What is a Professional Law Corporation?
A professional law corporation (PLC) is a specific type of business entity designed for licensed attorneys to practice law. It’s essentially a legal and financial structure that allows attorneys to run their practice while adhering to state regulations.
Unlike a general corporation, a PLC must comply with professional standards and requirements set by the state’s Bar Association. Plus, it provides some critical benefits, like limited liability protection for shareholders. If you’re an attorney thinking about starting or restructuring your law practice, this could be the solution you’re looking for.
Why Choose a Professional Law Corporation?
You might be wondering, “Why not just stick to a sole proprietorship or general partnership?” Well, here are the key reasons why a PLC might be the better option:
- Limited Liability Protection:
- Shareholders (typically lawyers) are shielded from personal liability for the corporation’s debts.
- This protection doesn’t extend to malpractice claims, but it can safeguard personal assets from business-related lawsuits.
- Tax Advantages:
- PLCs can benefit from tax deductions for business expenses, such as office rent, employee salaries, and insurance.
- Shareholders may also receive dividends, which can lower overall taxable income.
- Professional Credibility:
- A PLC signals professionalism and stability to clients.
- It often instills greater trust, making clients feel more secure in their choice of representation.
How to Set Up a Professional Law Corporation
Setting up a PLC isn’t as daunting as it sounds. Here’s a step-by-step guide:
1. Check State Requirements
Each state has its own regulations for forming a professional law corporation. Start by reviewing your state’s Bar Association guidelines.
2. File Articles of Incorporation
Submit the required documentation with your state’s Secretary of State. Be sure to include:
- The name of your corporation (which must usually include “Professional Corporation” or “PC”).
- Names and addresses of directors.
- Your corporation’s purpose (e.g., to practice law).
3. Obtain Licenses and Permits
Most states require proof that all shareholders are licensed attorneys. You’ll need to provide this documentation during the registration process.
4. Draft Bylaws
Bylaws outline how your corporation will be run. They typically cover topics like shareholder rights, voting procedures, and officer roles.
5. Secure Malpractice Insurance
While limited liability protects your assets, malpractice claims are another story. Having adequate malpractice insurance is essential.
6. Apply for an EIN
An Employer Identification Number (EIN) from the IRS is required to open a business bank account and file taxes.
Benefits of Operating as a Professional Law Corporation
1. Easier Succession Planning
PLCs provide a framework for transferring ownership, whether you’re bringing in a new partner or planning your retirement.
2. Clearer Financial Separation
By operating under a PLC, your personal finances are kept separate from the firm’s financial activities. This can simplify bookkeeping and tax reporting.
3. Greater Professional Accountability
Since PLCs are held to higher standards by state bar associations, they encourage ethical practices and compliance.
Challenges of a Professional Law Corporation
While PLCs come with many perks, they’re not without challenges:
- Complex Setup Process: Compared to sole proprietorships, forming a PLC involves more paperwork and legal fees.
- Compliance Requirements: Regular filings and adherence to state bar rules are mandatory.
- Limited Liability Exceptions: Personal liability doesn’t cover malpractice or negligence claims, meaning lawyers are still responsible for their actions.
How Does a Professional Law Corporation Compare to Other Legal Structures?
| Entity Type | Liability Protection | Taxation | Ownership Requirements |
| Sole Proprietorship | None | Taxed as personal income | No restrictions |
| General Partnership | None | Taxed as personal income | At least two partners required |
| Professional Law Corp | Limited | Corporate and shareholder | All shareholders must be attorneys |
FAQs about Professional Law Corporations
- Can non-lawyers own shares in a professional law corporation?
No, most states require that all shareholders in a PLC be licensed attorneys. This ensures the corporation complies with professional standards. - Are professional law corporations taxed differently from other corporations?
PLCs can choose to be taxed as C corporations or S corporations, depending on what’s more advantageous for the business. - What happens if a shareholder loses their law license?
Typically, the individual would need to sell their shares, as shareholders are required to maintain active licenses. - Can a professional law corporation operate in multiple states?
Yes, but the corporation must meet each state’s licensing and registration requirements. - Is malpractice insurance mandatory for PLCs?
While not always required by law, malpractice insurance is strongly recommended to protect the firm and its clients.
Summary: Is a Professional Law Corporation Right for You?
Deciding to form a professional law corporation is a significant step. For attorneys seeking liability protection, tax advantages, and enhanced credibility, a PLC is a top-notch option. While the setup process might seem overwhelming, the long-term benefits often outweigh the initial effort.
Whether you’re starting fresh or restructuring your practice, a PLC can provide the legal and financial framework necessary for long-term success.
Authoritative Links:
- American Bar Association: www.americanbar.org
- IRS EIN Application: www.irs.gov
- National Association of Bar Executives: www.nabe.org