Can lawyers practice law through a professional service corporation they form and work for?

Plain-English summary

The committee was asked whether it violates the Canons for the profession of law to be practiced in the form of a professional service corporation under KRS Chapter 274, and whether a licensed lawyer may practice as an employee of such a corporation. It answered both questions yes, treating the underlying propriety as already settled: the Kentucky State Bar Association had previously approved an opinion that attorneys may form and practice within a professional service corporation, and the ABA Ethics Committee had approved their use in its Opinion No. 303, so whether the idea conflicted with the ethical practice of law was a moot question.

The committee stressed that this is not a "business" corporate structure but a "professional" one, formed solely so members of a profession can obtain the same status and protection under taxing and retirement laws enjoyed by business corporations. Forming and operating such a corporation does not relieve the attorneys of any of the rights, duties, or responsibilities of a licensed practitioner, has no effect on the quality, character, nature, or extent of their practice, and does not relieve them from observing every Canon of Professional Ethics they are otherwise obligated to observe.

The committee's direct answer was that the professional service corporation is not practicing law and the incorporators are not its employees, drawing the analogy that a large law firm (it cited White and Case, where the practice is carried on by qualified, licensed lawyers) holds no license, is not subject to discipline, and does not itself engage in the practice of law. It cautioned that the corporation's only proper purpose is to end discrimination in the enforcement of tax laws, and that any attempt to use it otherwise would be deemed unprofessional conduct. The committee expressly declined to opine on the tax validity or the mechanics of any particular corporation, noting those might have to be considered specially.

Currency note

This opinion was issued in 1965 under the former Canons of Professional Ethics (in effect in Kentucky from 1946 to 1971) and predates both the 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments and later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific point mentioned here.

Common questions

Q: Can lawyers practice through a professional service corporation?

A: Under this opinion, yes. The committee held it proper for attorneys to form and practice within a professional service corporation under KRS Chapter 274, treating the question as already settled by prior state and ABA opinions.

Q: Does the corporate form change a lawyer's ethical duties?

A: No. The committee held the form does not relieve the lawyers from any duty of a licensed practitioner or from observing every Canon they are otherwise obligated to observe.

Q: Is the corporation itself practicing law?

A: No. The committee reasoned the corporation is not practicing law and is not licensed or subject to discipline, drawing an analogy to a large law firm whose licensed members do the practicing.

Background and rules framework

The opinion addressed the form of law practice under the former Canons of Professional Ethics (Canons 31, 33, 34, 35, 37, and 47) and KRS Chapter 274, relying on a prior Kentucky State Bar opinion and ABA Formal Opinion 303. The modern analog is Model Rule 5.4 (professional independence of a lawyer, including the rules governing practice in a professional corporation and the bar on nonlawyer ownership), with Kentucky's counterpart at SCR 3.130(5.4).

Citations and references

Rules of Professional Conduct:

• Canons 31, 33, 34, 35, 37, 47 (form and conduct of practice); modern analog Model Rule 5.4

Statutes:

• KRS Chapter 274 (professional service corporations)

Other opinions cited:

• ABA Formal Opinion 303 (approving the use of professional service corporations)
• Prior Kentucky State Bar Ethics Committee opinion (Kentucky Bar Journal v. 26, No. 6, 301)

See also

• KBA Ethics Op. E-92: Interstate Law Partnerships
• KBA Ethics Op. E-11: Deceased Partner's Name in Firm

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-025.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-25
Issued: May 1965

Question:

May a Professional Service Corporation practice law where attorneys are
the incorporators and practice law while employees of the corporation?

Answer:

Yes.

References:

Canon 31, 33, 34, 35, 37, 47; KRS Chapter 274
OPINION

The Ethics Committee of the Kentucky State Bar Association has been requested to
render an advisory opinion on the following question:
Is it a violation of any of Canons 31, 33, 34, 35, 37 or 47 of the Canons of
Professional Ethics of the American Bar Association in this Commonwealth to practice the
profession of attorney at law in the business form of a Professional Service Corporation, as
contemplated by the laws of the Commonwealth at Chapter 274 of Kentucky Revised
Statutes; or, is it a violation of such Canons for a lawyer or group of lawyers, duly licensed,
duly admitted to practice as an attorney at law before the Courts of this Commonwealth,
and, duly certified in good standing in membership in the Kentucky State Bar Association,
to practice the profession of attorney at law as the employee of such a Professional Service
Corporation?
Briefly this involves two questions: 1. Is it ethical for a Professional Service
Corporation to practice law; and 2. Is it ethical for a lawyer to practice as an employee of a
Professional Service Corporation?
The Kentucky State Bar Association has heretofore approved an opinion of the
Ethics Committee to the effect that it is proper for attorneys at law to form and practice
within a Professional Service Corporation (Kentucky Bar Journal v 26, No. 6, 301).
Thereafter, the Ethics Committee of the American Bar Association approved the
use of professional service corporations, Opinion No. 303.
Accordingly, whether the original idea would be in conflict with the ethical practice
of law is now a moot question.

However, questions continue to arise with respect to certain situations, which
might occur under the use of Professional Service Corporation, whenever the
incorporators exercise certain rights, privileges, and advantages or encounter certain
perils and other pitfalls, which are attendant upon the formation, operation, perpetuation,
or dissolution of an unauthorized “business” corporate structure. The answer to all these
questions is simple. We are not dealing with a “business” corporate structure, but a
“professional” corporate structure formed solely for the purpose of permitting the
members of a profession to obtain equal status and protection under taxing and retirement
laws currently being authorized for and enjoyed by “business corporations”. It is our
opinion that the formation and operation by one or more attorneys of such a professional
corporate structure does not relieve them from any of the rights, duties, or responsibilities
of any duly licensed practitioner. It has no effect whatsoever on the quality, character,
nature, or extent of the practice of profession in which they are engaged. Above all it
does not, under any circumstances, relieve them from the observance of each and every
single Canon of Professional Ethics, which they are otherwise obligated to observe.
The direct answer to these questions is that the Professional Service Corporation is
not practicing law and the incorporators of it are not its employees. The purpose is just as
true of the ABC professional corporation as it is of probably the largest law firm in our
nation, White and Case. In that instance, the practice of law is carried on by approximately
forty members and eighty associates of that firm, who have been duly qualified and
licensed to practice law. That firm does not have a license. The Professional Service
Corporation does not have a license. Neither is subject to discipline and neither engages in
the practice of law.
To return to the simple answer to many complicated questions, the use of the
Professional Service Corporation is for no other purpose than to end discrimination in the
enforcement of the Taxing Laws and insure the profession the same treatment as all others
under them. Any attempt to use it otherwise would be deemed unprofessional conduct.
This opinion does not encompass the legal aspects of any given professional service
corporation such as would render it valid or invalid for purposes of complying with Federal
Statutes and Regulations for Taxing purposes. Further, no opinion can be expressed
concerning the proprieties of the mechanics of a given Professional Service Corporation,
due to the many variations which are possible in their formation and operation. Any
particular situation arising under the subject may have to be considered specially.

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the
Kentucky Bar Association under the provisions of Kentucky Supreme Court Rule 3.530
(or its predecessor rule). The Rule provides that formal opinions are advisory only.