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

Think of professional corporations in California as like a fort. While most forts come with a fence AND a big gate, the way a PLC works in the state is they let you have the fence all the way around it—but it comes with no gate.

So how could you get a gate for your fort? For solo practitioners like Lauren, the best strategy for malpractice risk management is having comprehensive insurance.

Here’s the thing: California law does not require attorneys and law corporations to carry malpractice insurance. But this is a risk you shouldn’t want to take. Even the most careful attorneys can face lawsuits from dissatisfied clients, making malpractice insurance a crucial safeguard for your firm.

You must also consider the potential benefits of maintaining professional liability insurance. For instance, Professional Conduct Rule 1.4.2 mandates attorneys to disclose in writing to clients if they do not have malpractice insurance when providing more than four hours of legal services.

Additionally, the California State Bar only lists lawyers with professional liability insurance on its Certified Lawyer Referral Service. So aside from having security for potential financial liabilities, having malpractice insurance can also help enhance client trust and credibility.

Your First Line of Defense: Forming a Professional Law Corporation with Strict Compliance

Forming a PLC in California is the first step to ensuring that you meet the legal requirements in establishing a private law firm. But it’s also about safeguarding your personal assets and ensuring long-term business stability.

By carefully following state regulations, you can build a firm that operates legally and may provide you with some liability protections to practice with confidence.

Comply with California State Bar Regulations

The first thing to do, of course, is to set up your law corporation. To do that, you’ll have to follow the rules set by the California State Bar to register your firm. Here’s a quick breakdown of the requirements:

Follow the Naming Rules for California Law Corporations

Even in naming a law firm corporation, California has specific rules that you need to comply with such as California State Bar Rule 3.152. First, you are required to include a corporate designation to your business name, including:

  • “Professional Corporation”
  • “Prof. Corp.”
  • “Corporation”
  • “Corp”
  • “Incorporated”
  • “Inc.”
  • “A Professional Corporation”
  • “A Professional Law Corporation”
  • “Professional Law Corporation”
  • “Law Corporation”

Using abbreviations and terms that result in a misleading name for your law firm would be in violation of the Rules of Professional Conduct 7.1 (a).

The rules specifically state that you can’t use abbreviations “APLC” and “PLC,” which may be interpreted as “a Public Liability Company” or “Professional Legal Consultant.” You also need to avoid using terms like “Group” and “Associates,” especially if there are no actual multiple attorneys in your firm.

File Articles of Incorporation to the California Secretary of State

After choosing a name for your law firm, the first paperwork you need to file is the Articles of Incorporation. It needs to be certified by the California Secretary of State, as stated in Business and Professions Code § 6161.

This document contains key details about your business, including:

  • The name of the corporation
  • A statement of professional purpose (e.g., legal practice)
  • The name and address of the agent for service of process
  • The principal address of the corporation
  • A declaration that all shareholders, directors, and officers will be licensed attorneys in California

Register Your Law Corporation with the California State Bar

You need to file a filled-out application form for the California State Bar Certificate of Registration. Another important document you need to have at this stage are your law corporation’s bylaws.

The State Bar only requires you to submit bylaws excerpts—certified by the corporate secretary—that reflect the exact language from California State Bar Rule 3.157 (A – F), pertaining to ownership and transfer of corporate shares.

You also need to pay the corresponding fees to register your law corporation at the State Bar. You can find the latest schedule of fees for application or renewal on the State Bar’s official website.

Ensure Payroll and Tax Compliance

Here’s another common misconception: Solo attorneys assume that since they own their own corporation, they can take profits freely instead of paying themselves a salary. But that’s not the case.

In Lauren’s situation, opening a private law firm meant that she was both an employee and a shareholder of her PLC. This also meant she needed to pay herself through payroll rather than drawing funds directly from her law corporation’s business account.

By setting up an S-Corporation tax election, you can pay yourself a salary while also issuing distributions, which can be taxed at a lower rate than standard income.

You’d also need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) first. This unique nine-digit number will be used to track your firm’s tax obligations, including payroll taxes, corporate income taxes, and other federal tax responsibilities.

Manage Client Trust Accounts Properly

Under California Rules of Professional Conduct Rule 1.15, attorneys must hold client funds in designated client trust accounts because you cannot commingle those funds with personal or firm money.

Operating as a PLC, you’re required to file annual reports of client trust funds to remain in good standing. This transparency protects clients and ensures the firm adheres to state regulations. Even when your registered law firm has not held client funds in these accounts, you’re still required to file annual reports to remain compliant.

Secure Your Law Corporation with the Right Structure and Liability Protections

Taking the leap into private practice is no small feat. But with the right steps, you can build a law firm that stands strong for years to come.

California laws don’t provide attorneys with the same limited liability protections as other business entities, but forming a Professional Law Corporation can still give you the proper safeguards. Pair it with malpractice insurance, strict compliance, and smart planning, and you’ll have the security and confidence to focus on growing your private practice.

Contact Incorporation Attorney today for expert guidance and set up your Professional Law Corporation the right way!