In California, the structure and organization of businesses that architects may use to provide architectural services are subject to specific legal and regulatory considerations. An Architect must contemplate the most suitable corporate form for tax liability by minimizing both income and self-employment taxes as well as personal liability and personal asset protection concerns such as separating personal and corporate assets and practicing in a business entity that provides limited liability protection to protect personal assets. To undertake their architecture practice without losing sight of the legally permissible forms of business structures, architects should seek the advice and counsel of both experienced corporate attorneys and their tax advisors when choosing a business structure for their architecture practice.

The question of whether rending professional services is permitted through a General Stock Corporation, whether that is a California Corporation or a California S-Corp, is a matter of legal interpretation. This article aims to dissect the legal framework governing the use of General Stock Corporations, such as California Corporations and California S-Corps for architecture practices in California, analyzing the implications, limitations, and potential benefits of adopting such a structure.

Given the stringent regulations on architecture services in California, understanding the nuances and requirements is crucial for architects seeking to incorporate their architecture practices in California as General Stock Corporations. This article endeavors to provide a clear, informative, and practical answer for architects considering the use of a General Stock Corporation for their architecture practice and to inform architects who might currently be practicing architecture in a General Stock Corporation their options to get into compliance with the California Corporations Code, the California Business and Professions Code, the Architects Practice Act, and the rules and regulations of the California Architects Board.

Executive Summary: Putting the Conclusion First for Busy Architects

California architects may practice architecture in California with either a Professional Corporation. This makes the profession of architecture unique in California, as architects are the only professionals in California who have a choice between using California General Stock Corporations or California Professional Corporations for rendering professional services. Despite this flexibility, a limited liability company (LLC) may not be used for the practice of architecture in California.

How to Identify a California General Stock Corporation

A General Stock Corporation may be easily identified by reading the Purpose Statement in the Articles of Incorporation filed with the California Secretary of State. The Purpose Statement of a California General Stock Corporation will read as follows:

“The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.”

The Purpose Statement of a General Stock Corporation formed in a state other than California will read similarly, although the accepted Purpose Statement wording will vary by state.

How to Identify a California Professional Architecture Corporation

A California Corporation may be easily identified by reading the Purpose Statement in the Articles of Incorporation filed with the California Secretary of State. The Purpose Statement of a California Professional Architecture Corporation will read as follows:

“The purpose of the corporation is to engage in the profession of architecture and any other lawful activities (other than the banking or trust company business) not prohibited to a corporation engaging in such profession by applicable laws and regulations. This corporation is a professional corporation within the meaning of California Corporations Code section 13400 et. seq.”

Corporate Options for Licensed Architects in California

If you are an architect interested in practicing architecture in California, it is imperative to seek informed legal guidance to either form a California General Stock Corporation (such as a California Corporation or a California S-Corp) or use a California Professional Corporation (specifically a California Professional Architecture Corporation) to ensure compliance with the nuanced requirements set by the California Corporations Code, the California Business and Professions Code, and the rules and regulations of the California Architects Board.

Contact the experienced attorneys at San Diego Corporate Law today for personalized legal solutions tailored to the unique needs of your architecture practice. Our team of corporate attorneys is dedicated to helping you seamlessly transition into a compliant corporate structure, safeguarding the future of your architecture practice and protecting the architecture license you studied and worked hard to obtain.

What are General Stock Corporations and California Professional Architecture Corporations?

While similar in structure generally, General Stock Corporations formed under California law or the laws of another state and California Professional Architecture Corporations differ with respect to each other in some details. Understanding the nuances between these corporate structures is essential for architects intending to establish or continue their practices within the legal frameworks of California or any other state. This section will discuss the attributes of both General Stock Corporations and California Professional Architectural Corporations.

What is a General Stock Corporation?

