TL;DR — Key Takeaways
- California professional corporation requirements are not one set of rules. The Moscone-Knox Professional Corporation Act supplies a frame, and then each profession’s own licensing statute fills it in differently – so much so that of the four professions in this article, two must use a professional corporation and two need not.
- No California profession licensed under the Business and Professions Code may use an LLC to render professional services. Corporations Code section 17701.04(e) says nothing in the LLC act permits it. That is the whole answer to the LLC question, and it comes from one sentence.
- Accountancy is the exception on ownership. Business and Professions Code section 5079 permits nonlicensee owners of an accounting firm – subject to seven conditions including majority licensee ownership, more than half the equity and majority voting rights held by licensees, material participation, and reversion of the interest when participation stops. Law corporations have no such provision.
- The deadlines when a shareholder loses a license are 90 days, and on death six months – Corporations Code section 13407. Miss them and the certificate of registration may be suspended or revoked, at which point the corporation must cease rendering professional services.
- A dated change is coming that reaches three of these four professions. On January 1, 2034, the California LLP disappears for architecture, engineering and land surveying, leaving only public accountancy and law.
The Direct Answer
The Moscone-Knox Professional Corporation Act supplies the frame – single profession, licensed shareholders, a certificate of registration where required – and each profession’s licensing statute supplies the detail. Lawyers and accountants must incorporate under it. Engineers and architects may use a general corporation instead. No profession may use an LLC.
California Professional Corporation Requirements: The Act and What It Covers
The Act is Corporations Code sections 13400 to 13410, and its frame has four load-bearing pieces.
Definitions. Section 13401(a) defines “professional services” as 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.” A “licensed person” under 13401(d) is licensed to render the same services as the corporation; a “disqualified person” under 13401(e) is one who for any reason becomes legally disqualified, temporarily or permanently.
One profession per corporation. Section 13401(b) defines a professional corporation as one “engaged in rendering professional services in a single profession, except as otherwise authorized in Section 13401.5” – and what 13401.5 does not do is the subject of the ownership section below.
A certificate of registration, sometimes. Section 13404 requires the articles to “contain a specific statement that the corporation is a professional corporation within the meaning of this part,” and bars rendering services without a currently effective certificate from the regulating agency, except as provided in section 13401(b) – whose exception list includes the California Architects Board.
Practice only through licensed people. Section 13405(a) permits professional services in California “only through employees who are licensed persons.” Unlicensed people may be employed, “but such persons shall not render any professional services.”
Section 13403 adds relief small firms rely on: a one-shareholder professional corporation needs one director, who is that shareholder and also president and treasurer, and the other officers need not be licensed.
Which California Professions Cannot Use an LLC?
All of them, and the sentence that does it sits in the LLC statute rather than in Moscone-Knox. Corporations Code section 17701.04(e) provides: nothing in the title permits an LLC “to render professional services” as Section 13401 and Section 13401.3 define them.
Because 13401(a) defines professional services by reference to any license authorized by the Business and Professions Code, the reach is the whole of that code. Section 17701.04(b) makes the same point permissively: an LLC may render licensed services only if the Business and Professions Code, the Chiropractic Act, the Osteopathic Act, or the Yacht and Ship Brokers Act “authorize a limited liability company … to hold that license.” The default is no, and only the licensing act can change it.
So can an llc practice law in california? No – and the same answer covers accountancy, engineering and architecture. That is the cleanest part of the professional corporation vs llc california comparison, because it is not a comparison at all. Three real options remain: a professional corporation, a general corporation where the licensing act permits one, and a registered limited liability partnership where Corporations Code section 16101 lists the practice.
Who Is Allowed to Own Shares in a Professional Corporation?
Licensed people, with consequences for getting it wrong stronger than most guidance conveys.
Section 13406(a) provides that shares may be issued only to someone licensed to render the same professional services where they practice, and “any shares issued in violation of this restriction shall be void.” Void, not voidable. The same subdivision closes the workaround: a shareholder may not enter a “voting trust, proxy, or any other arrangement” vesting the voting power in anyone other than a shareholder of the same corporation, “and any purported voting trust, proxy, or other arrangement shall be void.”
Now the point generic content gets wrong in both directions. Section 13401.5 is cited for the proposition that a professional corporation may have up to 49 percent cross-licensed ownership. Read it, and every corporation it designates from subdivision (a) through subdivision (s) is a healthcare corporation. There is no law, accountancy, engineering or architectural corporation entry. For the four professions here, section 13401.5 supplies nothing.
