If you’re a lawyer or attorney in California, you SHOULD form a Professional Corporation taxed as an S-Corporation.
If you’re a lawyer, you’re prohibited from forming an LLC or a traditional corporation for your law practice and instead must register as a Professional Corporation.
If done incorrectly, your Professional Corporation can be rejected by the Secretary of State, leaving you vulnerable to potential lawsuits and fines from various government agencies, and even the California State Board.
As a Business Lawyer for Professionals, I’m assisted hundreds of professionals just like you start their Professional Corporation and I can definitely help you start yours.
Professional Law Corporation
A Professional Law Corporation is a professional corporation which is registered with the California Secretary of State and State Bar of California, to provide legal services.
The State Bar’s Law Corporations Program certifies professional corporations that wish to practice law in accordance with applicable statutes and court rules.
3 Steps to Starting a Professional Law Corporation
The 3 steps to starting a Professional Law Corporation are:
- File the Articles of Incorporation of a Professional Corporation with the Secretary of State to form the Professional Corporation
- Notify your Profession’s state agency that manages your profession, hold a Board of Director’s Meeting and appoint directors, get your Professional Corporation Bylaws drafted, apply for your EIN, file your Statement of Information, file Form 2553 for S-Corporation tax election, pay California corporate taxes to the California Franchise Tax Board, register with the EDD if you will be hiring employees, and apply for local business registration and licenses.
- Do all the steps above yourself or hire a Business Lawyer to do everything for you.
Who Regulates Professional Law Corporations?
According to the California Corporations Code 13401(b), all professional corporations must be registered with the corresponding government agency that is tasked to manage their profession.
California law corporations must hold a certificate of registration from the State Bar of California and must abide by the California Rules of Professional Conduct.
California law corporations must also abide by the restrictions imposed by the California Supreme Court.
Benefits Of Starting A Professional Law Corporation
There are plenty of benefits of incorporating a professional law corporation in California.
Correctly starting a law corporation in California will limit your personal liability against creditors and lawsuits, minimize the self-employment taxes of the shareholders, allow you to build corporate business credit, and much more.
Why Can’t a Lawyer Form an LLC?
According to Corporate Code Section 17375, the State Bar does not certify an “LLC” within California for the purposes of practicing law, based on underlying Corporate Code concerning Professional Corporations.
Who Can Be A Shareholder Of The Professional Law Corporation?
Each director, shareholder, and oﬃcer of the professional law corporation MUST be licensed to practice law.
Shares of stock in the law corporation may only be issued to people who are licensed to practice law. Any shares shares issued to others who do not practice law are void.
Also, shares in the law corporation may only be transferred to those who are licensed to practice law, to a shareholder of the corporation or to the professional law corporation itself.
What Happens If A Shareholder Of the Professional Law Corporation Becomes Disqualified From Practicing Law?
If a shareholder becomes ineligible to practice law in California or is legally disqualified from rendering professional services to the law corporation, she must sell or transfer her shares to a qualified shareholder within 90 days of her ineligibility or disqualification.
Name Requirements For A Professional Law Corporation
The professional law corporation’s name must include a corporate ending such as:
- “A Professional Corporation”
- “A Professional Law Corporation”
- “Professional Corporation”
- “Professional Law Corporation”
- “Law Corporation”
- “Prof. Corp.”
- “A Professional Legal Corporation”
- “Professional Legal Corporation”
- “A Legal Corporation”
- “A California Professional Corporation”
- “P.A.” and
- “Professional Association”.
However, the professional law corporation’s name CANNOT include “APLC” “PLC” or “LLC” as its corporate endings. “APLC” may suggest that the entity is “a Public Liability Company” or “Professional Legal Consultant” and therefore is misleading to the public.
Also, “LLC” is not permitted as a corporate designation, and the State Bar does not certify an “LLC” within California for the purposes of practicing law, based on underlying Corporate Code concerning Professional Corporations.
Also note, the name of your law corporation in State Bar records (and on file with the Secretary of State) is the only name under which it may practice law.
Using the Word “Group” in a Law Professional Corporation
To remain in compliance with Rule 1-400 of California Rules of Professional Conduct, you must justify the use of the word “Group” in your name.
You may do this by naming at least one other individual employed by your corporation. This person need not be an attorney.
Using the Word “Law Offices” in a Law Professional Corporation
In a Professional Law Corporation, including the term “Law Offices” implies that the law corporation has more than one address, or more than one attorney including the shareholder at the address of record for the corporation.
So, the term should not be used unless this arrangement is true!
The Law Corporation Program will accept a home address as the second office. The law corporation must provide The State Bar with both addresses.
Using the Word “Associate” in a Law Professional Corporation
According to Rule 1-100 “Rules of Professional Conduct”, including the term “Associate” means an employee or fellow employee who is employed as a lawyer.
The corporation must execute a guarantee in the amounts sufficient to cover the number of attorneys practicing on behalf of the corporation.
Also, including the term “Associates” implies that in addition to the shareholder, the corporation must name at least two (2) other attorneys employed by the corporation and execute a guarantee in the amounts sufficient to cover the number of attorneys practicing on behalf of the corporation.
Can A Law Firm Be Opened As An LLC In California?
No, a law firm can’t be opened as an LLC in California.
According to Corporations Code section 17375, the State Bar of California does not certify LLCs (Limited Liability Companies) for the purpose of practicing law.
For a lawyer or attorney to provide professional services in California, they must open a Professional Corporation.
Can A Professional Law Corporation Use a DBA Or Fictitious Name?
Yes, California Professional Law Corporations who want to use a Doing Business As (DBA) or a fictitious name must get a permit from the State Bar of California to use the name and pay a fee.
You should also file a fictitious name statement in every county in which you operate.
How To Form A California Professional Law Corporation
Here are the 10 steps you must take to form the California Professional Law Corporation:
- File the Articles of Incorporation with Secretary of State and pay the filing fee. The filing fee is currently $100. You must also state within its Articles of Incorporation that its purpose is “law.”
- Register the Law Corporation with the State Bar of California by providing the State Bar with an original proof of your Articles of Incorporation from the Secretary of
- Conduct a corporate meeting where you will issue shares and elect oﬃcials and directors for the Professional Law Corporation
- Create custom Law Corporation bylaws
- Apply for an EIN
- File the Statement of Information with the Secretary of State
- File Form 2553 for S-Corporation Tax Election for the Professional Law Corporation
- Pay California Corporate Taxes and Fees to the California Franchise Tax
- Register with the EDD if you will be hiring employees
- Apply for local business registration and licenses
What To Do Next
While these following these steps above might seem straight forward, one mistake while creating your Professional Corporation can cause your corporation to be rejected by the Secretary of State.
As a Business Lawyer for Professionals, I’ve assisted hundreds of professionals just like you start their California Law Corporations and I can definitely help you with yours.
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