Choosing the right business structure is a critical decision for architects establishing their private practices and architectural firms in California. Professional architecture practices must comply with applicable rules set forth by California statutes and regulatory agencies. A California Professional Architecture Corporation is a type of corporation engaging in the profession of architecture, subject to unique legal requirements.

While general stock corporations, such as California S-Corps and California Corporations, are generally prohibited for use with professional practices, California architecture practices are permitted to operate as California general stock corporations.

The question, “Can an Architect Practice Using a General Stock 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 architects who are still receiving mixed information from other attorneys or advisors leading them to believe that it might not be permissible to practice architecture in a general stock 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 California general stock corporations to render professional services as an architect in California. The California Corporations Code provides the structure for forming and organizing both California general stock corporation and California Professional Architecture Corporations in California, and law expressly applicable to California Professional Architecture Corporations governs their formation and operation.

Executive Summary: Key Takeaways for Busy Architects in California

• California Professional Architecture Corporations are exclusively for licensed individuals, ensuring that only qualified professionals provide specialized services, which maintains public trust and accountability.

• California general stock corporations are not limited in the identity of shareholders, members of the board of directors, or office positions provided a California licensed architect is responsible for professional architectural services provided by the California general stock corporation.

• Taxation for both California general stock corporation and California Professional Architecture Corporations allows the election of S-Corporation status for pass-through taxation, offering significant financial advantages compared to general stock corporations. Electing S-Corporation status can also help reduce self-employment taxes for professional business owners.

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 California general stock corporations by architects for practicing architecture 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 architecture under California Business and Professions Code Sections 5610–5610.7.

Only licensed persons are permitted to form and own shares in a California Professional Architecture 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 architects in California.

As a general rule, only Licensed Persons may serve as professional employees, officers, or directors in a California Professional Architecture Corporation.

Moscone-Knox Professional Corporations Act

California Corporations Code Sections 13401(a)-(b), together with the rest of the Moscone-Knox Professional Corporations Act in California Corporations Code Sections 13400-13410, defines and regulates California Professional Corporations, including California Professional Architecture Corporations. These sections prohibit California general stock corporations from rendering professional prof1lower services, as defined in Section 13401(a), unless they are specifically formed as a California Professional Architecture Corporation and meet the requirements of California Corporations Code Sections 13400-13410. A California Professional Corporation or other corporation must be organized for the purpose of providing services in such profession, and the law may require recognition of such predecessor organization for compliance.

California Business and Professions Code Sections 5535.2 and 5535.3

Notwithstanding the Moscone-Knox Professional Corporations Act, the private practices of licensed architects and architecture firms may incorporate under the as California general stock corporation, such as California S-Corps and California Corporations, under California Business and Professions Code Sections 5535.2 and 5535.3.

California Business and Professions Code Sections 5535.2 reads in full as follows:

“(a) This chapter does not prevent an architect from forming a business entity or collaborating with persons who are not architects, provided that any architects’ professional services that are provided through that entity or collaboration are offered and provided under the responsible control of an architect, or architects, and in accordance with the provisions of this chapter.

(b)(1) A business entity organized as a general corporation may include in its name any or all of the following:

(A) A fictitious name.

(B) The name of one or more licensed architects.

(C) The term “architect,” the term “architecture,” or a variation of the term “architect” or “architecture.”

(2) Nothing in paragraph (1) shall limit a business entity organized as a general corporation from including in its name any other word or name that is not otherwise prohibited by law.

(3) Notwithstanding paragraphs (1) and (2), a business entity organized as a general corporation shall not include in its name the term ‘professional corporation.’”

California Business and Professions Code Sections 5535.5 reads in full as follows:

“This chapter does not prevent a corporation from furnishing or supplying by contract architectural services, as long as any architects’ professional services are offered and provided under the responsible control of a licensed architect or architects.”

Therefore, while licensed professionals in California are generally prohibited from forming a California general stock corporation to provide professional services, California Business and Professions Code Sections 5535.2 and 5535.3 expressly permits the use of California general stock corporations by California licensed architects for this private practices and architectural firms provided they comply with the California Corporations Code, the California Business and Professions Code, and other applicable laws and regulations enforced by the California Architects Board.

Legal Distinctions Between General Stock Corporations and Professional Corporations

Shareholder Requirements for Professional Corporations in California

One of the fundamental distinctions between California Professional Architecture Corporations and general stock corporations is ownership. California Professional Architecture Corporations are exclusively for licensed professionals (see: “Who May Be a Shareholder of a California Professional Architecture Corporation?”, while California general stock corporations can be owned by anyone. The California Architects Board uses other means to control the management of private practices and architecture firms, permitting architects to use California general stock corporations with non-architect shareholders, board of directors members, and officers.

It is essential to ensure that all shareholders meet the licensing requirements set forth in the California Corporations Code when choosing to incorporate as a California Professional Architecture Corporation. Failing to comply with these shareholder requirements can jeopardize the corporate existence and may result in disciplinary action from the relevant licensing board. By adhering to these rules, California Professional Architecture Corporations help maintain the integrity of professional services and protect the public by ensuring that only qualified, licensed architects are in a position to control and render professional services through the California Professional Architecture Corporation.

Name Requirements for Professional Corporations in California

A California Professional Architecture Corporation is also subject to different name requirements compared to a California general stock corporation. California Business and Professions Code Section 5610.3 reads in full as follows:

“The name of a professional architectural corporation and any name or names under which it may be rendering professional services shall contain and be restricted to the name or the last name of one or more of the present, prospective, or former shareholders, or of persons who were associated with a predecessor person, partnership, or other organization and whose name or names appeared in the name of the predecessor organization, and shall include either (1) the words “architectural corporation” or (2) the word “architect” or “architects” and wording or abbreviations denoting corporate existence.”

A California general stock corporation used for architectural services is not subject to the name restrictions of California Business and Professions Code 5610.3, thus many California architects choose to form a California general stock corporation instead of a California Professional Architecture Corporation just for flexibility in the corporate name.

When considering alternative business structures for a professional architecture practice, it is important to note that licensed architects in California may operate as a sole proprietorship or a general partnership to provide professional services, however, being a sole proprietor or general partner as an architect does not provide liability protection, does not separate personal assets from business assets, and is usually the least tax efficient business entity type for the practice of architecture in California.

Tax treatment also varies between the two types of corporations. While both can elect S Corporation status to benefit from pass-through taxation, California Professional Architecture Corporations (as personal service corporations or professional service corporations) may face a flat federal tax rate if they do not make the S Corporation election. This difference can significantly impact the financial strategy and tax planning for California Professional Architecture Corporations, making it essential for licensed architects to carefully consider their options.

Conclusion

California general stock corporations have been deemed compatible with the accountability standards the State of California applies to architects. Thus, architects practicing in California may choose between operating as a California Professional Architecture Corporation or as a California general stock corporation. Although the two types of corporations have different shareholder, board of director, and officer qualifications, different naming requirements, and potentially different tax treatment unless an S Corporation election is made, both are equally permissible under California law and the California Architects Board.