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June 3, 2014

Selecting the Correct Professional Services Entity

by WSBA
what should I do?
PLLC? LLP? Get succinct information to help you pick the right entity!

what am i supposed to do?It is important for a lawyer to select the correct professional services entity. Otherwise, a lawyer may be in violation of the following statutes (for example, Chapter 18.100 RCW, RCW 25.15.045 and RCW 25.05.510). The selection of the wrong entity could also violate the Washington Rules of Professional Conduct (for example, RPC 8.4 for misrepresentation and fitness to practice law and RPC 1.1 for competency to practice law).

 

  1. Select the right entity. In Washington state, a licensed professional has the choice to form and/or incorporate only certain types of entities, namely a sole proprietorship, general partnership (Chapter 25.05 RCW), professional service corporation (Chapter 18.100 RCW), professional limited liability company (RCW 25.15.045), and (professional) limited liability partnership (RCW 25.05.510).  A lawyer cannot incorporate as a business corporation (Chapter 23.13 RCW) or form a limited liability company (Chapter 25.15 RCW) to render licensed professional services in Washington. Frequently, the confusion sometimes arises out of the second sentence in RCW 25.15.045 that provides, in part, “…render professional services… may organize and become a member…”The “may” is confusing because it implies that a PLLC is not mandatory — which it is, of course, if you intend on forming a limited liability company to perform professional services.
  2. Washington Secretary of State web forms. Chapter 18.100 RCW and RCW 25.15.045 impose specific requirements and limitations that need to be included in the entity’s formation and/or incorporation documents, including the Bylaws or Operating Agreement. The Secretary of State’s professional entity forms on its website do not include any mandatory provisions required by the professional services statutes. It is up to the drafter to add these provisions (of Chapter 18.100 RCW, RCW 25.15.040 and RCW 25.05.510) to the website formation and/or incorporation forms. If this is not accomplished, the entity is technically not in compliance with the professional services statutes.
  3. Lawyer Rules of Professional Conduct affecting those who form the wrong entity in Washington. The selection of the wrong type of entity could violate the Washington Rules of Professional Conduct (RPC). RPC violations to be aware of include RPC 8.4(c) to engage in conduct involving dishonesty, fraud, deceit or misrepresentation, and RPC 8.4(n) to engage in conduct demonstrating unfitness to practice law. Also, RPC 5.5 pertains to not practicing in violation of a regulation and states, in part:  “A lawyer may practice law only in a jurisdiction in which the lawyer is authorized to practice.” RPC 7.1 pertains to false and misleading advertising and communication and states, in part: “A lawyer shall not make false or misleading communication about the lawyer or the lawyer’s services.” RPC 1.1, pertaining to competency, states, in part: “Competent representation requires the legal knowledge, skill… necessary for the representation.” A lawyer may not employ the requisite knowledge and skill if the lawyer’s services are provided through the wrong entity and thereby violating this RPC.
  4. Corrective action. If you have selected the wrong entity type or have not completed your incorporation/formation documents correctly, you will need to take corrective action immediately to comply with the respective professional service statutes. The solution usually requires filing Amended Articles or Certificate of Formation and amending and restating the by-laws or operating agreement, and holding a special meeting of shareholders and/or members to approve and authorize the filing of the Amendments and governance documents. Then, correct the entity’s name on your business cards, letterhead, checking accounts, and website.

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