What kind of business can be an LLC?

Dear Alex:

I am an acupuncturist and I own a small acupuncture clinic. I would like to protect myself from the liability of my business. I want to form an LLC or a corporation, but I was told that acupuncturists and other licensed professions can’t operate as LLCs. Is that true?

Strangely, it is true that acupuncturists cannot operate as LLCs. In fact, acupuncturists are among dozens of business types that cannot operate as LLCs, among them real estate brokers, and barbers.

Meanwhile, contractors, private investigators and alcoholic beverage licensees may all operate as LLCs. These lists may seem arbitrary, and in many ways they are. The legal history of LLCs has led to a very unusual distribution of which business types may or may not operate as LLCs under California law today.

California’s LLC laws prohibit any business rendering “professional services” from operating as an LLC; however, the specific scope of what is included within “professional services,” is often unclear.

In general, any business that requires extensive education, training, testing, and a license, certification and registration under the Business and Professions Code renders “professional services” as the term applies to LLCs.

There are many businesses in California that require licensure under the Business and Professions Code, but which may not also require the education, training and testing which might classify that business as a “professional service.”

There is no comprehensive list that itemizes which trained and licensed businesses are “professional services” providers and which are not. While both contractors and acupuncturists require training, testing and licensing, contractors may now operate via LLCs, while acupuncturists may not.

The 2014 Revised Uniform Limited Liability Company Act was drafted in an attempt to add more clarity and flexibility to these rules.

The traditional professions such as lawyers, accountants and doctors remain excluded from operation under LLCs, but the revised law now states that if the specific code that regulates your industry (the Business and Professions Code, Chiropractic Act, Osteopathic Act, or Yacht & Shipbuilders Act) expressly permits your business to operate as an LLC, then as far as the Limited Liability Company Act is concerned, you may operate as an LLC.

This has resulted in a mishmash of licensed activities that are permitted or prohibited from operating as LLCs. While the more easily identifiable professions remain excluded, many educated and licensed activities governed by the Business and Professions Code (and the other laws described above) are regulated in a piecemeal fashion, depending upon whether your industry’s law has specifically granted permission to operate as an LLC.

If your business is not permitted to operate as an LLC, but you want the limited liability protection of a corporate entity, there are other entity choices. Those may include Professional Corporations, Limited Liability Partnerships or ordinary S-Corporations.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on March 15th, 2016. You can read it on the Register's website here: "What kind of business can be an LLC?"