Arizona Professional Corporation for Attorneys Law

Corporations – Professional Corporation – Arizona

ARIZONA REVISED STATUTES, Title 10, Chapters 1-17 (General Corporation Law)

ARIZONA REVISED STATUTES, Title 10, Chapters 20 (Professional Corporations)

RULES OF THE ARIZONA SUPREME COURT

The practice of law in the State of Arizona as a professional corporation is controlled statutorily by (references to ARIZONA REVISED STATUTES) Title 10, Chapters 1-17 (General Corporation Law) and Title 10, Chapters 20 (Professional Corporations). Additionally, a professional corporation organized to engage in the practice of law is governed by the various rules of the Arizona Supreme Court, particularly Rules 33-37 and Rule 42 (Rules of Professional Responsibility).

Title 10, Chapters 20 (Professional Corporations)
and selected sections from
Title 10, Chapters 1-17 (General Corporation Law)

Chapters 1 through 17 of Title 10 apply to professional corporations to the extent they are not inconsistent with the express provisions of to Title 10, Chapters 20.

Corporate Purpose

Subject to any limitations or requirements contained in its articles of incorporation or in any other applicable law, a corporation may have the purpose of engaging in and may engage in any lawful business activity.

Selected Definitions

A “disqualified person” is an individual or entity that is not or ceases to be a qualified person.

A “license” or “licensed” is any license, authorization, certificate, registration, certificate of registration, membership or other evidence of the satisfaction of the requirements of this state for the practice of a professional service.

The “licensing authority” is the officer, board, agency, court or other authority in this state empowered by law to license or otherwise authorize the rendition of a professional service.

A “professional corporation” or “domestic professional corporation” is a corporation for profit that is not a foreign professional corporation and that is incorporated under or subject to Title 10, Chapter 20.

A “professional service” is a service that may be lawfully rendered only by a person licensed or otherwise authorized by a licensing authority in Arizona to render the service.

A “qualified person” is a person that is eligible under Title 10, Chapters 20 to be issued shares by a professional corporation.

“Voting shares” are shares entitled to vote for election of directors of the professional corporation.

Incorporation

One or more persons may incorporate a professional corporation by delivering to the commission for filing a certificate of disclosure that contains the information set forth in § 10-202, subsection D and is subject to the requirements of § 10-202, subsection F and articles of incorporation that state, with respect to the character of its business:

1. It is a professional corporation.

2. Its purpose is to render the specified professional services.

Corporate Powers

A professional corporation has the powers enumerated in § 10-302.

A professional corporation may be a general partner of a partnership, a trustee of a trust, a co-venturer of a joint venture or a manager of a limited liability company or any other entity, only if the partnership, trust, joint venture, limited liability company or other entity is engaged solely in rendering professional services or in carrying on business authorized by the professional corporation’s articles of incorporation.

Professional Services

A professional corporation may render professional services in Arizona only through individuals licensed in Arizona to render the services. This limitation does not:

1. Require an individual employed by a professional corporation to be licensed to perform services for the corporation if a license is not otherwise required or prohibit the professional corporation from employing that individual.

2. Prohibit a licensed individual from rendering professional services in an individual capacity although the licensed individual is a shareholder, director, officer, employee or agent of a professional corporation or any other person or from being a shareholder, director, officer, employee or agent of more than one domestic or foreign professional corporation or other person.

3. Prohibit an individual licensed in another state from rendering professional services for a domestic or foreign professional corporation in Arizona if not prohibited by the licensing authority.

The Arizona Professional Corporation statutes do not alter the right of persons licensed to engage in the rendering of a professional service from rendering a professional service, and those persons may render a professional service, in any other business form or entity, including a corporation incorporated under a general law of Arizona, unless the use of the form or entity is expressly prohibited by the licensing law of Arizona applicable to the profession or by the licensing authority with jurisdiction over the profession.

Corporate Activities

A professional corporation may not render any professional service or engage in any business other than the professional service, including services ancillary to the professional service, and the business authorized by its articles of incorporation, except to the extent that the other service or business is incidental to or an inconsequential portion of the authorized service or business of that corporation.

A professional corporation may invest its monies in or otherwise own real estate, mortgages, stocks, bonds, partnership interests, limited liability company memberships, securities or any other type of investment or property.

Corporate Name

The name of a professional corporation authorized to transact business in Arizona, in addition to satisfying the requirements of §§10-401 and 10-1506, shall:

1. Contain the words “professional corporation”, “professional association”, “service corporation”, “limited” or “chartered” or the abbreviation “P.C.”, “P.A.”, “S.C.”, “Ltd.” or “Chtd.”

2. Not contain language stating or implying that it is incorporated for a purpose other than that authorized by § 10-2211 and its articles of incorporation.

3. Conform with any rule adopted by the licensing authority having jurisdiction over a professional service described in the corporation’s articles of incorporation.

§§ 10-401 and 10-1506 do not prevent the use of a name otherwise prohibited by those sections if it is the personal name of a shareholder or former shareholder of the professional corporation or the name of an individual who was associated with a predecessor of the corporation.

Issuance of Shares

A professional corporation may issue voting shares, fractional voting shares and rights or options to purchase voting shares only to:

1. Individuals who are licensed by law in this or another state to render a professional service described in the corporation’s articles of incorporation.

2. General partnerships, registered limited liability partnerships and other partnerships and joint ventures, domestic or foreign, in which all of the partners are qualified persons with respect to the professional corporation and in which at least one partner is authorized by law in Arizona to render a professional service described in the corporation’s articles of incorporation.

