You cannot form an LLC in California. Here is what to do instead.

The sentence that closes the door

Picture the search you have almost certainly already run. How to structure a therapy practice. The answers come back confident and unanimous: form an LLC. It is what nearly every small business in this country does, it is what your accountant friend in another state did, and it is what the first four results will tell you.

It is also not available to you. That is the kind of claim that deserves the source rather than a summary of the source, so here it is, whole:

“Professional services” means services requiring a license. Marriage and family therapy, clinical social work, professional clinical counseling and psychology are all in that category. So the LLC is out — not disfavored, not risky, unavailable.^[1]

This matters more than a technicality, because people do form them. A therapist who registers an LLC and practices through it has an entity that cannot lawfully render the service it exists to render, which is a problem you would rather find out about now than during a Board complaint or a malpractice claim.

What is actually on the menu

Two things.

• A sole proprietorship. No filing, no separate return, no annual minimum tax. You and the practice are the same legal person for tax purposes, and your income lands on a Schedule C.
• A California professional corporation, which for an MFT is specifically a marriage and family therapy corporation. It is a real corporation, it files its own return, and it can then elect S-corp treatment with the IRS — which is the thing people are usually reaching for when they say “LLC”.

The second one has its own statute. A marriage and family therapy corporation must comply with the Moscone-Knox Professional Corporation Act, and the Business and Professions Code says so in terms.^[2]

Who is allowed to own it

This is where a widely repeated figure is slightly wrong in a way worth correcting. You will read that a therapy corporation must be “51% therapist-owned”. The statute does not say that. It sets a ceiling on everyone else:

The 51% is the arithmetic complement, not a quoted figure. In practice it comes to the same place, but if you are drafting a cap table with a psychologist or an LCSW co-owner, the number the statute actually constrains is theirs, not yours.^[3]

One more oddity worth knowing before a lawyer corrects you: §13401.5 labels it a marriage and family therapist corporation, while the Business and Professions Code calls it a marriage and family therapy corporation. Both are correct in their own code. Do not let a copy editor “fix” one into the other.

The name is constrained too

You cannot call it whatever you like, and this is where filings get rejected at the Secretary of State:

So “Jordan Reyes, Inc.” will not do. “Reyes Family Therapy Corporation” will.^[4]

So which one should you choose

Here the question stops being legal and becomes arithmetic. And the honest answer turns on one number you have most likely never written down: your practice profit after expenses. Not your gross. Not what the panels pay. What is left.

The corporation is not free. California charges every corporation a minimum franchise tax of $800 a year whether or not it made a profit, waived only in the first year.^[5] On top of that the state does not honor the S election the way the IRS does — it still taxes the entity 1.5% of California source income.^[6] Then there is payroll, a corporate return, a Statement of Information, and the California payroll taxes on your own wage that most comparisons quietly omit.

Against that sits the self-employment tax you stop paying on the distribution. Whether the saving clears the cost depends entirely on your profit and the salary you pay yourself, and near the break-even point the answer flips.

There is no rule of thumb worth trusting here. Anyone who offers you one is guessing at your numbers, which is why the calculator below runs the whole engine twice on yours, and shows you the lines rather than handing down a verdict.