Can a CPA Firm Be an LLC in California? The Quick Answer Is No… And Here’s Why
Under California law, CPAs cannot render professional services through an LLC or PLLC. Instead, you’re required to form a Professional Corporation (PC) or Limited Liability Partnership (LLP) depending on your needs.
A CPA firm cannot be an LLC in California because it is providing those professional CPA services. This would violate California Corporations Code §17701.04(e) pertaining to licensed professionals providing professional services in California as a business entity.
Key Takeaways: Nuances of a Bookkeeping Business vs a CPA Firm in California and Legal Operations
Before we jump into the details, let’s pull out a few of the key points and takeaways we’ll cover in this article.
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CPA firms cannot operate as LLCs or PLLCs in California — state law prohibits licensed professionals like accountants from using this entity type.
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Professional Corporation (PC) is the primary entity structure permitted for CPA firms under the Moscone-Knox Professional Corporation Act.
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Limited Liability Partnerships (LLPs) are also allowed for CPAs and can be a good alternative depending on the firm’s needs.
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Legal foundation: California Corporations Code §17701.04(e) and Business & Professions Code §5150 prohibit CPAs from forming LLCs.
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Ownership requirements: Only licensed CPAs (and in some cases other qualifying professionals) may be shareholders in a Professional Corporation.
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California Board of Accountancy (CBA) approval is required for CPA PCs, with renewal and compliance requirements.
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Liability protection: PCs and LLPs protect owners from liability for the firm’s debts, but not from their own malpractice.
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Tax options: Professional Corporations can elect S-Corp taxation, potentially reducing self-employment taxes.
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Choosing a structure: PCs often work better for solo or small practices; LLPs can be attractive for larger multi-partner CPA firms.
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Bookkeepers and unlicensed accounting service providers can form an LLC in California, but licensed CPAs must use a PC or LLP because they fall under professional corporation rules.
Bookkeeper Taking It to the Next Level as a CPA… But Can She Stay an LLC?
It’s a dream for many professionals, including certified public accountants (CPAs), to set up their practice. As a CPA, you want to provide services to businesses that want to grow and become successful in their industry. And you can’t wait to get started! Maybe you thought talking to a corporate lawyer was expensive and a waste of time. So, you go online instead to find out how to set up your accounting or bookkeeping firm. Then, you register as a limited liability company (LLC) because that’s how everybody seems to get started. But can a CPA firm be an LLC in California?
There are lots of cases like this. Some aspiring entrepreneurs have made the mistake of going into business without consulting an experienced attorney. One of our clients, a licensed CPA, almost violated the California Corporations Code for registering as an LLC.
The full story here….
Can A CPA Set Up An LLC and Offer Professional Services?
Our client is a licensed CPA in California who started a bookkeeping business as a sole proprietor. A few clients later, she set up an LLC on her own. Only after doing this did she start learning more about licensed professionals doing business in California. The question is: Should she continue doing business as a sole proprietor, an LLC, or set up a professional corporation instead before going full-blast with her bookkeeping firm? What is the legal entity of CPA firm in California?
Can a CPA firm be an LLC in California and offer bookkeeping services?
Although her firm mainly offers bookkeeping services, she hopes to attract more clients by marketing herself as a licensed CPA. This technique may seem harmless but still in violation of the California Corporations Code 17701.04. (e). Here, it states, “Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and Section 13401.3, in this state.”
Licensed professionals, including CPAs in California, cannot use a limited liability company as a business entity from which to offer professional services.
In our client’s case, offering accounting services is offering professional services, which means that LLC is out of the question. There may be slightly different rules that apply to bookkeeping and accounting, but you may still encounter legal problems if you practice bookkeeping and hold out yourself as a CPA. The same goes if you’re a licensed CPA restricting your services to bookkeeping and then wanting to promote your CPA license without a professional corporation registration.
