Can Alabama lawyers organize their law firm as a limited liability company under the new Alabama LLC Act?

Plain-English summary

A lawyer asked whether attorneys licensed in Alabama could practice law, as members or employees, using the limited liability company form under the new Alabama Limited Liability Company Act, given that Section 45 of the Act allows professionals to render professional services through an LLC but preserves the licensing authority's regulatory power. The concern was that, absent a formal opinion, lawyers using the LLC form might be exposed to discipline.

The Disciplinary Commission answered that it does not violate the Alabama Rules of Professional Conduct or any other disciplinary rule for two or more lawyers to organize a law firm as an Alabama limited liability company under the Alabama Limited Liability Company Act (Act 93-724), effective October 1, 1993. The opinion explained that Section 45 of the Act contains special rules for LLCs performing professional services: subsections (d) and (e) maintain the Alabama State Bar's authority to regulate lawyers and the practice of law under the inherent authority of the Alabama Supreme Court, and subsection (a) provides that an individual rendering professional services as a member remains liable for negligent or wrongful acts or omissions to the same extent as a sole practitioner.

The opinion noted that Section 45 also subjects a professional-services LLC to the restrictions imposed on professional corporations by the revised Alabama Professional Corporation Act (Ala. Code §§ 10-4-380 through 10-4-440), limits the LLC to rendering only one specific type of professional service plus ancillary services, and contains provisions governing transfer of members' interests. On that basis, the Commission concluded Alabama lawyers may organize a law firm in the form of a limited liability company, and the full text of Section 45 was attached to the opinion.

Currency note

This opinion was issued in 1993, before the 2002 Ethics 2000 revisions to the ABA Model Rules of Professional Conduct and Alabama's subsequent amendments to its Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. The statutory provisions described here (the 1993 Alabama Limited Liability Company Act) have since been superseded by later Alabama LLC legislation. Treat this page as historical context, not current guidance. Verify against current rules and statutes before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can Alabama lawyers form their firm as an LLC?

A: Per the opinion, yes; it does not violate the Rules for two or more lawyers to organize a law firm as an Alabama limited liability company under the Alabama LLC Act.

Q: Does the LLC form shield a lawyer from liability for his own negligence?

A: No. The opinion noted that under Section 45(a), an individual rendering professional services as a member is liable for his own negligent or wrongful acts to the same extent as a sole practitioner.

Q: Does using the LLC form change the Bar's authority over the lawyers?

A: No. The opinion explained that Sections 45(d) and (e) preserve the Alabama State Bar's authority to regulate lawyers and the practice of law.

Background and rules framework

The opinion interprets the Alabama Rules of Professional Conduct (including Rule 5.4 on professional independence and the limits on practicing in business forms) in light of Section 45 of the Alabama Limited Liability Company Act (Act 93-724) and the revised Alabama Professional Corporation Act (Ala. Code §§ 10-4-380 et seq.). It treats the LLC form as permissible because the Act preserves the Bar's regulatory authority and individual professional liability.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 / Ala. R. Prof. C. 5.4 (professional independence of a lawyer)

Statutes:

• Alabama Limited Liability Company Act, Act 93-724, § 45 (special rules for LLCs performing professional services)
• Revised Alabama Professional Corporation Act, Ala. Code §§ 10-4-380 through 10-4-440 (1975)

See also

• AL Ethics Op. 1993-23: bankrolling a referral-front firm
• AL Ethics Op. 1993-11: use of "associates," "law firm," "law offices"

Source

• Landing page: https://www.alabar.org/office-of-general-counsel/formal-opinions/1993-16/
• Original PDF: https://www.alabar.org/assets/2019/02/RO-93-16.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

ETHICS OPINION

RO-93-16

QUESTION:

"This letter is in follow-up to my telephone conversation with Milton Moss of your office. In our conversation, we discussed the usage of the Alabama Limited Liability Company by lawyers who are licensed to practice law in the State of Alabama. Based on this discussion, Mr. Moss suggested that I write this letter to you and request a formal written opinion from the Disciplinary Commission concerning this matter.

Basically, Section 45 of the Alabama Limited Liability Company Act allows professionals to render professional services as a member or as an employee of a Limited Liability Company. Paragraphs (d) and (e) of Section 45 appear to limit this authority to the discretion of the licensing authority. Paragraphs (d) and (e) read as follows:

(d) Nothing in this act shall restrict or limit in any manner the authority or duty of a licensing authority with respect to individuals rendering a professional service within the jurisdiction of the licensing authority. Nothing in this act shall restrict or limit any law, rule, or regulation pertaining to standards of professional conduct.

(e) Nothing in this act shall limit the authority of a licensing authority to impose requirements in addition to those stated in this act on any limited liability company or foreign liability company rendering professional services within the jurisdiction of the licensing authority.