A General Stock Corporation is a business entity formed under the laws of the State of California or the laws of other states that can engage in virtually any legal activity, other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code (with the exception of the practice of architecture, of course!). This type of corporation is recognized broadly across states, allowing for a degree of uniformity in business operations beyond California or the jurisdiction of its formation and generally permitted to file for authority to transact business in other states (commonly referred to a registration of a foreign corporation).

What is a Professional Architecture Corporation in California?

California Professional Architecture Corporations are specialized entities formed pursuant to the Moscone-Knox Professional Corporation Act specifically for rendering professional services that require a California license to practice as an architect. This differentiation ensures that architects are able to comply with specific legal stipulations governing their practice of architecture, including liability and practice requirements, thereby protecting both the architects and the public they serve.

General Stock Corporations versus California Professional Architecture Corporations

Details of Practicing Architecture in a California General Stock Corporation

Shareholders of a General Stock Corporation Used for the Practice of Architecture in California

Ownership of a California General Stock Corporation used for the practice of architecture is not restricted solely to licensed architects. Unlike California Professional Architecture Corporations, which have specific ownership and operational requirements relating to licensure, General Stock Corporations offer more flexibility in terms of ownership.

This flexibility allows individuals or entities without an architectural license to hold shares in the General Stock Corporation, providing a distinct structural advantage for architects who seek investment opportunities or collaboration with professionals from other sectors. This broadened scope for ownership, however, does come with the necessity to adhere to all other laws and regulations applicable to the practice of architecture in California, including those relating to the responsible management and control of the architectural services provided.

Restrictions on Names of General Stock Corporations Used for the Practice of Architecture in California

In California, a General Stock Corporation utilized for the practice of architecture is permitted to incorporate the word “architect” or variations thereof in its business name. This provision is critical for architecture firms that wish to clearly communicate their availability to render professional services to potential clients and the general public.

However, it is important to ensure that the chosen name complies with other applicable state laws and regulations governing business names and does not mislead the public about the nature of the ownership or the professional qualifications of the personnel owning, or professional employees rendering professional services in the architecture firm.

Ability of General Stock Corporations Used for the Practice of Architecture to Advertise Professional Services in California

General Stock Corporations offering architectural services in California are permitted to advertise their professional services to the public. However, this permission is contingent upon ensuring that a licensed architect holds a position of management control—be it as an owner, officer, or employee—within the General Stock Corporation. This prerequisite ensures that individuals with the requisite professional qualifications and legal responsibilities are overseeing and directing the architectural services offered.

Furthermore, it is mandatory that a licensee is in responsible control of all design services provided by the General Stock Corporation. This measure is put in place to maintain the integrity and quality of architectural services, safeguarding the interests of both the public and the profession by ensuring that all advertised services are under the direct supervision of a licensed architect.

Details of Practicing Architecture in a California Professional Architecture Corporation

Shareholders, Officers, Directors, and Employees of a California Professional Architecture Corporation

In a California Professional Architecture Corporation, the law strictly mandates that shareholders, officers, directors, and employees who are rendering professional architectural services must be licensed professionals. This requirement is fundamental in ensuring that the corporation adheres to the high standards set for architectural practice within the state. It guarantees that every level of management and operational execution within the firm is under the auspices of professionals who have been vetted and licensed, thus upholding the quality and integrity of the architectural services provided to the public. This regulation not only reinforces the professional caliber of the corporation but also aligns with the legal and ethical responsibilities entrusted to architects.

California Professional Architecture Corporations Must Comply with the Moscone-Knox Professional Corporation Act

Compliance with the Moscone-Knox Professional Corporation Act is a compulsory requirement for California Professional Architecture Corporations. This act outlines a comprehensive set of legal and professional standards specific to professional corporations in California, including those providing architectural services. It details the requirements for incorporation, governance, professional conduct, and the specific responsibilities towards clients and the general public. Adherence to this statute ensures that a Professional Architecture Corporation operates within the legal framework designed to uphold the integrity of professional services within the state. Therefore, ensuring compliance with the Moscone-Knox Professional Corporation Act is crucial for the legal operation and professional legitimacy of these specialized corporations.

