January 14, 1994
It is permissible for a lawyer to form a professional limited liability company. The name of the company must contain the words "Professional Limited Liability Company" or the abbreviation "P.L.L.C." or "P.L.C."
A lawyer's selection of a limited liability company does not affect the liability of a lawyer rendering services to a client, a lawyer charged with supervisory responsibilities in reference to the rendition of services, or the firm.
References: MRPC 1.8(h), 7.1, 7.4; MCL 450.4101 et seq; MCL 450.4901(1); MCL 450.905(2) and (3).
The issue under discussion is whether MRPC 1.8(h) prevents lawyers from using a limited liability company structure for their law firms and secondly, if not, what disclosures or explanations must be made to clients.
MRPC 1.8(h) states:
"A lawyer shall not:
"(1) make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement; or
"(2) settle a claim for such liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith."
The Michigan Limited Liability Company Act, MCL 450.4101; MSA 21.198(4101), specifically allows for the formation of professional limited liability companies including those formed for rendition of legal services. Therefore, in addition to professional corporations under MCL 450.221 et seq, partnerships and proprietorships, a group of lawyers forming a law firm in this state may also consider the limited liability company structure. MCL 450.4901(1) states:
"A limited liability company may be formed under this Act for the purpose of rendering 1 or more professional services, as defined in Section 4902."
"Professional service" as defined in the Act includes attorney-at-law. MCL 450.905(2) and (3) state:
"(2) This act shall not be construed to abolish, repeal, modify, restrict, or limit the law now in effect applicable to the professional relationship and liabilities between the person furnishing the professional services and the person receiving such professional services and to the standards for professional conduct. A member, manager, employee, or agent of a professional limited liability company shall remain personally and fully liable and accountable for any negligent or wrongful acts or misconduct committed by him or her, or by any person under his or her direct supervision and control, while rendering professional services on behalf of the company to the person for whom the professional services were being rendered.
"(3) The limited liability company shall be liable up to the full value of its property for any negligent or wrongful acts or misconduct committed by any of its members, managers, employees or agents while they are engaged on behalf of the company in the rendering of professional services."
The statutory language of the Limited Liability Company Act Section 4905(2) and (3) closely parallels that of the Professional Services Corporation Act at MCL 450.226; MSA 21.315(6). Both acts make it clear that existing law regulating the professional relationship between the person furnishing the professional service and the person receiving the service continue to be governed by "standards of professional conduct." Explicitly, therefore, the Michigan Rules of Professional Conduct promulgated by the Supreme Court, specifically MRPC 1.8(h), still apply in the professional corporation or limited liability company structure.
A lawyer's selection of a limited liability company will not affect the liability of a lawyer rendering services to a client, a lawyer charged with supervisory responsibilities in reference to the rendition of services, or the firm. That selection will, however, eliminate vicarious liability of partners in certain circumstances.
Since ethics rules do not currently require disclosures or explanations to be made to a client regarding the business aspects of a professional corporation other than the fact that the professional corporation exists, lawyers belonging to a professional limited liability company do not have any ethical obligations to disclose the details of their business arrangement other than those legally required, i.e., that the name of the limited liability company shall contain the words "Professional Limited Liability Company" or the abbreviation "P.L.L.C." or "P.L.C." See MRPC 7.1 and 7.4.