If you’re an attorney planning to open your own practice in California, one of your key decisions is choosing the right legal structure. California lawyers cannot form limited liability companies (LLCs), but they can form limited liability partnerships (LLPs) or professional corporations (PCs).
For solo attorneys or small firms, a professional corporation is often the preferred choice because it provides limited liability protection and eligibility for S-Corp tax status.
Here’s an overview of the key steps involved in setting up a California PC for your law firm.
Your law corporation is officially formed once you file the Articles of Incorporation with the California Secretary of State’s Office.
Be sure to use the form specifically for a professional corporation, not a general corporation.
In most cities, you are required to obtain a city business license. In San Francisco, this is obtained through the San Francisco Tax Collector’s Office.
If your law firm will operate under a name other than its full legal corporate name, file a Fictitious Business Name Statement with the county clerk’s office. Once it’s endorsed, you’ll also need to publish it in a legally adjudicated newspaper.
When drafting your bylaws, include the specific language required by the State Bar of California for professional law corporations. The bylaws serve as your internal governance document, outlining officer roles, shareholder rights, and corporate procedures.
The Action of the Incorporator formally approves the bylaws and elects the initial board of directors and officers for your law corporation.
If you prefer to send shareholder and board notices via e-mail instead of regular mail, each shareholder and director should sign a consent to electronic transmission.
Within 90 days of formation, you must file your first Statement of Information with the California Secretary of State’s Office.
Apply for a Federal Employer Identification Number (EIN) from the IRS. You’ll need this to open a business checking account for your law firm.
Each shareholder should have a stock purchase agreement documenting how many shares they own and the purchase price of those shares.
When issuing stock certificates, make sure to include the required State Bar language for professional law corporations.
Consult with your CPA about whether they recommend filing IRS Form 2553 to elect S-Corp tax status for your PC. This election can provide tax savings by allowing you to take part of your income as distributions rather than salary.
You may want each officer and director to have an indemnification agreement to help protect them from personal liability for corporate actions taken in good faith.
The board of directors should approve, by written consent, the issuance of stock, adoption of the bylaws, and other formation-related matters.
You may need to file a 25102(f) securities notice for the issuance of your shares.
Before practicing law as a corporation, you must register your professional corporation with the State Bar of California.
Although not legally required, a shareholders’ agreement is strongly recommended. It should outline the rights and obligations of each attorney-shareholder and address issues such as:
A well drafted shareholders’ agreement helps prevent future disputes and ensures a smooth transition if ownership changes.
Forming a law corporation in California involves several important steps but it’s a worthwhile investment in protecting your firm and establishing a strong operational foundation. If you’d like help forming your professional corporation, our team at Bend Law Group can assist with every step of the process. Contact us today to get started setting up your California law corporation.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal or tax advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.
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