Llc Or Not: California Law Firm's Choice

California is a huge state with a lot of lawyers, and many wonder whether they can form a Limited Liability Company (LLC) or law firm. The short answer is no. The State Bar of California does not certify LLCs for the purposes of practicing law. This is based on the underlying Corporate Code concerning Professional Corporations. A professional law corporation is the entity of choice for law firms in California. However, California does allow some licensed professionals, including lawyers, accountants, and engineers, to practice through a limited liability partnership.

California law firms cannot be LLCs

According to the State Bar of California, "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."

California law considers practicing law or being a lawyer a "professional service." This is because one needs to have a state license to practice law in California, and no LLC can be used to provide professional services. Section 17701.04(b) of the California Corporations Code states that "a limited liability company may have any lawful purpose, regardless of whether for profit, except the banking business, the business of issuing policies of insurance and assuming insurance risks, or the trust company business." If that particular business requires a California license of some kind, then an LLC cannot be used unless the California statutes describing those licenses allow that profession to be done using LLCs.

California law firms must abide by the following state laws and codes: they must first register with the Secretary of State and check with the State Bar to ensure that the desired name has not already been registered. The name of the law firm, as registered in the State Bar records, and the name on file with the Secretary of State is the only name under which it may practice law. The name of the law corporation should also comply with the California Rules of Professional Conduct and the California Business and Professions Code and should include wordings or abbreviations that denote corporate existence.

Law firms must be professional corporations

In California, law firms must be professional corporations rather than LLCs. This is because the State Bar of California does not certify LLCs for the purpose of practicing law. The Corporate Code concerning Professional Corporations, including Corporations Code section 17375, prohibits those licensed by state agencies from using LLCs for licensed activities. As practicing law is considered a "professional service" under California law, lawyers must form a professional corporation if they plan to start a law firm in the state.

The name of the law corporation should comply with the California Rules of Professional Conduct and the California Business and Professions Code. It should include wording or abbreviations that denote corporate existence, such as "Professional Corporation", "Incorporated", "Ltd", or "PC". The name of the law firm, as registered in the State Bar records and with the Secretary of State, is the only name under which it may practice law. Before registering, applicants must check that their desired name has not already been registered.

To properly form a professional corporation in California, the articles of incorporation must clearly state that the corporation is a professional corporation. All shareholders, directors, and officers must be licensed professionals in California, although the corporation may employ non-licensed professionals. Every law corporation must obtain a Certificate of Registration from the State Bar of California before it can be considered a Professional Law Corporation and before it can engage in business. This requires submitting an application, paying the necessary fees, and providing proof of security for claims.

While PCs do not shield California attorneys from malpractice liability, they can offer liability protection in other circumstances, such as breach of contract, employee lawsuits, or accidental injuries in California. PCs are taxed like corporations, while RLLPs are taxed as individuals with "pass-through" tax. RLLPs offer more independence in the day-to-day for individual members and are simpler to set up and maintain due to the high volume of paperwork and procedures required for corporations.

Limited liability partnerships are an option

California law prohibits attorneys from practising law through a limited liability company (LLC). Section 17701.04(b) of the California Corporations Code states that an LLC may have any lawful purpose, regardless of whether it is for profit, except for a few prohibited purposes. These include banking, insurance, and trust company businesses. Section 17701.04(e) clarifies that an LLC cannot be used to render professional services, which includes practising law.

However, limited liability partnerships are an option for lawyers in California. They can choose between a Professional Corporation (PC) or a Registered Limited Liability Partnership (RLLP). A PC is taxed like a corporation, while an RLLP is taxed as an individual with "pass-through" tax. RLLPs offer more independence to individual members, and partners are not responsible for the debts of other partners. They are also simpler to set up and maintain, as they do not require as much paperwork or procedures as corporations. However, PCs can provide liability protection in certain circumstances, such as breach of contract or accidental injuries in the office.

To form a professional corporation in California, the articles of incorporation must clearly state that it is a professional corporation. All shareholders, directors, and officers must be licensed professionals in California, but the corporation may employ non-licensed professionals. The name of the law corporation should comply with the California Rules of Professional Conduct and the California Business and Professions Code and include wording or abbreviations that denote corporate existence, such as "Professional Corporation", "Incorporated", or "Ltd.".

Before registering with the Secretary of State, applicants must check with the State Bar to ensure that the desired name has not already been registered. The name of the law firm, as registered with the State Bar and the Secretary of State, is the only name under which it may practice law. If the name includes "Law Offices", there must be at least one other attorney at the primary registered address. If the name includes "Group", there must be at least one other employee, and if it includes "Associate" or "Associates", there must be at least one other lawyer working for the firm.

PCs offer liability protection and tax savings

In California, law firms cannot be structured as limited liability companies (LLCs). This is because the State Bar of California does not certify LLCs for the purpose of practicing law. The only entity choice for law firms intending to practice and provide professional services in California is a professional corporation.

Professional corporations (PCs) are taxed like corporations (double taxation), while registered limited liability partnerships (RLLPs) are taxed as individuals with "pass-through" tax. RLLPs are simpler to set up and offer more independence in the day-to-day for individual members, but PCs can provide liability protection and substantial tax savings in certain circumstances.

For example, PCs can provide liability protection in the case of breach of contract, employee lawsuits, or accidental injuries in the office unrelated to the practice of law. PCs can also provide tax savings, although they do not shield California attorneys from malpractice liability.

To form a professional corporation in California, the articles of incorporation must clearly state that the corporation is a professional corporation. All shareholders, directors, and officers must be licensed professionals in California, but the corporation may employ non-licensed professionals. The name of the law corporation should also comply with the California Rules of Professional Conduct and the California Business and Professions Code and should include wordings or abbreviations that denote corporate existence. Examples of names that include a designation of corporate existence are a Professional Corporation, Professional Law Corporation, A Professional Legal Corporation, Incorporated, Corporation, L.C. Ltd., and Professional Association.

RLLPs are simpler to set up and offer more independence

California lawyers are prohibited from using Limited Liability Companies (LLCs) to practice law. This is because the State Bar of California does not certify LLCs for the purpose of practicing law. The only entity of choice for law firms that intend to practice and provide professional services in California is a corporation.

Lawyers in California have two options when it comes to setting up their business: a Professional Corporation (PC) or a Registered Limited Liability Partnership (RLLP). While PCs are taxed like corporations, RLLPs are taxed as individuals with "pass-through" tax. RLLPs also offer more independence in the day-to-day for individual members, depending on the terms included in the Partnership Agreement. RLLPs are also simpler to set up due to the high volume of paperwork and procedures required for corporations, such as annual reports, shareholder meetings, and minutes.

RLLPs are a good choice for those seeking more independence in their business operations. The partnership agreement in an RLLP does not have to exist, so state business codes apply in these cases. Additionally, partners in an RLLP are not responsible for the debts of other partners. This can provide a level of financial protection and flexibility not offered by PCs.

However, it is important to note that RLLPs may not be suitable for all lawyers, especially those seeking the benefits of incorporation, such as limited liability protection. PCs can provide liability protection in certain circumstances, such as breach of contract, employee lawsuits, or accidental injuries in the office unrelated to the practice of law. PCs can also offer substantial tax savings, which may be an important consideration for some lawyers.

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