For lawyers the rule is absolute. Business and Professions Code section 6165 provides that except as provided in Corporations Code sections 13403 and 13406, “each director, shareholder, and each officer of a law corporation shall be a licensed person.” There is no nonlicensee ownership provision for law corporations at all.
For accountants there is one, and it is detailed. Section 5079(a) permits a firm lawfully engaged in the practice of public accountancy to have nonlicensee owners if all seven conditions are met:
| Condition | Requirement |
|---|---|
| Who may own | Natural persons or entities, if each ultimate beneficial owner is a natural person materially participating in the firm’s business or an entity the firm controls |
| Participation | Nonlicensee owners must materially participate, and the interest reverts to the firm when material participation ceases |
| Headcount | Licensees must in the aggregate be a majority of owners – except a two-owner firm may have one nonlicensee |
| Economics and control | Licensees must hold more than half the equity capital and majority voting rights |
| Holding out | No holding out as CPAs, and the firm must disclose their involvement in the services provided |
| Engagement responsibility | A CPA or PA must have ultimate responsibility for each attest and compilation engagement |
| Fitness | Disqualification for a dishonesty or fraud conviction, or a license revoked, suspended or surrendered with discipline pending, including by the SEC or PCAOB |
Section 5079(b) adds 30-day written reporting to the board of a disqualifying event and, for California nonlicensee owners, of an SEC or PCAOB formal investigation or Wells submission request.
The accurate summary: no nonlicensee owners for a law corporation, controlled nonlicensee ownership for an accountancy firm. An article giving one answer for both is wrong about one of them.
Four Professions, Four Different Regimes
Reading the four schemes against Moscone-Knox produces a spectrum rather than a rule.
| Law | Public accountancy | Engineering (civil, electrical, mechanical) | Architecture | |
|---|---|---|---|---|
| If you incorporate, must it be a professional corporation? | Yes, with a State Bar certificate | Yes, with a California Board of Accountancy certificate | No – a general corporation is permitted | No – a general corporation is permitted |
| Nonlicensee owners | None (B&P 6165) | Permitted on seven conditions (B&P 5079) | A nonlicensee may be a partner or officer, but not the sole owner (B&P 6738(d)) | Permitted – an architect may form an entity or collaborate with non-architects under responsible control (B&P 5535.2(a)) |
| Certificate renewal | Annually; the annual report is the renewal (B&P 6161.1, 6163(a)) | Biennially (B&P 5152.1) | Current organization record form on file (B&P 6738(h)) | Not applicable |
| Name constraints | State Bar rules and a fictitious name permit where required (B&P 6171(c)-(d)) | Board rules (Corp. Code 13409) | Any person named in the business name must be a licensed engineer, land surveyor, architect or registered geologist (B&P 6738(a)(3)) | May use “architect” – but a general corporation may not use “professional corporation” (B&P 5535.2(b)(3)) |
| LLP available? | Yes | Yes | Yes, until January 1, 2034 | Yes, until January 1, 2034 |
Two cells deserve unpacking. Note first that engineers file an organization record form under B&P section 6738(h) rather than hold a certificate, and architects need no certificate at all under Corporations Code section 13401(b).
Engineering. B&P section 6738(a) provides that the Professional Engineers Act “does not prohibit one or more civil, electrical, or mechanical engineers from practicing or offering to practice, within the scope of their license” as “a sole proprietorship, partnership, limited liability partnership, firm, or corporation” – if a currently licensed California engineer in one of those branches is an owner, partner or officer in charge of the engineering practice, and all such services are performed by or under the responsible charge of an engineer licensed in the appropriate branch. Subdivision (d) says an unlicensed person “may also be a partner or an officer” where (a) is met, but “does not permit a person who is not licensed under this chapter to be the sole owner.”
Architecture. B&P section 5535 defines “person” to include a general corporation as well as a professional corporation or LLP, and section 5535.2(a) provides that the chapter “does not prevent an architect from forming a business entity or collaborating with persons who are not architects,” provided architects’ professional services through that entity are offered and provided under the responsible control of an architect – defined at section 5535.1 as the control over architectural instruments of service “that is ordinarily exercised by architects applying the required professional standard of care.” Section 5535.3 extends the same condition to a corporation supplying architectural services by contract. The naming rule is worth writing down: subdivision (b)(3) provides that “a business entity organized as a general corporation shall not include in its name the term ‘professional corporation.’”
