Corporations – Professional Corporation – Kentucky
Related Kentucky Legal Forms
KENTUCKY REVISED STATUTES, Chapter 274 (Professional Corporations)
KENTUCKY REVISED STATUTES, Chapter 271-B (Business Corporations)
KENTUCKY REVISED STATUTES, Chapter 311 (Physicians, Osteopaths, and Podiatrists)
The practice of medicine in the State of Kentucky is controlled generally by the provisions of KENTUCKY REVISED STATUTES, Chapter 271-B (Business Corporations) and specifically by the provisions of the KENTUCKY REVISED STATUTES Chapter 274 (Professional Corporations). Additionally, the practice of medicine is subject to the licensing requirements as well as the rules and regulations of the Kentucky Board of Medical Licensure. The practice of medicine as a professional service corporation is likewise subject to the Board’s rules and regulations.
All Kentucky professional service corporations, including one organized to engage in the practice of medicine, are subject to the following statutory provisions:
A “professional service” is any type of personal service to the public which requires as a condition precedent to the rendering of such service the obtaining of a license or other legal authorization.
A “qualified person” is a natural person, general partnership, limited liability company, registered limited liability partnership, or professional service corporation which is eligible under this chapter to own shares issued by a professional service corporation.
When the “regulating board” is referred to, it is that governmental agency which is charged by law with the licensing and regulation of the practice of the profession which the professional service corporation is organized to render.
One or more persons, each of whom is licensed to render the same professional service, may incorporate and form a professional service corporation by filing articles of incorporation in the office of the Secretary of State.
The name of a professional service corporation must contain the words “professional service corporation” or the abbreviation “P.S.C.”
Restrictions on Share Ownership
A professional service corporation may issue and a shareholder thereof may transfer or pledge shares only to:
1. Natural persons who are authorized by law in this state or in any other state or territory of the United States or the District of Columbia to render a professional service permitted by the articles of incorporation of the corporation;
2. General partnerships, including registered limited liability partnerships, in which all the partners are qualified persons with respect to such professional corporation and in which at least one partner is authorized by law in this Kentucky to render a professional
3. A professional limited liability company authorized by law to render, in Kentucky, a professional service permitted by the articles of organization of the limited liability company; and
4. Professional service authorized by law to render, in Kentucky, a professional service permitted by the articles of incorporation of the corporation.
Any issuance or transfer of shares in violation of the above statutory provisions is void.
Proxies – Voting Trusts
Proxies are not valid unless given to a qualified person.
A voting trust is not valid unless all the trustees and beneficiaries thereof are qualified persons. However, a voting trust may be validly continued for a period of ten months after the death of a deceased beneficiary or for a period of five months after a beneficiary has become a disqualified person.
Qualifications of Officer and Board Members
At least one-half of the directors of a professional service corporation and all the officers (except the secretary and the treasurer) shall be qualified persons with respect to the corporation.
Any board member who is not qualified (as defined by statute) must abstain from voting on measures before the board which deal exclusively with the art of the professional service or services rendered as opposed to measures relating to the general business operation of the corporation.
Restrictions on Rendering Professional Services
A professional service corporation may render professional services only through its officers, employees and agents who are duly licensed or otherwise legally authorized to render those professional services within Kentucky.
This restriction does not include incidental employees such as clerks, secretaries, bookkeepers, technicians and other assistants who are not usually and ordinarily considered by custom and practice to be rendering professional services to the public for which a license or other legal authorization is required.
A professional corporation has the same fiduciary, confidential, and ethical relationship as between a person rendering professional services and a person receiving such services.
A professional corporation is jointly and severally liable, with the tort feasor, to the full value of its assets for any negligent or wrongful acts or actionable misconduct committed by any of its officers, shareholders, agents or employees while they are engaged on behalf of the corporation in the rendering of professional service.
No shareholder, director, officer or employee of a professional service corporation is personally liable for the negligence, wrongful acts, or actionable misconduct of any other shareholder, director, officer, agent or employee and no shareholder, director, officer or employee is personally liable for the contractual obligations of the corporation.
Redemption of Shares
The articles of incorporation may provide for the purchase or redemption of all of the shares of any shareholder not more than a year after the death or disqualification to practice the profession of such shareholder, or for the purchase or redemption within that time of all of the shares of any shareholder desiring to sell them. If there are no such provisions in the articles of incorporation, then same may be provided for in the by-laws or by private agreement. If there is no article, bylaw or agreement, and the stock is not redeemed by the corporation within one year, then, within ten days following the end of that year, the president and/or secretary of the corporation shall give notice thereof to the Secretary of State of Kentucky and, upon receipt of such notice by the Secretary of State, the charter of the corporation shall be immediately void.
In the absence of provisions in the articles of incorporation, bylaws or by private agreement, a professional corporation must redeem the shares of a withdrawing shareholder within ninety days after the death or disqualification of a shareholder or of the receipt by the corporation of written notice from a shareholder that he desires to sell or transfer all his shares of stock in the corporation. Should a redemption not occur within ninety days, the shares must be immediately cancelled on the books of the corporation and the holder of the shares is reimbursed the same as a general creditor of the corporation.
If the sole shareholder of a professional service corporation dies:
1.The decedent’s personal representative must notify the Secretary of State, whereupon the charter of such corporation shall lapse; or
2.The administrator, executor, guardian, conservator, or receiver of the estate of the deceased sole shareholder may amend the articles of incorporation by signing a written consent to the amendment.
3.The amendment to the articles of incorporation may allow the corporation to continue as a professional service corporation or may convert the corporation to a private business corporation provided, however, that the corporation shall not render professional services until such time as all outstanding shares are held by qualified persons and the corporation conforms to the provisions of this chapter.
In the alternative, the administrator, executor, guardian, conservator, or receiver of the estate of the deceased shareholder may transfer all outstanding shares of the corporation to other qualified persons or person.
The professional service corporation must cease to render professional services until such time as any transfer or transfers are completed.
In the absence of an article, bylaw or a sale as provided for within the time required by statute, a professional service corporation, within one hundred eighty (180) days after the death or disqualification of a shareholder or within the same period after receiving written notice from a shareholder that he desires the corporation to redeem all of his stock in the corporation, shall institute an equitable action for a determination of the fair market value of all of the shares of the corporation’s outstanding stock cancelled and owned by a shareholder.
If a professional service corporation fails to bring an equitable action as provided by statute, then within ten (10) days after the end of the time period, the president or secretary of the corporation must notify, in writing, the Secretary of State of Kentucky, and upon receipt of that notice by the Secretary of State of Kentucky, the charter of the professional service corporation shall be void.
No professional service corporation may engage in any business other than the rendering of the professional service or services for which it was specifically incorporated. However, a professional corporation may invest its funds in real estate, mortgages, stocks, bonds or any other type of investment, and may own real or personal property necessary for the rendering of professional services.
Violations of Kentucky Penal Code
If a professional corporation is convicted of violating KRS 506.010, 506.030, 506.040, 521.020, or 521.050, or if an officer, employee, or agent of the corporation violates any of those sections under circumstances which bring corporate liability under KRS 502.050(1)(b), the court must order that the charter of the professional service corporation be suspended for a period of not more than five (5) years for a first offense, ten (10) years for a second offense, and permanently for a third or subsequent offense. These penalties are in addition to any other penalty specified by law for the commission of the offenses.
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