[CA] [CA] Can I form an LLC for professional services?

Lexi, Chatbot

I understand that confirming the classification of your services is crucial for your LLC formation. Can you please specify what type of services you are planning to offer through your LLC?

Lexi, Chatbot

Have you already taken any steps towards forming your LLC, such as filing paperwork or consulting with any professionals?

Lexi, Chatbot

Is there anything else the Corporate Lawyer should know before I connect you? Rest assured they'll be able to help with your LLC formation.

TJ, Esq.

Hello! My name is TJ and I’m an attorney. Thanks so much for the opportunity to assist you! I’ve gone over the details you shared and I’ll post my initial response shortly. I’ll also post a few quick questions. They’ll help me better understand your situation so I can give you a more complete and tailored answer.

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TJ, Esq.

Hi again! Under California law, a licensed CPA providing consulting and advisory services related to finance and management would likely be considered to be engaging in a professional service, even if the work doesn't require a CPA license. The law often focuses on the nature of the services provided and the individual's qualifications, not just whether a license is a prerequisite for the specific task.

Since you are a licensed CPA and your services are closely related to your field of expertise, it could be a challenge to argue that your work is not a professional service. Because California prohibits LLCs from providing professional services, forming an LLC for this type of work may not be possible. Let's discuss this in more detail so I can provide a more thorough response.

Can you clarify if any of your proposed services are regulated by a state board or agency, even if they don't require the specific license you hold?

Are you considering any other business structures besides an LLC?

What is the planned location for your business, including the state where you intend to register the business?

TJ, Esq.

Thank you for getting back to me. Based on what you've shared, it's very likely that you cannot form an LLC for your business in California. The law there is pretty strict when it comes to professional services, and the fact that you're a CPA providing financially related consulting services puts you squarely in that category, even if the work itself doesn't require a license. The focus isn't just on what you're doing, but also on who is doing it. Since your expertise and license are what give value to your consulting, a court would probably view it as a professional service firm, which means it can't be an LLC. I'm sorry to have to tell you this.

This doesn't mean you can't get the liability protection you're looking for, though. The good news is that there are other business structures you can use. You could form a professional corporation, which is a specific type of corporation designed for licensed professionals like you. A professional corporation provides similar liability protection to an LLC, shielding your personal assets from business debts and lawsuits, but it's the correct legal structure for a professional services business.

Another option is to form an LLP, which stands for a limited liability partnership. However, in California, an LLP is typically only available to licensed professionals such as accountants, architects, and lawyers. This might be a good fit for you since you are a CPA. An LLP also provides personal liability protection for partners. It's a structure commonly used by professional firms that want to get liability protection without going the corporation route.

So, here's what I think you should do next. First, decide which business structure works best for you, a professional corporation or an LLP. Both give you the liability protection you want, so you just need to figure out which one is a better fit for your business goals. You should also make sure you properly register your business with the state and local government. The California Secretary of State website has information on how to form a professional corporation and an LLP. You can also find information on registering with the City of Los Angeles on their website. Properly registering is key to getting the liability protection you're looking for.

I hope this has been helpful. Have I completely answered your question, and do you need clarification on anything? Please feel free to ask any other questions you have.

Thanks again for letting me assist you!

TJ, Esq.

Thanks for the clarification, that really helps. The fact that you have an MBA and MPP is great for your consulting work, but it probably doesn't change the legal assessment. The core of it is that a CPA license is a professional license. The law looks at the type of license you hold and the nature of the services, and since you're providing financial management and related advice, that's what's going to stick in a court's mind.

It's a connection the law is likely to make, regardless of your other impressive educational qualifications. Your other degrees are definitely valuable, but they don't replace the legal status of being a licensed CPA when it comes to forming a business entity in California.

To your second question, no, you can't form an LLP as a sole proprietor. The term "partnership" means there has to be more than one partner. The LLP structure is designed for two or more licensed professionals who want to work together but still have some protection from each other's mistakes. So, since you're a single owner, an LLP isn't a good fit for you.

Given all of this, your best bet for liability protection as a solo professional is likely the professional corporation. It's the right business structure for what you're doing, and it's built to give licensed professionals like you the personal asset protection you're seeking.

I hope that helps. Let me know if you have any other questions or need more details.

TJ, Esq.

Hello again! That's a great question, and it's a very common point of confusion. The fact that the California Board of Accountancy won't challenge your firm's LLC status doesn't necessarily mean you're in the clear from a legal standpoint. The issue isn't just with the Board of Accountancy, since it's also a matter of state law.

The California Corporations Code generally prohibits a licensed professional from forming an LLC to provide professional services. The concern is that an LLC could be used to shield a professional from liability, which goes against the public policy behind professional licensing. The California Board of Accountancy might not care about your firm's LLC status, but that doesn't stop a future client or a court from challenging it.

If a client were to sue you for professional negligence, the fact that you're operating as an LLC could come back to bite you. A court might decide that the LLC was an improper business structure for your work. If that happens, the court could "pierce the corporate veil" and hold you personally liable, meaning the LLC wouldn't protect your personal assets after all. This would defeat the whole purpose of forming the LLC in the first place.

While the Board of Accountancy's position is helpful, it doesn't give you immunity from other parts of California law or from future lawsuits. The safest path is always to use a business structure that is explicitly allowed for your profession. It's a matter of following the law to get the protection you want.