What Board Registrations Are Required After Formation?
For the two professions that must use a professional corporation, formation begins a registration relationship.
Law corporations. Under B&P section 6160 the corporation registers with the State Bar and holds a currently effective certificate; the State Bar is “the governmental agency referred to in the Professional Corporation Act.” Section 6161 sets the application: articles certified by the Secretary of State, bylaws certified by the corporation’s secretary, names and addresses of officers, directors, shareholders and professional employees, each office address, and any fictitious names, signed and verified by an officer – plus, for a shareholder licensed only in a foreign country, a certificate from that authority verifying admission and good standing with an authenticated English translation.
Then it must be kept current. Section 6162 requires written reports of any change in directors, officers, professional employees and share ownership, and of amendments to the articles and bylaws. Section 6163(a) makes the annual report the renewal, and subdivision (b) is the sanction – the certificate “shall be suspended 60 days following written notice of delinquency.” Section 6171 also lets the State Bar require, with Supreme Court approval, a stock buy-back provision for a disqualified or deceased person’s shares and, as a condition of the certificate, that the corporation “provide and maintain security by insurance or otherwise for claims against it by its clients for errors and omissions.”
Accountancy corporations. Section 5150 makes the California Board of Accountancy the Moscone-Knox agency and section 5151 sets the application, with the same foreign-country certificate requirement. Section 5152.1 requires biennial renewal – a different cadence from the law corporation’s annual one, and easy to get wrong where a firm holds both. Section 5157 authorizes the same buy-back provision and security for client claims, and section 5158 adds a requirement with no analogue in the other three regimes: “Each office of an accountancy corporation engaged in the practice of public accountancy in this state shall be managed by a certified public accountant or public accountant.”
Both regimes reach conduct directly – section 6167 binds a law corporation “to the same extent as if specifically designated therein as a licensee of the State Bar,” and section 5156 binds an accountancy corporation as a permitholder. Section 13410 sits above both.
What Happens When a Shareholder Loses Their License or Leaves?
Clocks start, and the consequence lands on the corporation.
Corporations Code section 13407 sets the transfer rule and the deadlines. Shares may be transferred only to a licensed person, a shareholder of the same corporation, a person licensed to practice the same profession where they practice, or a professional corporation – “any transfer in violation of this restriction shall be void.” The corporation may buy its own shares “without regard to any restrictions provided by law upon the repurchase of shares, if at least one share remains issued and outstanding,” which is what most buy-sell provisions use.
Then the deadlines. If the corporation fails to acquire all the shares of a disqualified shareholder, or of a deceased shareholder who was licensed at death – or if the shareholder or the representative fails to transfer them – within 90 days following the date of disqualification, or within six months following the date of death, the certificate of registration “may be suspended or revoked by the governmental agency regulating the profession,” and on suspension or revocation “the corporation shall cease to render professional services in this state.”
Section 13408 bites earlier. It lists six grounds for suspension or revocation, three concerning people: all licensed shareholders becoming disqualified at one time; a sole shareholder becoming disqualified; and the corporation “knowingly employ[ing] or retain[ing] in its employment a disqualified person.”
And the money stops before the shares move. B&P section 6166 provides that a law corporation’s income attributable to services rendered while a shareholder is a disqualified person “shall not in any manner accrue to the benefit of such shareholder or his shares in the law corporation.” Section 5155 says the same for accountancy.
For a sole owner the rule is sharper. B&P section 6171.1 provides that six months and one day following the death of a sole shareholder of a law corporation, the certificate of registration “shall be deemed canceled by operation of this section” – automatically, though it may be canceled sooner on written request from the personal representative, sole heir, or the person to whom the shares passed. Section 6169(d) confirms that by excluding the cancellation from the notice-and-hearing procedure that otherwise applies.
Read section 13407’s six months against section 6171.1’s six months and one day and the planning point is obvious: for a solo law corporation the succession documents have to work inside six months, because on the next day the entity’s authority to practice ends by operation of statute.
The January 1, 2034 Date Nobody Is Talking About
This is verified from the statute’s two versions, and it reaches three of the four professions here.
