Lauren had spent decades building her career as a prosecutor, and now she’s ready to start her private law firm. But she quickly realized she was stepping into unfamiliar territory filled with legal and administrative hurdles she had never faced before.
The first challenge? It’s the fact that California business laws don’t allow attorneys to create a Limited Liability Corporation, making a Professional Law Corporation your best (and only) option.
How would she structure her firm to protect her personal assets? What were the tax implications? What if she had to face a malpractice claim? Does a professional corporation provide legal protections for lawyers?
If you find yourself in the same boat as Lauren once was, this guide will walk you through setting up your firm the right way and stepping into private practice with confidence.
Why California Allows Professional Law Corporation But NOT Limited Liability Corporation for Attorneys
One of the biggest mistakes attorneys make when starting a practice is assuming they can form a Limited Liability Company (LLC). However, California Corporations Code § 17701 states that business providing professional services, such as attorneys, cannot use this structure.
Why? The key reason is public protection. Unlike LLCs, which provide broad liability shields for business owners, lawyers are held to stricter ethical and professional standards. The existing rules essentially provide clients with clear avenues for recourse in the event of malpractice. This way, attorneys cannot evade liability that an LLC structure provides.
With Limited Liability Corporation off the table, under Corporations Code § 13410, the best available business entity for attorneys in California is Professional Law Corporation (PLC).
While this might seem daunting, when done right, a PLC can still offer some liability protections. By ensuring compliance from the moment you build your law firm, you can establish your career in private practice with financial security.
How Does a Professional Corporation Protect Lawyers from Liability?
Lauren quickly realized that running a law firm came with serious liability risks. To safeguard her personal assets, she needed the right legal structure. In California, the rules are clear—LLCs aren’t an option for attorneys. This makes a Professional Law Corporation (PLC) the best way to gain some protection.
How California Law Firms Protect Personal Assets and Limit Liability?
One of the risks attorneys face in private practice is personal liability for business debts and legal claims. Unlike a sole proprietorship, where the attorney is personally responsible for everything, a Professional Law Corporation creates a legal separation between your personal assets and your firm’s liabilities.
Without this corporate structure, attorneys operating as sole proprietors or general partners could find themselves responsible for business debts, putting their personal assets at risk.
Do California Professional Law Corporations Have Limited Liability Protections?
It’s important to understand that while a PLC protects against general business liabilities, it does not shield attorneys from malpractice claims. This is a major distinction between a Professional Corporation and a traditional business structure like LLC.
So, can a professional corporation shield a lawyer from lawsuits? Not entirely. Under California Rules of Professional Conduct, attorneys remain personally responsible for their own professional misconduct.
However, a PLC still offers some safeguards:
- Vicarious liability is reduced: If your law firm employs multiple attorneys later on, you are not automatically responsible for another attorney’s malpractice unless you were directly involved.
- Firm assets—not personal assets—are the primary target in lawsuits: While you can still be sued personally for malpractice, a properly structured malpractice insurance policy combined with your PLC’s liability protections can help mitigate financial damage.
Safeguarding Your Law Firm’s Future with Malpractice Insurance
More coming soon…