Professional Corporations (PCs) for CPA Firms
A Professional Corporation is the standard structure for CPA firms in California. For CPAs, their specific PC is called a Professional Accountancy Corporation. PCs are created under the Moscone-Knox Professional Corporation Act and have special requirements:
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Ownership: All shareholders must be licensed CPAs (with narrow exceptions for certain related licensed professionals).
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Liability: A PC protects against firm-level debts and obligations, though each CPA remains personally responsible for their own malpractice.
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Taxation: PCs can elect S-Corporation tax status, allowing pass-through taxation and potential self-employment tax savings.
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Compliance: PCs must file Articles of Incorporation, adopt bylaws, maintain corporate records, and comply with annual renewal and licensing requirements through the California Board of Accountancy (CBA).
California Laws and Acts that Prohibt CPAs from Forming LLCS:
There are a few laws in particular to be aware of when forming a CPA firm in California. The prohibition for an LLC for CPAs stems from:
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California Corporations Code §17701.04(e) – which bars LLCs from rendering professional services that require a license.
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Business & Professions Code §5150 – which requires CPAs to practice in compliance with the Moscone-Knox Professional Corporation Act.
The intent of these restrictions is actually good: consumer protection. Like doctors, lawyers, and other professional, the state government wants to ensure that licensed professionals operate under more transparent and closely regulated structures, such as a Professional Corporation (PC) or Registered Limited Liability Partnership (LLP).
“At what point is it better to have a professional corporation than an LLC?”
Since our client is a licensed CPA intending to offer professional services, now is the best time to register as a professional corporation. Failing to do so may cause you problems with the California Board of Accountancy, which has a rigorous enforcement division. It won’t take the board long to find out that you’re stepping outside the rules and you could be facing penalties that may affect your license.
“I don’t plan on providing tax related audit services but I may want to provide advisory services, which can be done by anyone without a CPA license…”
The California Board of Accountancy prefers that licensed CPAs who want to provide accounting services operate as a professional corporation. The California Business and Professions Code specifies the rules covering CPAs, under Section 5051, which states that CPAs are engaged in public accountancy if they:
- Publicly present themselves as qualified professionals ready to render their services as a public accountant.
- Hold an office where they conduct business as a public accountant.
- Perform various bookkeeping, accounting, and/or consultancy jobs for clients.
On another note, CPAs are not considered as engaged in public accountancy if they only render services specified in subdivisions (f) to (i) of the Code. At the same time, they must not hold themselves out, solicit, or advertise as a CPA or public accountant. The California marketing laws for CPAs clearly put strict limitations on how CPAs advertise themselves to clients.
In any case, the basic principle of “It is better to be safe than sorry” applies. We recommend our client and other CPAs to simply follow the laws even if some of them may not make complete sense. Life is easier if you comply with the rules set by the California Board of Accountancy than face the consequences. Professional corporation is the legal entity of CPA firm in California. If you want to provide any kind of accounting or bookkeeping services whether for a huge company or a small company, register your business as PC instead of an LLC.
“Is it more cost-effective to change my business type from an LLC to a professional corporation?”
Our client has not yet started providing accounting services as an LLC, which is what we highly recommend. Since it’s not legal to operate through the LLC, the best thing to do is to just dissolve it rather than convert it into a professional corporation. The conversion process, although theoretically available, keeps the LLC history on record so long as the business entity is open. Why memorialize a mistaken formation when you could simply have a clean start?
We recommend that you close the LLC and form a brand-new professional corporation to have a clean record with no reference to the LLC at all.
“Do I always have to keep my active CPA license status if I change to a professional corporation?”
It may feel like an inconvenience to take a continuing professional education (CPE) program every three to five years (depending on the state regulations), but it is required to keep your license active. An active license is required for professional corporations. After all, you worked very hard to get licensed so you might as well keep your credentials up-to-date. Otherwise, you will no longer be qualified to own and run a professional corporation.
