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San Diego Court Reporters Must Operate Through a California Professional Corporation, Says California Court of Appeals

Many San Diego professionals, like doctors, nurses, attorneys and others, are eligible to form professional corporations under California law. See the Moscone-Knox Professional Corporation Act, Cal. Corp. Code, § 13400 et seq. An experienced San Diego corporate attorney can help you set up your professional corporation and keep it in good standing.

Aside from being allowed to form a professional corporation, various statutes and California court cases have held that most professionals must form professional corporations if they want to operate their practices through a corporate form. This is the holding of a recent California Court of Appeals decision that dealt with a court reporting business. See Holly Moose & Associates v. U.S. Legal Support, Inc., Case No. H043819 (Cal. App. 6th Dist. December 7, 2018).

In general, the purpose of allowing medical and other professional corporations is to provide to professionals the corporate shield — the legal doctrine that protects personal assets from being seized to pay for corporate/company liabilities. However, California law has strict rules with respect to who may own or control a professional corporation. These restrictions are in place to ensure that control over the decisions made by the professionals — who are bound by licensure and ethical obligations — are not made or controlled or influenced by a layperson who is not bound by the licensure and ethical obligations. For example, the California Appellate Court in Marik v. Superior Court, 191 Cal.App.3d 1136 (Cal. App. 2nd Dist. 1987) noted the concern that non-professionals might make corporate decisions based on “commercial advantage” rather than the ethical standards governing the respective profession.

This is exactly what happened in the Holly Moose Associates case. In that case, a non-professional corporation formed in Texas — U.S. Legal Support, Inc. — was engaged in providing court reporting services here in California. In general, court reporters must be certified as being able to take and transcribe shorthand and are hired by courts and attorneys and others to transcribe in-court proceedings and proceedings that occur outside of a courtroom (such as depositions). Individual court reporters must be licensed, are governed by certain California statutes, and the profession has a board that establishes ethical rules and regulations (in this case, the Court Reporters Board of California). Among the various rules and regulations is that, if a court reporter is going to operate as a corporation, the corporation must comply with the Moscone-Knox Professional Corporations Act. See Bus. & Prof. Code, § 8046. U.S. Legal Support, Inc. was not a California professional corporation and did not comply with the restrictions on who could own the court reporting service. The Court of Appeals held that it was operating unlawfully.

California Professional Corporations: Contact San Diego Corporate Law Today

If you need legal advice or services related to setting up a professional corporation here in San Diego, call your trusted business attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for four years running by Contact Mr. Leonard at (858) 483-9200 or by email. Like us on Facebook.

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