Legal Issues for New York Architects; Part 5 of 6 – Understanding and Complying with the Law on Design Professional Service Corporations

This is a continuing article series regarding Legal Issues for New York Architects. Originally presented by John Caravella, of the Law Offices of John Caravella, and Kimberly A. Steele of The Steele Law Firm and produced by HalfMoon Education Seminars, this presentation touches on the following topics, Complying with the Rules and Regulations on the Practice of Architecture (Part 1), Complying with New York Rules on Unprofessional Conduct (Part 2), Understanding and Complying with Barrier-Free Requirements (Part 3), Design and Construction Contract Law and Administration (Part 4), Understanding and Complying with the law on Design Professional Service Corporations (Part 5) and Building Code Updates (Part 6). Each series of topics discuss informative summaries of Legal Issues for New York Architects.

DESIGN PROFESSIONAL SERVICE CORPORATIONS

New York Business Corporation Law Section 1503 was amended effective January 1, 2012 to provide for the formation of design professional service corporations.

The following design professions are included:

  • Engineers
  • Architects
  • Landscape architects
  • Land surveyors
  • …Who are authorized by law to engage in those professions.

Unlike typical professional service corporations (for attorneys, physicians), a professional service corporation composed of design professionals or design professional service corporation may practice a combination of the above professions.

  • If practicing more than one design profession, at least one shareholder, director, and officer must be licensed and registered to practice each profession in which the professional service corporation will engage

COMPLYING WITH DESIGN PROFESSIONAL SERVICE CORPORATION OWNERSHIP REQUIREMENTS

INCREASED FREEDOM OF OWNERSHIP OVER

TRADITIONAL PROFESSIONAL SERVICE CORPORATIONS

New York Business Corporation Law Section 1503 (b-1) contains the following provisions for the ownership of design professional service corporations:

  • “Shareholders may include employee stock ownership plans (ESOPs) and employees of the corporation not licensed as design professionals”
  • At least 75% of the corporation’s outstanding shares must be owned by design professionals
  • An ESOP cannot constitute part of that 75%
  • The single largest shareholder must be either:
  • A design professional or
  • An ESOP in which more than 75% of the plan’s voting trustees are design professionals or more than 75% of the plan’s committee members are design professionals

“GOOD MORAL CHARACTER” REQUIRED OF ALL SHAREHOLDERS

Under New York Business Corporation Law Section 1504 (b-4), each shareholder must be deemed to be of “good moral character” as established by the Commissioner of Education.

Good moral character is established by the filing of a Moral Character Attestation of Unlicensed Shareholder, Officer, or Director for a Design Professional Corporation with the New York State Education Department.

Form available at http://www.op.nysed.gov/corp/pcorpdpcform1.pdf

AT LEAST ONE SHAREHOLDER FOR EACH PROFESSION REQUIRED

For design professional corporations practicing more than one profession, New York Business Corporation Law Section 1503 (b-3) specifies that at least one shareholder must be licensed and registered to practice each profession.

COMPLYING WITH DESIGN PROFESSIONAL SERVICE CORPORATION LEADERSHIP REQUIREMENTS

INCREASED FREEDOM OF LEADERSHIP OVER

TRADITIONAL PROFESSIONAL SERVICE CORPORATIONS

New York Business Corporation Law Section 1503 (b-1) contains the following provisions for the leadership of design professional service corporations:

  • At least 75% of the corporation’s directors must be design professionals
  • At least 75% of the corporation’s officers must be design professionals
  • Specific corporate officers must be design professionals:
  •  President
  • Chairperson of the board of directors
  • Chief executive officer or officers
  • Under New York Business Corporation Law Section 1504 (b-4), each director and officer must be deemed to be of “good moral character.”
  • For design professional corporations practicing more than one profession, New York Business Corporation Law Section 1503 (b-3) specifies that at least one director and officer must be licensed and registered to practice each profession.

MORE ABOUT DESIGN PROFESSIONAL SERVICE CORPORATIONS

FORMATION

  • Obtain Certificate of Authority from the New York State Education Department by filing a Certificate of Incorporation
  • File a certified copy of a Certificate of Incorporation with Certificate of Authority attached with the New York Department of State
  • An existing professional service corporation that is in good standing and meets all of the requirements to be a design professional service corporation may convert into a design professional service corporation

LIABILITY UNDER NEW YORK BUSINESS CORPORATION LAW SECTION 1505

  • Personal liability for shareholders, employees, and agents for any negligent or wrongful acts committed by that shareholder, employee, or agent and those under his or her direct supervision and control

REPORTING REQUIREMENTS

  • Statements to be furnished to the New York State Education Department every 3 years

UTILIZING OTHER FORMS OF BUSINESS ORGANIZATIONS

PROFESSIONAL SERVICE CORPORATIONS

(other than those specifically incorporated as design professional service corporations.

