Can Texas lawyers organize a law firm as a limited partnership whose general partner is an ordinary for-profit corporation rather than a professional corporation?

Plain-English summary

Two Texas lawyers want to practice together and, to limit liability, their financial advisor suggests forming a limited partnership in which each lawyer is a limited partner and the general partner is an ordinary for-profit corporation (not a professional corporation) owned by the two lawyers.

The Committee explains that the Disciplinary Rules do not prescribe specific forms of organization for law firms. Rule 5.04 prohibits arrangements that undermine a lawyer's professional independence, such as sharing legal fees with a non-lawyer, forming a law partnership with a non-lawyer, or forming a professional corporation or association for the practice of law for profit if a non-lawyer owns an interest, is an officer or director, or can direct the lawyer's professional judgment. Other Rules in the 5.0 series address supervision, non-lawyer assistants, unauthorized practice, restrictions on the right to practice, and discrimination. Under Rule 8.04(a)(12), a lawyer must also comply with Texas laws relating to the professional conduct of lawyers and the practice of law, so a Texas lawyer must structure the practice in a form permissible under Texas law.

Whether the proposed limited-partnership-with-corporate-general-partner structure is permissible, the Committee says, must be answered under the Texas Business Organizations Code, not the Disciplinary Rules. It reviews the TBOC's definitions of "professional entity" and "professional corporation," notes that ordinary for-profit corporations under title 2 are barred from engaging in activities requiring a license they cannot obtain, and cites authority that, absent a professional corporation, a corporation is not authorized to practice law. The Committee states it has no authority to interpret statutory law and expresses no opinion on the TBOC, but stresses that the TBOC interpretation will be critical to applying Rules 5.04, 5.05(b), and 8.04(a)(12). For example, if Texas law requires a corporate general partner of a law-practicing limited partnership to be authorized to practice law, and a for-profit corporation cannot be so authorized, the lawyers would violate Rule 5.05(b) by assisting the corporation in the unauthorized practice of law.

In practice

Under this opinion, and under the Texas rules as they stood at the time, the Disciplinary Rules themselves neither prescribe nor forbid a particular law-firm organizational form, but a Texas lawyer must choose a form permissible under all applicable Texas law, including the Texas Business Organizations Code, and must not share fees or form a law partnership with a non-lawyer or assist a non-lawyer in the unauthorized practice of law. The Committee holds that whether a limited partnership with an ordinary for-profit corporation as general partner is permitted is a statutory question under the TBOC that it will not resolve, and it identifies the disciplinary consequence that would follow from one reading: if state law requires the corporate general partner to be authorized to practice law and a for-profit corporation cannot be, the lawyers would violate Rule 5.05(b).

Common questions

Q: Do the Texas ethics rules tell lawyers what business form their firm must take?

A: No. The Committee states the Disciplinary Rules do not prescribe specific forms for organizing law firms; they instead prohibit fee sharing or partnership with non-lawyers and assisting unauthorized practice, and require compliance with applicable Texas law.

Q: Can the general partner be an ordinary for-profit corporation instead of a professional corporation?

A: The Committee does not decide. It says that question must be answered under the Texas Business Organizations Code, which it has no authority to interpret, and expresses no opinion on it.

Q: What is the ethics risk if the for-profit corporation cannot be authorized to practice law?

A: The opinion explains that if Texas law requires the corporate general partner of a law-practicing limited partnership to be authorized to practice law, and a for-profit corporation cannot be so authorized, the lawyers would violate Rule 5.05(b) by assisting the corporation in the unauthorized practice of law.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 5.04 (professional independence; restrictions on sharing fees and forming entities with non-lawyers; ABA Model Rule 5.4), Rule 5.05(b) (assisting the unauthorized practice of law; ABA Model Rule 5.5), and Rule 8.04(a)(12) (violating Texas laws relating to the professional conduct of lawyers and the practice of law). It frames, without deciding, questions under the Texas Business Organizations Code's provisions on professional entities and ordinary for-profit corporations.

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence of a lawyer); MR 5.5 (unauthorized practice of law)
• Texas Disciplinary Rules 5.04, 5.05(b), 8.04(a)(12)

Statutes:

• Texas Business Organizations Code §§ 301.003(3), 301.003(4) (professional entity and professional corporation), 2.007(4) (ordinary for-profit corporations)

Cases:

• Unauthorized Practice of Law Committee v. American Home Assurance Co., 261 S.W.3d 24 (Tex. 2008), a corporation is generally not authorized to practice law

Other opinions cited:

• Texas Attorney General Opinion No. MW-99 (December 13, 1979): the Business Corporation Act and the Professional Corporation Act are as a general matter mutually exclusive

See also

• TX Ethics Op. 633: General Counsel of a Two-City Entity Employed by One City
• TX Ethics Op. 647: Nonprofit Law Firm Name Naming a Nonlawyer
• TX Ethics Op. 643: Lawyer-Owned Debt Management Company Referrals

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-618/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_618.pdf

Original opinion text

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

QUESTION PRESENTED

Do the Texas Disciplinary Rules of Professional Conduct permit lawyers to organize a law firm as a limited partnership in which the general partner is a corporation that is not a professional corporation?

