Can a CPA Firm Be an LLC in California? Why would you make things COMPLICATED?
It’s a dream for many professionals, including certified public accountants (CPAs), to set up their practice. As a CPA, you want to provide services to businesses that want to grow and become successful in their industry. And you can’t wait to get started! Maybe you thought talking to a corporate lawyer was expensive and a waste of time. So, you go online instead to find out how to set up your accounting or bookkeeping firm. Then, you register as a limited liability company (LLC) because that’s how everybody seems to get started. But can a CPA firm be an LLC in California?

There are lots of cases like this. Some aspiring entrepreneurs have made the mistake of going into business without consulting an experienced attorney. One of our clients, a licensed CPA, almost violated the California Corporations Code for registering as an LLC.

The full story here….

Can A CPA Set Up An LLC and Offer Professional Services?

Our client is a licensed CPA in California who started a bookkeeping business as a sole proprietor. A few clients later, she set up an LLC on her own. Only after doing this did she start learning more about licensed professionals doing business in California. The question is: Should she continue doing business as a sole proprietor, an LLC, or set up a professional corporation instead before going full-blast with her bookkeeping firm? What is the legal entity of CPA firm in California?

Can a CPA firm be an LLC in California and offer bookkeeping services?

Although her firm mainly offers bookkeeping services, she hopes to attract more clients by marketing herself as a licensed CPA. This technique may seem harmless but still in violation of the California Corporations Code 17701.04. (e). Here, it states, “Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and Section 13401.3, in this state.”

Licensed professionals, including CPAs in California, cannot use a limited liability company as a business entity from which to offer professional services.

In our client’s case, offering accounting services is offering professional services, which means that LLC is out of the question. There may be slightly different rules that apply to bookkeeping and accounting, but you may still encounter legal problems if you practice bookkeeping and hold out yourself as a CPA. The same goes if you’re a licensed CPA restricting your services to bookkeeping and then wanting to promote your CPA license without a professional corporation registration.

“At what point is it better to have a professional corporation than an LLC?”

Since our client is a licensed CPA intending to offer professional services, now is the best time to register as a professional corporation. Failing to do so may cause you problems with the California Board of Accountancy, which has a rigorous enforcement division. It won’t take the board long to find out that you’re stepping outside the rules and you could be facing penalties that may affect your license.

“I don’t plan on providing tax related audit services but I may want to provide advisory services, which can be done by anyone without a CPA license…”

The California Board of Accountancy prefers that licensed CPAs who want to provide accounting services operate as a professional corporation. The California Business and Professions Code specifies the rules covering CPAs, under Section 5051, which states that CPAs are engaged in public accountancy if they:

• Publicly present themselves as qualified professionals ready to render their services as a public accountant.
• Hold an office where they conduct business as a public accountant.
• Perform various bookkeeping, accounting, and/or consultancy jobs for clients.

On another note, CPAs are not considered as engaged in public accountancy if they only render services specified in subdivisions (f) to (i) of the Code. At the same time, they must not hold themselves out, solicit, or advertise as a CPA or public accountant. The California marketing laws for CPAs clearly put strict limitations on how CPAs advertise themselves to clients.

In any case, the basic principle of “It is better to be safe than sorry” applies. We recommend our client and other CPAs to simply follow the laws even if some of them may not make complete sense. Life is easier if you comply with the rules set by the California Board of Accountancy than face the consequences. Professional corporation is the legal entity of CPA firm in California. If you want to provide any kind of accounting or bookkeeping services whether for a huge company or a small company, register your business as PC instead of an LLC.

“Is it more cost-effective to change my business type from an LLC to a professional corporation?”

Our client has not yet started providing accounting services as an LLC, which is what we highly recommend. Since it’s not legal to operate through the LLC, the best thing to do is to just dissolve it rather than convert it into a professional corporation. The conversion process, although theoretically available, keeps the LLC history on record so long as the business entity is open. Why memorialize a mistaken formation when you could simply have a clean start?

We recommend that you close the LLC and form a brand-new professional corporation to have a clean record with no reference to the LLC at all.

“Do I always have to keep my active CPA license status if I change to a professional corporation?”

It may feel like an inconvenience to take a continuing professional education (CPE) program every three to five years (depending on the state regulations), but it is required to keep your license active. An active license is required for professional corporations. After all, you worked very hard to get licensed so you might as well keep your credentials up-to-date. Otherwise, you will no longer be qualified to own and run a professional corporation.

With this, we recommended our client to keep her CPA license active so she can set up a professional corporation.

Get It Right the First Time. Start Your CPA Practice Legally

So, can a CPA firm be an LLC in California? Definitely not, and that’s according to an expert in corporate laws. Newbies out there should understand that looking for answers on Google is not the right way to go if you want to start your public accounting practice in California. It is always best to go to legitimate and credible sources to get the correct information on how to set up your business. Doing so will keep you from making mistakes that may cost time, money, and your license!

If you want to save yourself from the complexities of the set-up process, seek the help of a corporate lawyer to help you legally register as a professional corporation. Incorporation Attorney’s team of business law experts will provide you the assistance that you need so you can comply with the California Corporations Code and other laws that cover your expertise.

You may contact us at +1 (714) 634-4838 or explore our website to get more information on how we can help.