Licensed professional fiduciaries, like other licensed professionals, may find that they want to form a corporation in order to further protect themselves and better serve their clients. Many professional fiduciaries believe that a professional corporation, which is the type of entity employed by other licensed professionals like lawyers and doctors, would best suit their needs.
Most states impose restrictions on who may own a professional corporation and the work it can do, and California is one of them. Unfortunately, there is not currently a mechanism in California for forming a professional fiduciary professional corporation.
Though professional fiduciaries are required to be licensed under the Professional Fiduciaries Act, there is not currently a “professional fiduciary professional corporation” in California. This situation is similar to that of real estate brokers: requiring a license to legally provide services under the Business and Professions Code, but not requiring (or even permitting) the formation of a professional corporation.
A bill proposed in 2014 would have allowed for such entities, but it was never passed. The fact that this bill was considered strongly implies that the legislature does not currently believe professional fiduciaries need to form a professional corporation. However, as indicated in the Professional Fiduciary Association of California’s 2019 winter news bulletin, the legislature continues to explore the opportunity to revise state law to authorize the formation of licensed professional fiduciary professional corporations.
Bills like this are supported by professional fiduciaries and others who believe a professional corporation structure would best allow them to serve their clients. The argument in support of such structure states that it would provide additional accountability, additional insurance protections, and continuity of service amongst the many licensed professionals relied upon by the trust beneficiary clients of professional fiduciaries.
However, some believe that requiring professional fiduciaries to form professional corporations adds an unnecessary hurdle to allowing professional fiduciaries to take advantage of the benefits of forming an entity, without enough benefits to fiduciaries or their clients to make the additional requirement worth it.
Though the discussion is not yet settled, the current California Business & Professions Code does not allow for a “professional fiduciary professional corporation.” However, while professional fiduciaries do not currently have the option to utilize a professional corporation for their business, there are other business entity options available to them.
Because the laws surrounding the creation of an entity are complicated and ever changing, it is important to consult with an attorney to ensure compliance. DeAnn Flores Chase and the team of experienced business attorneys at Chase Law Group, P.C., can explain these complexities in detail and answer any other questions you may have about entity formation. Contact Chase Law Group, P.C., at (310) 545-7700 to schedule a consultation.