A common question the attorneys at San Diego Corporate Law are asked is whether or not an architect may practice architecture as a California Limited Liability Company (LLC).

Whether you are an architect, or someone advising architects and other licensed professionals, you may have the same questions and concerns regarding the legality of using California LLCs for the practice of architecture, and hopefully, this writing will answer many of your questions about California LLCs with respect to architects and other licensed professionals.

What California Laws Regulate the Entities an Architect May Use for the Practice of Architecture in California?

The California Department of Consumer Affairs, California Architects Board regulates and enforces the applicable laws to uphold the standards of architecture practice within the State of California. While many areas of California law touch the highly regulated practice of architecture, we need only review two such bodies of California law for this discussion.

California Business and Professions Code for Architecture Practices

The California Business and Professions Code primarily governs the practice of architecture in California. Specifically, California Business and Professions Code Sections 5500-5610.7 comprises the Architects Practice Act.

Within the Architects Practice Act, California Business and Professions Code Sections 5610-5610.7 address the entities in which duly licensed architects may practice architecture in California.

California Corporations Code for Architecture Practices

The California Corporations Code also governs the entities in which duly licensed architects may practice architecture in California. Specifically, California Corporations Code Sections 13400-13410 comprises the Moscone-Knox Professional Corporation Act.

The Moscone-Knox Professional Corporation Act provides guidance for professional corporations, but the rest of the California Corporations Code applies to professional corporations, including California Professional Architecture Corporations, when Sections 13400-13410 of the California Corporations Code is silent on a subject.

California Corporations Code Sections 17701.01-17713.13, the California Revised Uniform Limited Liability Company Act, is also important for this discussion.

An Architect MAY NOT Practice Architecture Using a California LLC

In reading the pertinent parts of both the California Business and Professions Code and the California Corporations Code, an architect is prohibited from practicing architecture using a California LLC (or any other limited liability company, for that matter!).

The Moscone-Knox Professional Corporation Act on Practicing Architecture in a California LLC

The Moscone-Knox Professional Corporation Act itself does not explicitly state that an architect cannot practice architecture using a California LLC. Instead, it outlines the structure and rules for professional corporations.

The California Revised Uniform Limited Liability Company Act on Practicing Architecture in a California LLC

The prohibition for practicing architecture in a California LLC comes from the California Revised Uniform Limited Liability Company Act, specifically, California Corporations Code Section 17701.4(e), which reads, “Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state.” This points back to the Moscone-Knox Professional Corporation Act.

An Architect May Practice Architecture Using a California General Stock Corporation, a Registered California LLP, or a California Professional Architecture Corporation

Architects in California can operate their architecture practices as a general stock corporation (whether taxed as an S Corporation or C Corporation) or a Registered California LLP. However, they must comply with specific regulations laid out by the California Department of Consumer Affairs, California Architects Board.

The laws and regulations permitting architects to operate as a general stock corporation or LLP in California are detailed under the California Business and Professions Code Section 5558. This code specifies that architects may operate as a general stock corporation or registered LLP provided that a licensed architect is appointed as director and controls all architectural services within the company. Moreover, the corporation must register with the California Department of Consumer Affairs, California Architects Board and obtain a Certificate of Authorization as per the California Code of Regulations Title 16, Division 2, Article 3. The intricate details of these requirements and conditions are further elaborated in sections 134 through 137 of the same code.

What are the Possible Consequences of Practicing Architecture as a California LLC?

The potential legal ramifications for an architect practicing architecture as a California LLC are severe and wide-ranging.

Disciplinary Action from the California Department of Consumer Affairs, California Architects Board

An architect could face disciplinary actions from the California Department of Consumer Affairs, California Architects Board, including fines, license suspension, or even revocation of their architecture license.

Loss of Liability Protection and Malpractice Insurance Coverage

Operating as a California LLC could void the protection from personal liability that the LLC structure typically provides, making the architect personally liable for debts and legal liabilities of the business. This can have considerable financial implications.