  • Ownership restrictions under New York Business Corporation Law Section 1503(b)
  • Every shareholder must be authorized by law to practice a profession which the corporation is being organized to practice
  • At least one shareholder must be licensed and registered to practice each profession in which the professional service corporation will engage
  • Leadership restrictions under New York Business Corporation Law Section 1503(b)
  • Every director and officer must be authorized by law to practice a profession which the corporation is being organized to practice
  • At least one director and officer must be licensed and registered to practice each profession in which the professional service corporation will engage

CTA Button
FORMATION

  • Obtain Certificate of Authority from the New York State Education Department by filing a Certificate of Incorporation
  • File a certified copy of a Certificate of Incorporation with the New York Department of State

LIABILITY UNDER NEW YORK BUSINESS CORPORATION LAW SECTION 1505

  • Personal liability for shareholders, employees, and agents for any negligent or wrongful acts committed by that shareholder, employee, or agent and those under his or her direct supervision and control

REPORTING REQUIREMENTS

  • Statements to be furnished to the New York State Education Department every 3 years

PROFESSIONAL SERVICE LIMITED LIABILITY COMPANIES

  • Can be organized for one design profession (engineering, architecture, landscape architecture, or land surveying) or a combination of them
  • Ownership restrictions under New York Limited Liability Company Law Section 1207
  • Each member must be a professional authorized by law to practice a profession in which the professional service limited liability company will engage

LIABILITY UNDER NEW YORK LIMITED LIABILITY COMPANY LAW SECTIONS 609 AND 1205

  • No personal liability for members, managers, and agents for liabilities solely because of participation in the professional service limited liability company
  • Personal liability for members, managers, employees, and agents for any negligent or wrongful acts committed by that member, manager, employee, or agent and those under his or her direct supervision and control

TAXATION

  • Can elect to be taxed as a corporation or disregarded as an entity (personal/partnership taxation)

FORMATION

  • Obtain Certificate of Authority from the New York State Education Department by filing Articles of Organization
  • File a certified copy of Articles of Organization with the New York Department of State with attached Certificate of Authority

PROFESSIONAL REGISTERED LIMITED LIABILITY PARTNERSHIPS

  • Can be organized for one design profession (engineering, architecture, landscape architecture, or land surveying) or a combination of them
  • Ownership restrictions under New York Partnership Law Section 121-1500
  • At least one partner must be a professional authorized by law to practice a profession in which the professional service limited liability company will engage
  • In design professional registered limited liability partnerships practicing in multiple professions, at least one partner must be a licensed member of each profession in which the professional registered limited liability partnership will practice

LIABILITY UNDER NEW YORK PARTNERSHIP LAW SECTION 26(B) AND (C)

  • No personal liability for partners solely because of participation in the registered professional limited liability partnership
  • Personal liability for partners for negligent or wrongful acts committed by that partner and those under his or her direct supervision and control

TAXATION

  • Can elect to be taxed as a corporation or partnership

FORMATION

  • File registration with the New York Department of State
  • Provide certified copy of registration to the New York State Department of Education

Kimberly A. Steele is the founding member of the Steele Law Firm, P.C., a multi-jurisdictional practice with offices throughout the United States that represents clients in commercial litigation, commercial transactions, construction law and suretyship.  The Steele Law Firm, P.C. was awarded the New York State Certified Woman-Owned Business Enterprise designation in 2010.  The Steele Law Firm, P.C. has extensive dealings in large volume banking and collection matters with attention to commercial foreclosures, loan workouts, UCC Article 9 issues, lender liability, creditors’ rights, judgment enforcement, priority disputes, trust diversion and bankruptcy.  The Steele Law Firm, P.C. also assists clients with collateral accounting, preservation, seizure and liquidation.  In addition, The Steele Law Firm, P.C. represents commercial parties with respect to land development, financing, economic incentive programs, zoning, land use issues, environmental cleanup, minority business status, and multi-party program participation including with the Small Business Administration, Certified Development Companies, and Industrial Development and Community Development Agencies.

Ms. Steele graduated magna cum laude from Elmira College on a full academic scholarship, attended the Université de la Sorbonne in Paris, France also on full academic scholarship, and received her Juris Doctor from Albany Law School of Union University.  Ms. Steele has previously served as corporate counsel and vice president of commercial sales of a Central New York community bank.

In addition to practicing law, Ms Steele is the founding member of H.T. Grace & Associates, LLC, a full service consulting firm that assists small business owners throughout the country.  Ms. Steele is also the owner of Turnaround Credit Repair, providing consumers with credit repair services and business owners with risk rating repair services for purposes of risk management, insurance and bonding.  Currently, Ms. Steele is partnering with a newly-formed venture that procures bonding and competitive loans for Veteran Business Entrepreneurs, Disabled Veteran Business Entrepreneurs, Minority Business Entrepreneurs and Woman Business Entrepreneurs.

Ms. Steele is originally from Lake George, New York.  Ms. Steele makes her home in Oswego with her two rescued dogs.  Ms. Steele enjoys playing the piano, competitive sailing, cooking and wine collecting.