With this, we recommended our client to keep her CPA license active so she can set up a professional corporation.
So, Can a Bookkeeper Form an LLC?
In short, yes because you wouldn’t be considered a professional offering professional services as a CPA. As long as you stay within the realms of services you can provide unlicensed, you are considered a bookkeeper only.
Bookkeepers vs. CPAs: LLCs and Licensing
It’s important to distinguish between bookkeeping services and certified accountancy.
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Bookkeepers: Since bookkeeping does not require a professional license in California, individuals offering only bookkeeping services may form an LLC. This provides liability protection and flexibility without violating licensing restrictions.
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CPAs: By contrast, licensed CPAs cannot form an LLC. They must form a PC or LLP to stay compliant with state law. Using an LLC while holding out as a CPA would violate California’s licensing regulations and could result in penalties.
This distinction matters not only for compliance, but also for branding—bookkeepers can operate under an LLC, but only licensed professionals may use the title “accountant” or “CPA.”
“So I think I don’t want to be offer CPA Services…”
So, let’s say our client decided not to level-up to being a licensed CPA, and stayed as a bookkeeper only providing bookkeeping services. She is not providing a professional service as a licensed professional so she is no longer bound to the same rules as a CPA.
However, it is important to realize that you need to be very clear on what your services are, what you are licensed to provide, and ensure you are not illegally performing any functions only a licensed CPA is allowed to require. This concept is similar to what we discussed in the ‘I don’t plan on providing tax related audit services..’ section of this article.
We generally would not advise to stay as a bookkeeper just to stay in an LLC, just because the marketing potential and scope of services is greater as a CPA–however in the end that is completely up to you and your business practice and goals. Changing from an LLC to a PC when becoming a licensed CPA is not difficult or troublesome enough (generally) to negate the benefits of offering CPA services.
Limited Liability Partnerships (LLPs) for CPA Firms
We wouldn’t be doing our due diligence if we didn’t also mention LLPs as another option for CPAs to form a business. This business entity option is called the Registered LLP, which is permitted for CPA firms in California. An LLP offers:
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Shared liability protection – partners are not personally liable for the malpractice of other partners.
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Tax treatment – generally taxed as a partnership (pass-through taxation), unless an alternative election is made.
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Suitability – LLPs are often a good fit for larger CPA practices with multiple partners, while PCs are more common for solo or small firms.
Tax Considerations for CPA Firms
And the biggest thing on any CPA firms mind: taxes. Tax elections are an important part of forming your CPA firm, and understanding choosing the right entity structure also has tax consequences:
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PCs: Can elect S-Corporation status, which allows profits to be split between salary (subject to payroll tax) and distributions (not subject to self-employment tax).
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LLPs: Typically taxed as pass-through partnerships, which can simplify tax reporting but may not offer the same payroll tax advantages as an S-Corp.
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LLCs: Not permitted for CPAs in California, but useful for bookkeepers or other non-licensed professionals.
Careful entity planning can significantly affect tax liability for professional practices.
Get It Right the First Time: Start Your California CPA Firm Legally as a Professional Accountancy Corporation in
So, can a CPA firm be an LLC in California? Definitely not, and that’s according to an expert in corporate laws. Newbies out there should understand that looking for answers on Google is not the right way to go if you want to start your certified public accounting practice in California. It is always best to go to legitimate and credible sources to get the correct information on how to set up your business. Doing so will keep you from making mistakes that may cost time, money, and your license!
If you want to save yourself from the complexities of the set-up process, seek the help of a corporate lawyer to help you legally register as a professional corporation. Incorporation Attorney’s team of business law experts will provide you the assistance that you need so you can comply with the California Corporations Code and other laws that cover your expertise.
You may contact us at +1 (714) 634-4838 or contact us through a form to get started on looking at your specific experience.
*Note: any information provided on our website does not constitute legal advice. Always consult with a legal professional for the nuances in your specific scenario. Article updated in August 2025.