It is also a foreseeable possibility that a malpractice insurance carrier might refuse to pay a malpractice claim against an architect, other professionals, or other licensed persons employed by an architect if the legal entity used to practice architecture was illegal. The malpractice insurance carrier could claim that the architect was operating outside the scope of the coverage, which could be considered a violation of the policy terms, leading to the denial of insurance claims.

Civil Liability and Tax Consequences

It is also possible that an architect might face civil penalties, including lawsuits from clients, or potential tax consequences, as the IRS may not recognize the LLC for the practice of architecture, leading to potential fines and penalties.

What Are My Options If I Am Already Practicing Architecture as a California LLC?

If you are currently practicing architecture as a California LLC, you should address the situation immediately to avoid the significant legal consequences highlighted above. You have two primary options to remedy the situation.

Firstly, you can choose to dissolve the California LLC and simultaneously or subsequently form a new California Professional Architecture Corporation compliant with the Moscone-Knox Professional Corporation Act, a general stock corporation, or a registered LLP. This approach would involve complete dissolution of the existing California LLC and its operations, and the establishment of a new, legally compliant California Professional Architecture Corporation, general stock corporation, or registered LLP.

Secondly, you could opt to convert the existing California LLC into a California Professional Architecture Corporation, general stock corporation, or registered LLP. This process would involve a legal conversion process whereby the LLC would be transformed into a Professional Architecture Corporation under the Moscone-Knox Professional Corporation Act, a general stock corporation, or a registered LLP. This method might be more suitable for those seeking to maintain the continuity of their existing business operations during the transition.

Dissolving a California LLC and Forming a California Professional Architecture Corporation

The process of dissolving a California LLC and forming a California Professional Architecture Corporation is one of the viable solutions to rectify the situation of an incorrectly structured architecture practice.

This process involves legally terminating the operations of the existing LLC and establishing a new entity that complies with the provisions of the Moscone-Knox Professional Corporation Act. This transition allows architects to continue their architecture practice under a structure that is legally recognized and provides appropriate liability protections and other benefits. However, it’s important to note that this process requires careful planning, proper execution, and might entail certain costs. The following sections will delve into the specifics of this process.

Dissolving a California LLC

Dissolving a California LLC is the formal process of closing the business entity. This entails fulfilling several legal requirements to ensure that the LLC is properly wound up. Key steps include settling any outstanding debts or liabilities, distributing remaining assets among members, filing a dissolution form with the California Secretary of State, and notifying relevant parties including creditors and the California Franchise Tax Board. It’s crucial to understand that this process is more than just ceasing operations—it requires several steps to legally and effectively dissolve the LLC and avoid potential legal and tax implications.

Forming a California Professional Architecture Corporation

A California Professional Architecture Corporation is a specific type of business structure designed for licensed architects to practice architects in California and is a legal entity compliant with the Moscone-Knox Professional Corporation Act.

The process involves drafting Articles of Incorporation specifically drafted in compliance with the Moscone-Knox Professional Corporation Act and filing those compliant Articles of Incorporation with the California Secretary of State, drafting bylaws which include specific provisions required by the Moscone-Knox Professional Corporation Act, issuing shares, and obtaining an Employer Identification Number (EIN) from the IRS, among other steps.

This structure not only allows architects to practice architecture in California legally, but also provides benefits such as limited liability protection, potential tax advantages, and more.

Converting a California LLC into a California Professional Architecture Corporation

The conversion of a California LLC into a California Professional Architecture Corporation is an alternative route for architects seeking to rectify an incorrectly structured architecture practice without completely dissolving their existing business.

This process involves a legal transformation of the LLC into a professional corporation compliant with the Moscone-Knox Professional Corporation Act. It allows architects to continue their practice within the same business structure, albeit now legally recognized and offering suitable liability protection. This method is beneficial for those aiming to maintain operational continuity during the transition. The following sections will provide detailed insight into this process.

The conversion of a California LLC into a California Professional Architecture Corporation involves a series of steps, which are designed to ensure legal compliance and continuity of the business structure.

