Tax Law Blog

Ownership Requirements Changed for Professional Limited Liability Companies and Professional Corporations Engaged in the Practice of Public Accounting

On October 15, 2013, the Michigan Limited Liability Company Act (LLC Act) and the Business Corporation Act (Corporation Act) (collectively the Acts) were both amended to permit non-licensed individuals to be owners of Professional Limited Liability Companies (PLLCs) and Professional Corporations (PCs) that provide public accounting services.

The Acts generally require that owners of PLLCs and PCs be a licensed professional of the service provided by the company. The amendments create an exception and allow non-licensed individuals to be owners of public accounting PLLCs and PCs as long as at least 50% of the equity and voting rights are held directly or beneficially by individuals who are Certified Public Accountants (CPAs). Public accounting is now the only profession under each of the Acts allowed to admit non-licensed individuals as owners.

The Occupational Code (Code), which sets forth the public accounting licensure requirements for Michigan individuals and firms, further requires that officers and directors of public accounting firms, responsible for the practice of public accounting by the firm, be CPAs, and that the non-licensed owners be active participants in the firm or its affiliated entities.

Despite the newly enacted amendments to the Acts, non-licensed individuals have been allowed as owners of public accounting firms under the Code since it was revised in 2000. The Code provides that a Michigan public accounting firm qualifies for licensure when a simple majority of the owners holding voting and equity rights in the firm are CPAs.

Since the amendments have taken effect, the ownership requirements by CPAs of public accounting firms are now the same under the each of the Acts and the Code. The amendments further provide protection for public accounting PLLCs and PCs that followed the Code and admitted non-licensed individuals as owners.

Going forward, existing public accounting PLLCs and PCs will have more flexibility in their ownership structure. In addition, those forming new public accounting firms may once again consider structuring their business as a PLLC or a PC, where the previous ownership limitations may have been a deterrent.

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