The registered limited liability partnership is defined in Corporations Code section 16101. The version now in force requires the partnership to be licensed in the state to practice architecture, public accountancy, engineering, land surveying, or law. – and it “shall remain in effect only until January 1, 2034, and as of that date is repealed.”
The successor version, added by AB 1862 and operative January 1, 2034, carries a shorter list: “licensed under the laws of the state to engage in the practice of public accountancy or the practice of law.” Its definition of “professional limited liability partnership services” reads, in full, “the practice of public accountancy or the practice of law.”
So on January 1, 2034, architecture, engineering and land surveying lose the California LLP, and only public accountancy and law keep it. B&P section 6738 carries the same repeal date, and its successor was not read here – so nothing is asserted about what replaces the engineering rule. One caution: sunset dates get extended, so re-check the section rather than this article.
When to Bring Counsel In
At the point of choosing the entity, and again the day a license is in question.
Choosing the entity matters because the wrong option can be void rather than merely inconvenient – shares issued to the wrong person, or a voting arrangement with an outside investor, are void under section 13406(a). For a firm planning outside capital or a non-professional partner the answer differs by profession, and the accountancy conditions in section 5079 are detailed enough to design around rather than discover.
The other moment is the day a license is in question, because the section 13407 clocks run from the date of disqualification and the date of death, not from the date anyone noticed. Ninety days is not long to value shares, fund a buy-out and document a transfer, and for a solo practice that conversation belongs in the succession plan.
Adjacent questions are covered separately: what the Moscone-Knox Act says about professional corporation ownership rules, how an LLC and a corporation compare for a California business, converting an LLC to a professional corporation, what a partnership agreement should cover, and what actually creates personal liability for an owner.
Work with Bay Legal
Bay Legal, PC advises California licensed professionals on entity selection, professional corporation formation and board registration, shareholder agreements and buy-sell provisions built to the section 13407 deadlines, and admitting non-licensee owners where the licensing act permits it. If you are choosing a structure, adding an owner, or facing a disqualification or a death in a small firm, call (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or schedule a consultation at https://baylegal.com/contact-us/.
Frequently Asked Questions
Which California professions cannot use an LLC?
Effectively all licensed professions. Corporations Code section 17701.04(e) provides that nothing in the LLC act permits a limited liability company to render professional services as defined in section 13401(a) and section 13401.3 – and 13401(a) defines those services by reference to any license authorized by the Business and Professions Code, the Chiropractic Act or the Osteopathic Act. Section 17701.04(b) confirms it: an LLC may hold a license only where the licensing act authorizes it.
Who is allowed to own shares in a professional corporation?
Licensed persons. Corporations Code section 13406(a) permits issuance only to a licensed person or one licensed to render the same services where they practice, and shares issued in violation are void – as is any voting trust, proxy or arrangement vesting voting power in a non-shareholder. Section 13401.5’s 49 percent allowance reaches only the healthcare corporations it designates, so it does nothing here. Law corporations have no nonlicensee ownership provision; accountancy firms do, under section 5079.
How does a professional corporation differ from a regular corporation?
Section 13403 provides that the General Corporation Law governs it except where Moscone-Knox conflicts, so the differences are the constraints: a single profession under section 13401(b), a specific statement in the articles and usually a certificate of registration under section 13404, practice only through licensed employees under section 13405, ownership and transfer restrictions enforced by voidness under sections 13406 and 13407, and direct subjection to the agency’s rules under section 13410.
What board registrations are required after formation?
For a law corporation: registration with the State Bar under Business and Professions Code section 6160, an application under section 6161, ongoing written reports of changes in directors, officers, professional employees and share ownership under section 6162, and an annual report that constitutes the renewal under section 6163 – with the certificate suspended 60 days after written notice of delinquency. For an accountancy corporation: registration with the California Board of Accountancy and biennial renewal under section 5152.1. Architects need no certificate at all under Corporations Code section 13401(b).
What happens when a shareholder loses their license or leaves?
Corporations Code section 13407 gives 90 days following disqualification and six months following death to acquire or transfer the shares; missing that window exposes the certificate of registration to suspension or revocation, and on either the corporation must cease rendering professional services in California. Section 13408 makes a sole shareholder’s disqualification and the knowing employment of a disqualified person independent grounds. Income earned while a shareholder is disqualified cannot accrue to that shareholder or their shares.
