-4)
  • File S-Corp election (Form 2553) within 75 days
  • Register with CA Franchise Tax Board
  • Obtain local business licenses
  • Register with EDD if hiring employees
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Establish Practice Operations

Set up your psychology practice:

  • Open corporate bank accounts
  • Obtain professional liability insurance
  • Credential with insurance panels
  • Set up EHR and billing systems
  • Develop supervision agreements if needed
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Supervision Requirements & Structures

Psychology practices often employ associates, interns, and trainees who require supervision. California has specific requirements for supervision that affect how your corporation structures employment and clinical oversight.

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Psychology Supervision

Supervising psychology trainees and associates:

  • Only licensed psychologists may supervise
  • Minimum 1 hour supervision per 10 hours work
  • Face-to-face individual supervision required
  • Supervisor must have 3+ years experience
  • Must register supervision with BOP
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BBS Supervision (LMFT/LCSW/LPCC)

Supervising BBS associates:

  • Licensed 2+ years in California
  • Complete supervisor training course
  • Maximum 3 supervisees per week
  • 1 hour supervision per 5 hours direct client
  • Register with BBS within 60 days
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Employment Considerations

Employing associates in your PC:

  • Associates must be W-2 employees (usually)
  • Corporation pays employer taxes
  • Workers' comp coverage required
  • Clear scope of supervision in agreement
  • Malpractice coverage considerations
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Vicarious Liability

Supervisor liability considerations:

  • Supervisor liable for supervisee's actions
  • Corporation may share liability
  • Professional liability insurance essential
  • Clear documentation of supervision
  • Review supervisee's clinical work

⚠️ Cross-Discipline Supervision Limitations

A licensed psychologist cannot supervise BBS associates (AMFT, ASW, APCC) toward licensure—BBS supervision requires a licensee of the same or equivalent discipline. However, a psychology PC can employ both psychology associates and BBS associates if appropriate supervisors are available for each. The corporation must ensure proper supervision chains for all trainees.

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Group Practice Structures

Many psychology PCs operate as group practices with multiple clinicians. Understanding the various structural options helps optimize your practice for growth, liability protection, and tax efficiency.

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Single Entity Model

All clinicians under one psychology PC:

  • Licensed shareholders own the practice
  • Associates are W-2 employees
  • Single tax return and accounting
  • Unified insurance and billing
  • Simpler administration
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Multi-Entity Structure

Separate entities with coordination:

  • Psychology PC for licensed psychologists
  • Separate BBS PC for LMFT/LCSW owners
  • Management company for admin
  • More complex but flexible
  • Clearer liability separation
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Compensation Models

Common payment structures:

  • Salary with productivity bonus
  • Percentage of collections
  • Fee split arrangements
  • Hybrid models
  • Profit distributions for shareholders
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Growth Considerations

Planning for practice expansion:

  • Adding shareholders vs. employees
  • Multi-location operations
  • Telehealth service expansion
  • Specialty service lines
  • Private equity considerations

✅ Telehealth & Multi-State Practice

Psychology PCs can offer telehealth services to patients located in California. For multi-state practice, each psychologist must be licensed in the patient's state, and the corporation may need to register or qualify in other states. PSYPACT (the Psychology Interjurisdictional Compact) allows practice across member states, though California is not currently a PSYPACT member.

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Frequently Asked Questions

Yes, licensed LMFTs may own minority shares in a psychology PC under California's professional corporation rules. However, if the practice offers psychological services (testing, diagnosis), licensed psychologists should maintain majority ownership. The LMFT can provide services within their scope. Many multi-disciplinary practices successfully combine psychologists and LMFTs in one PC.

Yes, California permits licensed psychologists to form Professional Limited Liability Companies (PLLCs). The same ownership restrictions apply—all members must be licensed professionals. Many psychologists still prefer PCs because they're more established, insurance panels are familiar with them, and case law is more developed. Consider consulting with an attorney to determine which structure best fits your needs.

To employ a psychological associate: (1) Verify they're registered with the Board of Psychology; (2) Execute a supervision agreement specifying hours, responsibilities, and compensation; (3) Register as their supervisor with the Board; (4) Provide required supervision (1 hour per 10 clinical hours minimum); (5) Add them to your malpractice policy; (6) Handle payroll and employment taxes. Associates cannot be shareholders until fully licensed.

Your PC can employ LMFT associates (AMFTs), but a licensed psychologist cannot supervise them toward LMFT licensure—BBS requires supervision by an LMFT, LCSW, LPCC, or psychologist with specific training. If your PC has an LMFT shareholder or employee who is a qualified supervisor, they can supervise AMFTs. Otherwise, consider whether associates can obtain external supervision or limit hiring to psychology trainees.

Essential coverage includes: (1) Professional liability (malpractice) insurance—typically $1M/$3M minimum; (2) General liability for premises; (3) Cyber liability for EHR and telehealth; (4) Workers' compensation if you have employees; (5) Employment practices liability (EPLI). Supervisors should ensure their policy covers supervisee activities. Individual psychologists may also maintain personal policies for additional protection.

Your bylaws and shareholder agreement should address succession. If you're the sole shareholder and become incapacitated or die, shares pass to your estate, which must sell to a licensed psychologist within a specified period (typically 90 days). Consider key-person life insurance, disability buy-out coverage, and identifying potential successors. Patient records and ongoing care responsibilities must be addressed in any transition plan.