3. Professional corporations, professional limited liability companies and other persons, domestic or foreign, authorized by law in Arizona to render a professional service described in the corporation’s articles of incorporation.

4. Other persons, if after the issuance of voting shares the other persons in the aggregate do not hold more than forty-nine per cent of the voting shares, unless a greater or lesser percentage is prescribed by the licensing authority.

5. An employee stock ownership plan as defined in § 4975(e)(7) of the Internal Revenue Code of 1986, as amended, if both of the following apply:

(a) All of the voting trustees of the plan are professionals who are licensed to provide at least one category of the professional services described in the corporation’s articles of incorporation.

(b) The ownership interests are not directly issued to persons other than the employee stock ownership plan trust or professionals who are licensed to provide at least one category of the professional services described in the corporation’s articles of incorporation.

The above restriction on issuance of shares does not apply to:

1. Any community interest of an unlicensed spouse in the voting shares issued to a licensed spouse in which the unlicensed spouse with a community interest in the voting shares does not have the right to vote the shares.

2. Issuance of voting shares to a trust established for the benefit of the licensed individual or members of the licensed individual’s immediate family in which the licensed individual has the right to vote the shares and the trust and the members of the licensed individual’s immediate family do not have the right to vote the shares.

An issuance of shares made in violation of the statutory restrictions is void.

No statement or notice of any restrictions on the transfer of shares of a professional corporation is required to appear on any share certificate issued by a professional corporation or to otherwise be provided to the shareholders of a professional corporation.

Voting shares, fractional voting shares and rights or options to purchase voting shares of a professional corporation that are legally held may be transferred or pledged, whether voluntarily, involuntarily, by operation of law or by court judgment or otherwise, only to qualified persons.

A transfer or pledge made in violation of the statutory restrictions is void.

Acquisition of Shares After the Death, Dissolution or Disqualification of Shareholder

A professional corporation must acquire the voting shares of a shareholder within the applicable time period if any of the following occurs:

1. The shareholder dies or dissolves and any person to whom the shares are to devolve is not a person to whom § 10-2222 permits the shares to be transferred.

2. The shareholder becomes a disqualified person.

The purchase price or the shares of any such shareholder shall be:

1. If a price for the shares is fixed in accordance with the articles of incorporation or bylaws or by private agreement, that price controls.

2. If a price is not fixed, in accordance with the articles of incorporation or bylaws or by private agreement, the corporation must offer to acquire the shares in accordance with § 10-2224, and if the disqualified shareholder rejects the corporation’s purchase offer, either the shareholder or the corporation may commence a proceeding under § 10-2225 to determine the fair value of the shares.

If the disqualification of the shareholder or the transferee lasts no more than five months from the date the disqualification or transfer occurs, acquisition is not required.

A provision for the acquisition of shares contained in a professional corporation’s articles of incorporation or bylaws or in a private agreement is specifically enforceable.

Acquisition Procedure

If shares must be acquired under those circumstances set out above and the price is not fixed, in the professional corporation must deliver (within the applicable time period specified in § 10-2227) a written notice to the disqualified shareholder, offering to purchase the shares at a price the corporation believes represents their fair value as of the date of death, dissolution, disqualification or transfer. The offer notice must be accompanied by the corporation’s balance sheet for a fiscal year ending not more than sixteen months before the effective date of the offer notice, an income statement for that year, a statement of changes in shareholders’ equity for that year and the latest available interim financial statements, if any.

A disqualified shareholder has thirty days after the effective date of the offer notice to accept the corporation’s offer or demand that the corporation commence a proceeding under § 10-2225 to determine the fair value of the disqualified shareholder’s shares. If the disqualified shareholder accepts the offer, the corporation must make payment for the shares within sixty days after the effective date of the offer notice, unless a later date is agreed on, on the disqualified shareholder’s surrender of the disqualified shareholder’s shares to the corporation.

Directors and Officers

At least one-half of the directors of a professional corporation and its president, if any, shall be licensed in Arizona to render the professional service described in the corporation’s articles of incorporation.

Voting

Only a qualified person may be appointed a proxy to vote any voting shares of a professional corporation.

A voting trust with respect to voting shares of a professional corporation is not valid unless all of its trustees and beneficiaries are qualified persons. If a trustee or beneficiary who is a qualified person dies or dissolves and the person to whom the trusteeship or beneficial interest is to devolve is not a person to whom shares may be conveyed or the shares held by the trust to be transferred or a trustee or beneficiary becomes disqualified, a valid voting trust continues to be valid for ten months after the date of death or for five months after the disqualification occurred.

Professional Relationships

The law applicable to the relationship between persons furnishing and receiving professional services is not altered by the fact that those services are rendered by a professional corporation.

Privileged Communications

The law applicable to any privileged communications between an individual rendering professional services and the person receiving the services recognized under any applicable law is not altered by the fact that those services are rendered by a professional corporation. The privilege applies to a domestic or foreign professional corporation and to its employees in all situations in which it applies to communications between an individual rendering professional services on behalf of the corporation and the person receiving the services.

Responsibility for Professional Services

A shareholder of a professional corporation is personally and fully liable and accountable for any negligent or wrongful act or misconduct committed by the shareholder or by any person under the shareholder’s direct supervision and control while rendering professional services on behalf of the professional corporation to the person for whom the professional services are rendered. The liability of a shareholder of the professional corporation is several only, and a shareholder is not vicariously responsible for the liability of another shareholder.

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