Restrictions on Names of California Professional Architecture Corporations

The naming conventions for California Professional Architecture Corporations are tightly regulated to maintain professionalism and clarity in the industry. The name of a California Professional Architectural Corporation must be reflective of its shareholders or closely affiliated individuals.

Specifically, the name of a California Professional Architecture Corporation is restricted to the name or the last name of one or more of the current, prospective, or former shareholders, or individuals who were associated with a predecessor entity, such as a person, partnership, or other organization, and whose name or names were part of the name of the predecessor.

Additionally, the name of a California Professional Architecture Corporation must include either (1) the words “architectural corporation” or (2) the word “architect” or “architects”, accompanied by wording or abbreviations indicating corporate existence.

This requirement is designed to ensure transparency and accountability, making it clear to the public and to clients that they are engaging with a duly registered professional entity specialized in architectural services.

Ability of California Professional Architecture Corporation to Advertise Professional Services

California Professional Architecture Corporations are permitted to advertise their architectural services, aligning with the regulations set forth by the state. This enables them to communicate their offering and expertise to the public effectively.

Nonetheless, it is imperative that such advertisements accurately represent the services provided and are led by a licensed architect in compliance with the Moscone-Knox Professional Corporation Act. This ensures that advertised services meet professional standards and that the information conveyed to the public is both reliable and verifiable, maintaining the profession’s integrity and public trust.

Potential Tax Differences Between General Stock Corporations and California Professional Architecture Corporations

Taxation presents the potential for variance between General Stock Corporations and California Professional Architecture Corporations.

Both General Stock Corporations and California Professional Architecture Corporations may elect to be taxed under Subchapter S of the Internal Revenue Code, a specific taxation status potentially offering benefits such as pass-through taxation of income, deductions, and credit through to shareholders to be reported on personal tax returns. If electing S Corporation status, a General Stock Corporation and California Professional Architectural Corporation will be taxed identically.

However, if not electing to be taxed as an S Corporation, traditionally personal service corporations (sometimes referred to as professional service corporations) such as California Professional Architecture Corporations not electing S Corporation tax status were taxed at a flat federal rate of 35% in addition to state income taxes. Furthermore, these personal services corporations were subject to the double taxation of traditional C corporations. Under the Tax Cuts and Jobs Act signed by then President Trump in 2018 reduced the federal flat tax from 35% to the standard federal corporate tax rate of 21%, but this tax cut is due to expire at the end of 2025 and return to the 35% federal tax rate unless the Tax Cuts and Jobs Act is extended or new tax laws are adopted.

How to Identify if Business Entities are General Stock Corporations or California Professional Architecture Corporations?

While the corporate documents of a California Professional Architecture Corporation, such as the Articles of Incorporation, Bylaws, and Stock Certificates should contain language specific to the practice of architecture under the California Professional Architecture Corporation, the easiest way to determine whether a business entity is a General Stock Corporation or a California Professional Architecture Corporation is to review the Purpose Statement in the Articles of Incorporation of the business structure.

Purpose Statement of a General Stock Corporation

A General Stock Corporation may be easily identified by reading the Purpose Statement in the Articles of Incorporation filed with the California Secretary of State. The Purpose Statement of a California General Stock Corporation will read as follows:

“The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.”

The Purpose Statement of a General Stock Corporation formed in a state other than California will read similarly, although the accepted Purpose Statement wording will vary by state.

Purpose Statement of a California Professional Architecture Corporation

A California Corporation may be easily identified by reading the Purpose Statement in the Articles of Incorporation filed with the California Secretary of State. The Purpose Statement of a California Professional Architecture Corporation will read as follows:

” The purpose of the corporation is to engage in the profession of architecture and any other lawful activities (other than the banking or trust company business) not prohibited to a corporation engaging in such profession by applicable laws and regulations. This corporation is a professional corporation within the meaning of California Corporations Code section 13400 et. seq.”