Intro to Paralegal Studies Practice

Which of the following describes a professional corporation (PC)?

1. A corporation with unlimited liability for shareholders

2. An organization where stockholders share profits and liabilities

3. A legal entity limiting liabilities to the amount of investment

4. A company that is owned by its employees

The correct answer is: A legal entity limiting liabilities to the amount of investment

A professional corporation (PC) is specifically designed to provide liability protection to its owners, typically professionals such as doctors, lawyers, or accountants. One of the main features of a PC is that it limits the liability of its shareholders to the amount of their investment in the corporation. This means that if the corporation faces legal issues or debts, the personal assets of the shareholders are generally protected, and they are only at risk of losing what they invested in the business. The distinguishing characteristic of a PC is that it combines the benefits of a corporation, such as limited liability, with the ability to operate in certain professions that have specific licensing requirements. This structure is especially relevant in fields where practitioners do not want their personal assets exposed to the liabilities that may arise from the professional practice. In contrast, the other options do not accurately describe a PC. Options indicating unlimited liability contradict the fundamental principle of a corporation, while others mentioning shared profits and liabilities or employee ownership refer to different types of business entities and structures that do not align with the definition of a professional corporation. Therefore, the correct choice accurately reflects the nature and legal structure of a professional corporation.