Draft and Adopt a Plan of Conversion for Converting a California LLC into a California Professional Architecture Corporation

The first step in the process of converting a California LLC into a California Professional Architecture Corporation is to adopt a plan of conversion.

A Plan of Conversion is a comprehensive document that details the procedural roadmap for transitioning a California LLC into a California Professional Architecture Corporation. It highlights the terms and conditions of the conversion, including the legal name changes, the transformation of membership interests into shares, the proposed operational structure post-conversion, and the required filings with the California Secretary of State and other relevant entities.

Draft and File Articles of Incorporation Conversion for Converting a California LLC into a California Professional Architecture Corporation

After drafting the Plan of Conversion, the next step is to draft and file the Articles of Incorporation Conversion. This document marks the legal transition of the LLC into a California Professional Architecture Corporation. It must be drafted in accordance with the provisions of the Moscone-Knox Professional Corporation Act, and include details about the converted business entity, such as the new name, the number of shares being authorized, and a statement that the entity is a professional corporation for the practice of architecture.

Draft Moscone-Knox Professional Corporation Act Compliant Bylaws for Converting a California LLC into a California Professional Architecture Corporation

Bylaws are a crucial legal document that outlines the operational rules and procedures of the corporation. Not only do they provide guidance on how the business entity is to be managed and governed, but they also lay the foundation for dispute resolution and decision-making processes.

It is a legal requirement for every California Professional Architecture Corporation to adopt bylaws compliant with both the California Corporations Code (especially the Moscone-Knox Professional Corporation Act!), the California Business and Professions Code, and the Architects Practice Act, respectively.

Completing All Other Requirements for the Formation of a California Professional Architecture Corporation

After the compliant Articles of Incorporation Conversion have been drafted and filed and Bylaws have been drafted and adopted by the newly converted California Professional Architecture Corporation, there are additional steps to be taken to fully establish a California Architecture Corporation.

The California Architecture Corporation must hold an initial meeting of its board of directors, must issue shares to its shareholder(s), and must file a Statement of Information with the Secretary of State within 90 days of filing the Articles of Incorporation Conversion.

Additionally, following the conversion of a California LLC into a California Architecture Corporation, the new California Architecture Corporation is required to file a notice in accordance with the California Corporations Code Section 25103(h) with the California Department of Financial Protection & Innovation to maintain compliance with California securities laws.

Conversions from a California LLC to a general stock corporation or registered LLP would be similar to conversion to a California Professional Architecture Corporation but are too complex to outline for the purposes of this article.

All California Professional Architecture Corporations, or general stock corporations or registered LLPs used by architects, must report to the California Department of Consumer Affairs, California Architects Board as required under the California Business and Professions Code Section 5558 and register with the California Department of Consumer Affairs, California Architects Board and obtain a Certificate of Authorization as per the California Code of Regulations Title 16, Division 2, Article 3.

There are other steps not mentioned here that are applicable to all legal entities used for the practice of architecture, but these are too numerous to mention here.

Let San Diego Corporate Law Get Your California Professional Architecture Corporation, General Stock Corporation, or Registered LLP Done for You

Regardless of the path chosen, it is highly advisable to seek the advice and counsel of a corporate attorney experienced with converting a California LLC into an Architecture Corporation, general stock corporation (either taxed as an S-Corp or C-Corp), or a Registered LLP in California to professionally navigate the process and ensure compliance with all California laws and regulations pertaining to the practice of architecture.

At San Diego Corporate Law, our team of experienced attorneys is well-versed in navigating the complexities of both dissolving a California LLC and forming business entities for architects. Given the significant legal implications involved, it is crucial to have expert legal guidance.

We urge you to get in touch with us right away to schedule a consultation with our corporate attorneys if you are currently practicing architecture as a California LLC or otherwise need assistance with the formation of a California Professional Architecture Corporation. We will ensure your transition to a compliant business structure is handled meticulously, safeguarding your rights and interests. Don’t delay—contact us now to schedule a consultation and start the process of securing the future of your architecture practice and protecting your architecture license today.