Can a revocable trust own shares in a professional corporation?
An interesting question recently arose for a client who happens to be a lawyer. The client wanted to form a professional law corporation and, for estate planning purposes, wanted his revocable trust to be the sole shareholder of the law corporation. The problem was that the applicable statute, Section 13406(a) of the California Professional Corporation Act, states that only an individual who is a licensed professional (a licensed attorney in our case) can hold shares in a professional corporation. Similarly, the California State Bar states that a law corporation's application for registration must show that each shareholder of the law corporation is a licensed attorney.
Other authorities indicate that the revocable trust of a licensed attorney can hold shares in the attorney's law corporation and even discuss special "control" provisions that need to be included in the trust instrument if the trust, rather than the attorney, is in fact the shareholder.
Inquiries made to the California State Bar were inconclusive, although there was some evidence that an individual shareholder can transfer shares of a law corporation to his or her revocable trust if control of the corporation is held by the attorney.
The issue of whether an attorney's revocable trust can own shares in a law corporation is not limited to lawyers and law corporations but can also arise in the context of forming any professional corporation in California.
In conclusion, there appear to be two options available to a licensed professional who wants his or her revocable trust to own shares in a professional corporation. One can avoid the problem entirely (or at least initially) by simply forming the entity with the licensed individual as the shareholder (and then later notifying the California State Bar of an intent to transfer the shares to the trust). Or, one can make the trust the shareholder (at the outset) and submit the registration documents to the California State Bar in the hopes that the application is accepted . If it is accepted, then it would appear that a revocable trust, rather than just a licensed individual, can in fact be the shareholder of a professional corporation , notwithstanding the apparent contrary authority discussed in the first paragraph.
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