Alabama LLC for Attorneys Law

Limited Liability Company – General – Alabama

In Alabama a limited liability company (LLC) may be organized for any lawful purpose or purposes and is subject to the provisions of the Alabama Limited Liability Company Act (Act).

A LLC which is organized for the purpose of rendering professional services is subject to the Act and is particularly subject to its special provisions regarding companies performing professional services. Those special provisions include reference to additional controlling provisions of the Alabama Code that are applicable to professional corporations.

Additionally, a limited liability company organized to engage in the practice of law is governed by the various rules and regulations of the Alabama Supreme Court, the Alabama State Bar, and the Board of Commissioners of the State Bar.

The Alabama Limited Liability Company Act contains the following restrictions and provisions applicable to a LLC organized to engage in the practice of law:

1. A LLC member is liable for any negligent or wrongful act or omission in which the individual personally participates to the same extent of liability the individual would have incurred if he/she had been a sole practitioner. However, that liability is no greater than that of a “shareholder, employee, director, or officer of a corporation organized under the Alabama Business Corporation Act.”

2. Nothing in the Act in any way restricts in any manner the rules and regulations of the Alabama Supreme Court, the Alabama State Bar, and the Board of Commissioners of the State Bar.

3. A LLC rendering the professional services of lawyers can render ONLY that service and MAY NOT engage in another other business not ancillary to the rendition of those services.

4. A member’s interest in the LLC may be transferred ONLY to a person who is duly licensed as a lawyer in the State of Alabama.

5. If an LLC interest is transferred by gift or inheritance to an individual who is not a licensed lawyer, or if a member’s license to practice law is suspended, then the person or member is not treated as owning an interest in the LLC. The person or member is entitled to receive only fair market value for the membership interest.

The Alabama Professional Corporation Act contains the following additional restrictions and provisions which are applicable to a LLC organized to engage in the practice of law (NOTE: A “qualified” person is an individual licensed to engage in the practice of law in the State of Alabama):

1. After the death or disqualification of a member or the transfer of a member’s interest by operation of law or court order to a disqualified person, the LLC MUST offer to purchase the member’s interest.

2. If the price for the member’s interest is not fixed by the articles of organization or by private agreement, the LLC MUST, within six months after such death or 30 days after the disqualification or transfer, make a WRITTEN offer to pay for that member’s interest at a specified price. The price offered is determined by the LLC to be the fair value of that interest as of the date of death, disqualification, or transfer.

3. The offer is given to the executor or administrator of the estate of a deceased shareholder or to the disqualified shareholder or to the transferee.

4. A balance sheet of the LLC, as of not more than 12 months prior to the making of the offer, and a profit and loss statement of the LLC for the 12 months’ period ended on the date of the balance sheet MUST accompany the offer.

5. If the LLC and the offeree agree, within 30 days after the date of the offer, to a fair value of the member’s interest, then payment therefor shall be made within 90 days (or such other period as the parties may fix by agreement) after the date of such offer.

6. If the LLC and the offeree agree, within 30 days after the date of the offer, to a fair value of the member’s interest, then either party may commence a civil action in the circuit court in the county in Alabama where the registered office of the LLC is located. The civil action shall request that the fair value of such shares be found and determined.

7. If a member is disqualified for a period of less than 12 months, the LLC is not required to make an offer to purchase the interest of the disqualified member.

8. A LLC’s operating agreement regarding the purchase of a member’s interest after the death or disqualification of a member or the transfer of a member’s interest by operation of law or court order to a disqualified person may be different than the statutory provision for redemption of a member’s interest. In this event, the operating agreement will supersede the statutory provisions.

9. Individual professional relationships are not altered by membership in the LLC, including the privilege applicable to communications.

10. A voting trust with respect to a membership interest in a LLC whose purpose is to engage in the practice of law is not be valid unless all the trustees and beneficiaries are licensed to practice law. However, a voting trust may be validly continued for a period of 12 months after the death of a deceased beneficiary or after a beneficiary has become a disqualified person.

ยง 10-4-393 of the ALABAMA CODE provides that, for a professional corporation, at least one director and the President must be licensed in the applicable profession. There is not a readily discernible parallel to apply to members and officers of a LLC. It appears that the most prudent course of action would be to require, as the enclosed form package does, that all officers be members of the LLC and, thereby, licensed to practice law in the State of Alabama.

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Inside Alabama LLC for Attorneys Law