If you are a California attorney, here are four important things you should know before you open your own practice.

1.         You may incorporate as a California Professional Law Corporation.

Under California law, you cannot operate your law practice as any type of corporation other than a California Professional Law Corporation. That is, you cannot use a standard c-corporation, s-corp, or a limited liability company. California professional corporations were created in 1968 via the enactment of the Moscone-Knox Professional Corporation Act (the “Moscone-Knox Act” or the “Act”). See Cal. Corp. Code, §13400 et seq. The Act gives professionals, such as attorneys, the ability to protect their personal and family assets from being seized by creditors to pay business-related lawsuit judgments, debts, or other business liabilities. Prior to the Act, most professionals were organized as general partnerships or sole proprietorships. Neither of those business forms protected personal and family assets from being seized. The Moscone-Knox Act solved that problem for licensed professionals. San Diego Corporate Law highly recommends incorporating as a California Professional Law Corporation before you open your law practice. The corporate shield will protect against many types of judgments if you get sued. It is essential to have an experienced San Diego corporate attorney provide advice and assistance with setting up your practice.

2.         Only certain licensed professionals may be owners of your California Professional Law Corporation.

Under the provisions of the Moscone-Knox Act, there are certain rules and restrictions with respect to who may be shareholders of your California Professional Law Corporation. Essentially, all of the owners must be licensed attorneys.

Licensure is required, meaning that if any of your owners lose their license, they must be removed as an owner. For this reason and others, it is important to have a Buy-Sell Agreement that sets out the mechanisms for removing an owner and dealing with the process, timing, payment, and other matters. Here again, an experienced San Diego corporate attorney can help by drafting a Buy-Sell Agreement.

3.         There are similar restrictions for directors and senior management.

In a similar manner, the Moscone-Knox Act limits who may serve on the board of directors and who may be hired as the CEO, President, CFO, Treasurer, and other officers of a California Professional Law Corporation. Only the listed professionals can serve on the board of directors and only licensed attorneys can be hired in certain officer positions. The policy reasons are straightforward; only trained and licensed professionals should be in charge of a California Law Professional Corporation. Of course, other types of non-licensed employees can be hired as long as they are not engaged in providing law services.

4.         Your California Professional Corporation must be properly named.

All corporations, including California professional corporations, must file articles of incorporation with the California Secretary of State’s office. When doing so, all corporations must comply with various rules with respect to corporation names. First, the name must be unique and not already taken by someone else. Second, for a California Professional Law Corporation, the name must include a proper designation that the entity is a corporation. Finally, a California Professional Law Corporation must have a name that complies with California Business and Professions Code Section 6171 and the California Rules of Professional Conduct.