Academic journal article Journal of Corporation Law

Professional Partnerships in the United States

Academic journal article Journal of Corporation Law

Professional Partnerships in the United States

Article excerpt

I. WHAT IS A "PROFESSIONAL OCCUPATION"?

What is meant by a "professional" occupation in the United States? Undoubtedly the phrase (at least in the United States) brings to mind traditional occupations such as physicians, dentists, lawyers, accountants, architects, and the like. However, the issue of definition is more complicated than it first appears.

American states have a long tradition of creating licensure boards for persons desiring to go into certain trades or occupations. The licensing authority is typically a board created by state statute that is given authority to require a written examination, a review of background and experience, a period of association and training under the supervision of a licensed person, and often a hands-on demonstration of skill and competence in the particular occupation. If this is the test of whether a person is a "professional," the category is broad indeed. In Texas, for example, the following is a partial list of the occupations that require a license:

Architects

Attorneys at law

Airplane pilots

Barbers

Certified public accountants

Chiropractors

Clinical social workers

Dentists

Dieticians

Persons fitting and dispensing hearing aids

Land surveyors

Licensed marriage counselors

Licensed family counselors

Life insurance agents

Local recording agents

Morticians

Nurses

Nursing home administrators

Optometrists

Osteopaths

Physicians with a wide variety of siecialties

Physical therapists

Plumbers

Podiatrists

Polygraph examiners

Private investigators

Private security agency administrators

Professional counselors

Professional engineers

Psychologists

Public accountants

Public surveyors

Real estate brokers

Surgeons

Structural pest controllers

Tax professionals

Veterinarians

Vocational nurses

This list was assembled from a brief search of the "licenses" listing in the index to Vernon's Texas Statutes and Codes Annotated, and is doubtless incomplete. The issue of whether a specific occupation was a "professional" one first arose in the 1960s, when many partnerships desired to do business in corporate form in order to reduce federal income taxed and minimize exposure to unlimited partnership liability. However, it was

generally accepted that public policy demanded that a "professional" organization engaged in certain occupations be conducted in a form that imposed personal liability on its members.2 This meant that such organizations could conduct business only as sole proprietorships or general partnerships. The precise scope of this limitation was uncertain, but it certainly included physicians, dentists, lawyers, accountants, architects, and probably others as well.

Unquestionably, many of the "professions" listed in the broader list set forth above have historically conducted their businesses in corporate form without anyone worrying about whether or not that was proper. But the proposition that some professional organizations whose members are engaged in specific occupations could not operate in corporate form suggests an alternative test for what a "professional partnership" is: A narrower plausible definition of "professional" might be one that limits "professional partnerships" to businesses that historically have been prohibited by law from being conducted in corporate form.

Unfortunately, it is also not at all clear precisely where this line is. The Texas experience in the 1960s and 1970s was typical: Professional organizations sometimes simply submitted articles of incorporation and hoped for the best.3 When the filing authority was uncertain whether or not the organization was entitled to incorporate, it submitted the issue to the Attorney General of Texas with a request for an opinion. …

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