What Is a State Law Corporation?

Balance, the aim of justice

Each state has its own rules for a "law corporation"--referring to the joining of individual lawyers into a business partnership governed by the laws of the particular state.

When a firm satisfies the requirements of that state, it has earned the right to use the suffix PC, Professional Corporation, Corp. or simply Inc., indicating a degree of professionalism and the assurance of oversight by the state's licensing body. A state's law corporation structure provides a standard of performance for people seeking legal advice. It is designed to protect both the lawyers and their clients from malpractice, errors and omissions, larceny, fraud and other unethical practices.

Physical Reasons to Incorporate

By forming a corporation, as opposed to practicing alone, lawyers gain mutual cost advantages in office space, staffing and property insurance. With today's access to online reference material on several university sites, the need for law libraries in-house has lessened.

Other Advantages

Limited liability: An individual member is not responsible for the liabilities incurred by the corporation unless he is personally responsible for the damages (monetary or otherwise).

Insurance: Members of the corporation usually have access to group insurance benefits, both health and accident and term life. Premiums are paid directly to the insurance company and are not taxable to the members (as of 2009 tax code).

Taxes: The advantage is diminishing since the time when partners (shareholders) could use corporate tax shelter programs. In 1986, the tax on law corporations was changed to a flat 35 percent before the profits are distributed. The partner is still required to pay individual income taxes on his share of the distribution

Requirements for Registration

All practicing members of the firm must be in good standing with their respective state bar association. States' requirements for admission to the bar vary, but all are based on completion of the study of law at an approved school and references attesting to the applicant's honesty, reliability, fiscal responsibility and good reputation.

When those requirements are met, the firm submits an application for registration to the Secretary of State where it will be practicing.

Duration of Law Corporation Status

The corporation may keep its status as long as all members abide by their states' ethics codes and remain in good standing with the local bar association. An example is Connecticut's Ethics Code. It is up to the partnership to be the first line of discipline for its members. If action is not taken, the state bar association can revoke a firm's license for sufficient cause.

Change of Status

If a partner leaves for any reason, including license revocation, death or retirement, the corporation is bound by varying states' rules to restructure the partnership within a specified period of time. For example, the California rules require transfer or sale to be made within 90 days of any change.

Stamp of approval

References

• Cornell Law School: Connecticut Rules of Professional Conduct
• California Bar Assoc.: Law Corporation Rules