STATEMENT OF FACTS

Two Texas lawyers wish to practice law together. In order to limit the lawyers’ liability in connection with their law practice, their financial advisor recommends that the lawyers form a limited partnership (instead of a general partnership or a limited liability partnership) in which each lawyer is a limited partner and the general partner is an ordinary for-profit corporation, not a professional corporation, that is owned by the two lawyers.

DISCUSSION

The Texas Disciplinary Rules of Professional Conduct do not prescribe specific forms of organization for law firms. Rule 5.04 does prohibit arrangements that would undermine a lawyer’s professional independence, such as sharing legal fees with a non-lawyer; forming a partnership for the practice of law with a non-lawyer; or forming a professional corporation or association for the practice of law for profit if a non-lawyer owns any interest in the entity, is a corporate director or officer of the entity, or has the right to direct or control the lawyer’s professional judgment. The Texas Disciplinary Rules regarding law firms and associations also address responsibilities of a partner or supervisory lawyer (Rule 5.01); responsibilities of a supervised lawyer (Rule 5.02); responsibilities regarding non-lawyer assistants (Rule 5.03); unauthorized practice of law (Rule 5.05); restrictions on right to practice (Rule 5.06); and prohibited discriminatory activities (Rule 5.08).

Under the Texas Disciplinary Rules, a lawyer practicing law in Texas is required to comply with applicable Texas legal requirements concerning the practice of law. Rule 8.04(a)(12) prohibits violation of any laws of Texas not otherwise specified in Rule 8.04(a) “relating to the professional conduct of lawyers and to the practice of law.” Accordingly, a Texas lawyer must structure his law practice in a form that is permissible under Texas law.

Whether a law firm may be organized as a traditional limited partnership with an ordinary for-profit corporation as general partner is a question that must be answered under the Texas Business Organizations Code (“TBOC”), not the Texas Disciplinary Rules of Professional Conduct. The TBOC specifically authorizes in title 7, entitled “Professional Entities,” the formation of a “professional entity,” which “means a professional association, professional corporation, or professional limited liability company.” TBOC section 301.003(4). A “professional corporation” is defined as “a corporation that is: (A) formed for the purpose of providing a professional service, other than the practice of medicine by physicians, surgeons, or other doctors of medicine, that by law a corporation governed by Title 2 is prohibited from rendering; and (B) governed as a professional entity under this title.” TBOC section 301.003(3).

For-profit corporations that are not professional corporations are governed by title 2 of the TBOC and are prohibited under TBOC section 2.007(4) from engaging “in a business or activity that may not be engaged in by a for-profit corporation without first obtaining a license under the laws of this state and a license to engage in that business or activity cannot lawfully be granted to the corporation.” Except for professional corporations specifically authorized under title 7 of the TBOC as noted above, the general rule is that “a corporation is not authorized to engage in the practice of law.” Unauthorized Practice of Law Committee v. American Home Assurance Co., 261 S.W.3d 24, 33 (Tex. 2008). See also Texas Attorney General Opinion No. MW-99 (December 13, 1979) at page 4 (“The Texas Business Corporation Act [predecessor of the provisions of the TBOC governing ordinary for-profit corporations] and the Texas Professional Corporation Act [predecessor of the provisions of title 7 of the TBOC governing professional corporations] are as a general matter mutually exclusive . . . .”).

This Committee does not have authority to interpret statutory law and expresses no opinion on the interpretation of the provisions of the TBOC quoted above. The interpretation of these provisions, however, will be critical in the application of Rules 5.04, 5.05(b) and 8.04(a)(12) of the Texas Disciplinary Rules of Professional Conduct. For example, if under Texas law a corporation acting as the general partner of a limited partnership practicing law in Texas must be authorized to practice law in Texas and if under Texas law a for-profit corporation cannot be so authorized, then Texas lawyers involved in the proposed law firm structure would violate Rule 5.05(b) by assisting the general partner corporation in the unauthorized practice of law.

CONCLUSION

The Texas Disciplinary Rules of Professional Conduct do not prescribe specific forms for organizing law firms in Texas. The Texas Disciplinary Rules do, however, prohibit a lawyer from sharing legal fees with a non-lawyer, forming a partnership for the practice of law with a non-lawyer, forming a professional corporation or association for the practice of law for a profit with a non-lawyer, and assisting a non-lawyer in the unauthorized practice of law. Moreover, Texas lawyers must choose for their law practice a form of organization that complies with all applicable Texas laws, including the requirements of the Texas Business Organizations Code.

Tex. Comm. On Professional Ethics, Op. 618 (2012)