STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5676

April 8, 1980

BUSINESS CORPORATION ACT:

Incorporation to perform professional services

PROFESSIONAL SERVICE CORPORATION ACT:

Relationship to Business Corporation Act

OSTEOPATHS:

Incorporation under Business Corporation Act to provide Osteopathic services

A corporation organized for the purpose of providing osteopathic services may not be formed under the Business Corporation Act.

Board of Osteopathic Medicine & Surgery

P.O. Box 30018

Lansing, Michigan 48909

You have requested my opinion as to whether a corporation for profit may be formed under the Business Corporation Act, 1972 PA 284, as amended; MCLA 450.1101 et seq; MSA 21.200(101) et seq, hereafter Business Corporation Act, for the purpose of providing osteopathic services where a lay person will hold 25 percent and an osteopathic physician 75 percent of its common stock. ⁽¹⁾

Section 251 of the Business Corporation Act, supra, expresses the purposes for which a corporation may be formed under that act, stating in part:

The Professional Service Corporations Act, 1962 PA 192, as amended; MCLA 450.221 et seq; MSA 21.315(1) et seq, hereafter Professional Service Corporations Act, is an act authorizing the creation of professional service corporations to provide osteopathic services. Section 2(a) of the Professional Service Corporations Act, supra, defines professional service as:

Section 4 of the Professional Service Corporations Act, supra, states:

The language of section 4 of the Professional Service Corporations Act, supra, quoted above, at first glance might give the appearance of authorizing an election between formation under the Professional Service Corporations Act, supra, or the Business Corporation Act, supra. However, closer scrutiny does not support this conclusion. Section 2(b) of the Professional Service Corporations Act, supra, defines a professional corporation as:

The use of the term 'professional corporation' and the word 'and' rather than 'or' indicates that such an election was not contemplated and that incorporation under the Professional Service Corporations Act, supra, was intended. Therefore, the legislature intended that a professional corporation must be organized under the Professional Service Corporations Act, supra, and in addition may be organized under the Business Corporation Act, supra, but not solely under the Business Corporation Act, supra.

The practice of osteopathic medicine is a 'learned profession.' Traditionally, learned professions have not been permitted to practice as corporate entities by virtue of what is sometimes referred to as the 'learned profession doctrine.' A four-point rationale has been generally advanced as the basis for this doctrine:

It was an analysis of this doctrine, together with a survey of the doctrine's application in sister states, which led to the conclusion in II OAG, 1955-1956, No 2451, p 124 (March 7, 1956), that neither the practice of medicine nor the furnishing of osteopathic medical services was a lawful corporate purpose permitting formation of a corporation pursuant to business corporation statutes then in effect. The opinion held that it is not a lawful purpose of a corporation to contract with other persons to provide medical care through the officers, agents or employees of the corporation. See also United States v American Medical Association, 72 US App DC 12; 110 F2d 703 (1940); cert den, 310 US 644; 60 S Ct 1096; 84 L Ed 1411 (1940); People by Kerner v United Medical Services, 362 Ill 442; 200 NE 157 (1936); 61 Am Jur 2d, Physicians, Surgeons and Other Healers, Sec. 15, 135. ⁽²⁾ , ⁽³⁾

Since that opinion, the legislature has enacted the Professional Service Corporations Act, supra. The provisions of this Act address each of the four points of the rationale which underlies the learned profession doctrine prohibiting use of the corporate form by such professions.

Sections 8 and 9 of the Professional Service Corporations Act, supra, require that all shareholders be individuals who are duly licensed or otherwise authorized to render the professional service or services for which the corporation was formed. Further, the execution of the corporate purpose is restricted to persons within the corporation duly licensed or otherwise legally authorized to render such professional services, thus ensuring against practice of the profession by lay persons in compliance with the licensing requirements for the profession.

Section 6 of the Professional Service Corporations Act, supra, preserves the traditional professional relationship and liabilities between the person providing the professional services and the person receiving such services, as well as the standards of professional conduct. Not only the corporation but the person rendering a professional service is specifically held personally liable for negligent or wrongful acts or misconduct. This is a radical departure from the limited liability characteristic of the corporate form.

In light of these prohibitions and mandates of the Professional Service Corporations Act, supra, it is clear that the legislature could not have intended, by the language of section 4 of the Professional Service Corporations Act, supra, to create an exception which would permit individuals to elect to form a corporation under the Business Corporation Act, supra, thereby avoiding these prohibitions and mandates. Such a construction would violate the legislative intent of permitting use of the corporate form by professionals to obtain federal income tax benefits without the loss of the traditional obligations and responsibilities owed by professionals to their patients or clients. If such an election were possible, individuals would invariably choose to incorporate under the Business Corporation Act, supra, thereby limiting the liability of the shareholders, and the Professional Service Corporations Act, supra, would thereby be rendered nugatory. Obviously this was not the intent of the legislature.

This requirement that a professional corporation incorporate under the Professional Service Corporations Act, supra, may be fulfilled either by incorporations solely under the Professional Service Corporations Act, supra, or incorporating under both the Professional Service Corporations Act, supra, and the Business Corporation Act, supra. In the latter case, the reference to the Business Corporation Act, supra, is solely for the purpose of referencing those provisions of the Business Corporation Act, supra, which are not in conflict with provisions of the Professional Service Corporations Act, supra.

Under either of these choices only members of the profession may be shareholders of the corporation. ⁽⁴⁾ This is made clear by sections 8, 9 and 13 of the Professional Service Corporations Act, supra. Sections 8 and 9 require that only a person duly licensed to practice a profession can own shares in a professional corporation organized under the Professional Service Corporations Act, supra. Section 13 of the Professional Service Corporations Act, supra, provides in pertinent part:

It is therefore my opinion that a corporation organized for the purpose of providing osteopathic services may not be formed solely under the Business Corporation Act.

Frank J. Kelley