Vol. 3, No. 4, Pg. 41. Should South Carolina Professionals Incorporate Their Practices?.

• Author: By David W. Ball

South Carolina Lawyer

1992.

Vol. 3, No. 4, Pg. 41.

Should South Carolina Professionals Incorporate Their Practices?

41Should South Carolina Professionals Incorporate Their Practices?By David W. Ball

Until the early 1980s, there were significant tax advantages for professionals to incorporate their professional practices and a great many did so. Since that time many tax benefits have been equalized between corporations, proprietorships and other forms of business entities. In addition, South Carolina adopted a comprehensive revision to its corporate laws that substantially modified the rules for incorporating professional practices. Lawyers representing professionals must reconsider previously well established propositions in light of the corporate and tax law changes.

Corporate Law Considerations

Before the South Carolina Business Corporation Act of 1988 (the "Act"), professional associations ("P.A.s") were formed by filing articles of association with the office of the county clerk of court where the P.A.'s principal office was located. Corporations, on the other hand, filed articles of incorporation with the Secretary of State. The Act requires all new P.A.s to file articles with the Secretary of State and pay the same filing fee as for regular corporations.

Further, the Act requires that all existing P.A.s requalify under the Act by amending and restating their existing articles and filing the amended and restated articles together with certified copies of their original articles and all amendments thereto with the Secretary of State. The deadline for requalification was December 31, 1990. All P.A.s that did not requalify by December 31, 1990 are, by the terms of the Act, no longer permitted to engage in the professional practice. While the Act does not provide for any express sanctions or enforcement mechanism to ensure compliance with this requirement, several potential problems, such as loss of corporate status for tax and liability purposes, are apparent. P.A.s that have not requalified under the Act should do so immediately, if they wish to retain corporate status. The Secretary of State has indicated informally that it will continue to file amended and restated articles.

The Act makes it clear that P.A.s are now generally treated as South Carolina corporations. The Act states that they are so treated except as otherwise provided in the Professional Corporation Supplement (the "Supplement") to the Act. The Supplement provides a number of special rules applicable...