Forming A Law Partnership of Professional Corporations
Adopted: January 21, 2005
Opinion rules that a lawyer may form a professional corporation for the practice of law and the professional corporation may enter into a law partnership with another such professional corporation.
Inquiry:
Attorney A and Attorney B have practiced law together since 1982. Originally, they practiced together in a partnership but, after a few years, they filed articles of incorporation to form A & B, Professional Corporation. Each lawyer owns 50% of the shares of the professional corporation. Over time, the personal financial objectives of Attorney A and Attorney B have diverged, primarily with regard to their retirement objectives. Attorney A, for example, does not want to contribute to the firm's 401(k) plan. Attorney B, on the other hand, wants to contribute the maximum amount to the plan. They have reached an impasse over this issue and other business issues.
Attorney B would like to retain his professional relationship with Attorney A while accommodating each lawyer's individual financial needs. To accomplish this, he suggests that each lawyer form his or her own professional corporation in which he or she would be the sole shareholder. The two professional corporations1 would then form a partnership for the practice of law. From an accounting perspective, Attorney B has been advised that this approach will allow the two lawyers to meet their individual financial goals.
Rule 5.4(b) provides that "[a] lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." As noted in comment [2], the rule "expresses the traditional limitations on permitting a third party to direct or regulate the lawyer's professional judgment in rendering legal services to another."
Technically, the arrangement proposed by Attorney B would create a partnership of nonlawyers—the professional corporations—and, therefore, be prohibited under Rule 5.4(b). However, by law, all of the shareholders of a North Carolina professional corporation formed for the practice of law must be licensed North Carolina lawyers. G.S. §55B-4(2)2. Therefore, all of the humans involved in the management and operation of the partnership would be licensed lawyers and there would be no risk that a nonlawyer could interfere with the independent professional judgment of the lawyers in their representations of clients. May Attorney A and Attorney B organize their law practice in this manner?
Opinion:
Yes. As noted in Rule 0.2, Scope, the Rules of Professional Conduct are "rules of reason" and "[t]hey should be interpreted with reference to the purposes of legal representation and of the law itself." The purpose of Rule 5.4(b) is to prevent the creation of law firm in which a person who does not have a law license has the authority as a partner, or otherwise, to interfere in a lawyer's decisions about the representation of a client. Where, as here, all of the owners of the constituent professional corporations are themselves licensed as lawyers, that risk is not present. So long as the signage and the letterhead for the partnership disclose the relationship between the professional corporations and correctly identify the shareholders in the constituent professional corporations as required by Rule 7.1, this arrangement does not violate Rule 5.4(b). The same would be true of a partnership of professional limited liability companies formed for the practice of law.