Based upon the foregoing, we are concerned that without the issuance of a formal opinion by the Disciplinary Commission, lawyers attempting to utilize the Alabama Limited Liability Company in the delivery of legal services either as members, or as employees, may be subject to disciplinary procedures. Therefore, we would appreciate your providing us with a written declaratory ruling as to the following question:

Under the Alabama Rules of Professional Conduct, Rules of Disciplinary Procedure, Alabama Standards for Imposing Lawyer Discipline, and any other rules of the Alabama State Bar which may be applicable, may lawyers who are licensed to practice law in the State of Alabama practice law, either as members or as employees, using the Alabama Limited Liability Company under the new Alabama Limited Liability Company Act?

This question appears to be a relatively simple question; however, a written opinion would be helpful to allow us to advise our clients concerning the usage of Alabama Limited Liability Companies."

ANSWER:

It does not violate the Alabama Rules of Professional Conduct or any other disciplinary rule of the Alabama State Bar for two or more lawyers to organize a law firm as an Alabama Limited Liability Company (hereinafter "LLC") under the Alabama Limited Liability Company Act (Act 93-724) which will be effective October 1, 1993.

DISCUSSION:

Section 45 of the Alabama Limited Liability Company Act contains special rules for LLC's performing professional services. With regard to licensing, §§45(d) and (e) maintain the authority of the Alabama State Bar to regulate lawyers and the practice of law pursuant to the inherent authority of the Alabama Supreme Court. With regard to liability, §45(a) provides that an individual who renders professional services as a member of an LLC shall be liable "for any negligent or wrongful act or omission to the same extent the individual would be liable if the individual renders the services as a sole practitioner".

Section 45 also subjects an LLC that renders professional services to all of the restrictions imposed on professional corporations by the revised Alabama Professional Corporation Act. (Code of Alabama, 1975 §§10-4-380 through 10-4-440). Section 45 also limits an LLC to rendering only one specific type of professional service and services ancillary to the provision of that professional service, and also contains provisions for transfer of members' interests.

In view of the above, it is the opinion of the Disciplinary Commission of the Alabama State Bar that Alabama lawyers may organize a law firm in the form of a limited liability company. The entire text of §45 is attached to this opinion.

RWN/vf

8/11/93

PROFESSIONAL SERVICES

Section 45. Special Rules for Limited Liability Companies Performing Professional Services.

(a) Every individual who renders professional services as a member or as an employee of a limited liability company shall be liable for any negligent or wrongful act or omission in which the individual personally participates to the same extent the individual would be liable if the individual rendered the services as a sole practitioner.

(b) The personal liability of a member, manager, or other employee of any limited liability company engaged in providing professional services shall be no greater than that of a shareholder, employee, director, or officer of a corporation organized under the Alabama Business Corporation Act or any successor act.

(c) The personal liability of a member, manager, or employee of a foreign limited liability company shall be determined under the law of the jurisdiction in which it is organized.

(d) Nothing in this act shall restrict or limit in any manner the authority or duty of a licensing authority with respect to individuals rendering a professional service within the jurisdiction of the licensing authority. Nothing in this act shall restrict or limit any law, rule, or regulation pertaining to standards of professional conduct.

(e) Nothing in this act shall limit the authority of a licensing authority to impose requirements in addition to those stated in this act on any limited liability company or foreign limited liability company rendering professional services within the jurisdiction of the licensing authority.

(f) A limited liability company organized to render professional services under this act may render only one specific type of professional services, and services ancillary to them, and may not engage in any business other than rendering the professional services which it was organized to render, and services ancillary to them. In addition, a limited liability company organized to render professional services shall be subject to the restrictions imposed on professional corporations by the Revised Alabama Professional Corporation Act Sections 10-4-380 through 10-4-404 inclusive, Code of Alabama 1975, as amended from time to time.

(g) A limited liability company organized to render professional services, domestic or foreign, may render professional services in Alabama only through individuals permitted to render those services in Alabama; but nothing in this act shall be construed to require that any individual who is employed by a limited liability company rendering professional services be licensed to perform services for which no license is otherwise required or to prohibit the rendering of professional services by a licensed individual acting in an individual capacity, notwithstanding that the individual may be a member, manager, employee or agent of a domestic or foreign limited liability company rendering professional services.

(h) A member's interest in a limited liability company organized to render professional services may be voluntarily transferred only to a person who is licensed or registered to render the professional services for which the company was organized.

(i) If a membership interest is transferred by gift or inheritance to a person who is not licensed or registered to render the professional services for which the limited liability company was organized or if a member's license or registration to perform the professional services for which the limited liability company was organized is terminated or suspended for a period of more than 12 months, the person or member shall not be treated as owning a financial interest or an ownership interest in the limited liability company and shall be entitled only to receive the buyout price of the membership interest in accordance with Section 30.