Choosing the right business structure is a critical decision for attorneys establishing their solo practices and law firms in California. Professional law practices must comply with applicable rules set forth by California statutes and regulatory agencies. A California Professional Law Corporation is a type of corporation engaging in the practice of law, subject to unique legal requirements.
While foreign professional corporations are generally prohibited for use with professional practices, California law practices are permitted to operate as foreign professional corporations.
The question, “Can Attorneys Practice Using a Foreign Professional Corporation in California?” has been answered in the affirmative in the previous article linked in this sentence and in the articles cited and summarized below. However, the experienced corporate attorneys at San Diego Corporate Law receive frequent inquiries from attorneys who are still receiving mixed information from other attorneys or advisors leading them to believe that it might not be permissible to practice law in a foreign professional corporation in California. The California Secretary of State plays a key role in checking name availability and registering professional entities, ensuring compliance with state requirements.
The purpose of this article is to highlight and explore the specific provisions of the California Corporations Code and California Business and Professions Code that allow the use of foreign professional corporations to render professional services as an attorney in California.
California Corporations Code Section 13401
The Moscone-Knox Professional Corporations Act is found in California Corporations Code Sections 13400-13410. California Corporations Code Section 13401(b) provides the authority for licensed professionals to practice in California as California Professional Corporations with the purpose of rendering professional services in their practice of their profession.
California Corporations Code Section 13401 also provides two definitions required to properly analyze the restrictions on the use of foreign professional corporations for practicing professionally in California.
California Corporations Code Section 13401(a)
California Corporations Code Section 13401(a) provides the definition of “Professional Services” as follows:
“‘Professional services’ means any type of professional services that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.”
Thus, Professional Services under the definition provided by California Corporations Code Section 13401(a) encompasses many professions, including law under California Business and Professions Code Sections 6127.5, 6160–6172.
Only licensed persons are permitted to form and own shares in a California Professional Law Corporation.
California Corporations Code Section 13401(d)
California Corporations Code Section 13401(d) provides the definition of “Licensed Person” as follows:
“‘Licensed person’ means any natural person who is duly licensed under the provisions of the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act to render the same professional services as are or will be rendered by the professional corporation or foreign professional corporation of which the person is, or intends to become, an officer, director, shareholder, or employee.”
Thus, Licensed Person under the definition provided by California Corporations Code Section 13401(d) means those persons licensed in the professions listed above as providers of Professional Services under California Corporations Code Section 13401(a), which includes attorneys in California.
Only Licensed Persons may serve as professional employees, officers, or directors in a California Professional Law Corporation.
Moscone-Knox Professional Corporations Act Section 13404.5(b)
California Corporations Code Section 13404.5(b), sets forth the requirement for a professional to practice in California in a foreign professional corporation as follows:
“No foreign professional corporation shall render professional services in this state without a currently effective certificate of registration issued by the governmental agency regulating the profession in which that corporation proposes to be engaged, pursuant to the applicable provisions of the Business and Professions Code expressly authorizing those professional services to be rendered by a foreign professional corporation.”
At the time of this writing, only two governmental agencies regulating professions provide a certificate of registration for foreign professional corporations to be used in California, namely, the California Accountancy Board and the State Bar of California.
California Business and Professions Code Section 6161
Notwithstanding the Moscone-Knox Professional Corporations Act, the private practices of attorneys and law firms may operate in California as foreign professional corporations under California Business and Professions Code Section 6161.
California Business and Professions Code Sections 6161 reads in full as follows:
“An applicant for registration as a law corporation shall supply to the State Bar all necessary and pertinent documents and information requested by the State Bar concerning the applicant’s plan of operation, including, but not limited to, a copy of its articles of incorporation, certified by the Secretary of State, a copy of its bylaws, certified by the secretary of the corporation, the name and address of the corporation, the names and addresses of its officers, directors, shareholders, members, if any, and employees who will render professional services, the address of each office, and any fictitious name or names which the corporation intends to use. The State Bar may provide forms of application. If the Board of Trustees or a committee authorized by it finds that the corporation is duly organized and existing or duly qualified for the transaction of intrastate business pursuant to the General Corporation Law, or pursuant to subdivision (b) of Section 13406 of the Corporations Code, that each officer (except as provided in Section 13403 of the Corporations Code), director, shareholder (except as provided in subdivision (b) of Section 13406 of the Corporations Code), and each employee who will render professional services is a licensed person as defined in the Professional Corporation Act, or a person licensed to render the same professional services in the jurisdiction or jurisdictions in which the person practices, and that from the application it appears that the affairs of the corporation will be conducted in compliance with law and the rules and regulations of the State Bar, the State Bar shall upon payment of the registration fee in such amount as it may determine issue a certificate of registration. The applicant shall include with the application, for each shareholder of the corporation licensed in a foreign country but not in this state or in any other state, territory, or possession of the United States, a certificate from the authority in the foreign country currently having final jurisdiction over the practice of law, which shall verify the shareholder’s admission to practice in the foreign country, the date thereof, and the fact that the shareholder is currently in good standing as an attorney or counselor at law or the equivalent. If the certificate is not in English, there shall be included with the certificate a duly authenticated English translation thereof. The application shall be signed and verified by an officer of the corporation.”
Therefore, while licensed professionals in California are generally prohibited from forming a foreign professional corporation to provide professional services, California Business and Professions Code Section 6161 expressly permits the use of foreign professional corporations by California licensed attorneys for solo practices and law firms provided they comply with the California Corporations Code, the California Business and Professions Code, and other applicable laws and regulations enforced by the State Bar of California.
Secretary of State Application to Register a Foreign Professional Corporation for Authority to Transact Business in California for a Law Practice
CA SOS Foreign PC Screenshot
As shown in the image above, in order to register a foreign professional corporation for authority to transact business in California for attorney services with the California Secretary of State (commonly referred to as foreign registration), the filer must choose the profession to be practiced, however, only check boxes for accountancy and law are provided. Therefore, unless a foreign professional corporation is for a practice of accountancy or law, it is not possible to register a foreign professional corporation for authority to transact business in California.
Conclusion
Foreign professional corporations have been deemed compatible with the accountability standards the State of California applies to attorneys. Thus, attorneys practicing in California in corporate form may choose between operating as a California Professional Law Corporation or as a foreign professional corporation. Although the two types of corporations may have different shareholder, board of director, and officer qualifications, or different naming requirements, both are equally permissible under California law and the State Bar of California.
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