OFFICE OF THE ATTORNEY GENERAL

. STATE OF TEXAS JOHN CORNYN

August 5,2002

The Honorable Ken Armbrister Chair, Criminal Justice Committee Texas State Senate P.O. Box 12068 Austin, Texas 7871 l-2068 Opinion No. JC-0536

Re: Whether apublic accounting firm with owners who are not certified public accountants may incorporate under the Texas Business Corporation Act or the general provisions of the Texas Limited Liability Company Act (RQ-050%JC)

Dear Senator Armbrister:
You ask whether a public accounting firm with owners who are not certified public accountants may incorporate under the Texas Business Corporation Act or the general provisions of the Texas Limited Liability Company Act.’ We conclude in the affirmative.
The Public Accountancy Act, chapter 901 of the Occupations Code, regulates the practice ofpublic accountancy. See TEX. OCC. CODEANN.89 901.OOl-.605 (Vernon 2002). Itprovides for the licensing ofindividuals and firms in the practice ofpublic accountancy. An individual may not practice public accountancy or use the title “certified public accountant,” the abbreviation “CPA,”
oranother designation indicating that the person isacertified public accountant unless the individual holds acertificate issued under chapter 901. See id. $9901.25 1, .45l(a). Similarly, afirm may not provide “attest services “2oruse the title “CPAs,” “CPA Firm,” “Certified Public Accounting Firm,” “Auditing Firm,” or avariation of those designations unless the firm holds a license issued under chapter 901. See id. $9 901.351, .451(b). Chapter 901 ofthe Occupations Code now permits an accounting firm eligible for alicense to have owners who are not certified public accountants (“CPAs”). Prior to 2001, a fin-n was ineligible to be licensed unless its owners and resident managers in the state were certified public accountants. See Act ofMay 13, 1999,76th Leg., R.S., ch. 388, 5 1, 1999 Tex. Gen. Laws 1431, 2141. In 2001, the legislature adopted Senate Bill 1358, which eased the restrictions on the public

‘See Letter from Honorable Ken Armbrister, Chair, Criminal Justice Committee, State Senate, to Honorable John Comyn, Texas Attorney General (Feb. 6,2002) (on file with Opinion Committee) [hereinafter Request Letter].

“‘Attest service” means an audit, engagement, or other assurance service required to be performed in accordance with professional standards adopted by the American Institute of Certified Public Accountants or another national accountancy organization recognized by the Texas State Board of Public Accountancy. See TEX.OCC.CODE ANN. $901.002(a)( 1) (Vernon 2002).The Honorable Ken Armbrister - Page 2 (JC-0536) <

accounting practice by allowing the licensing of accounting firms with less than 100% ownership by CPAs and the provision of additional services by these firms, such as financial advising or consulting or recommending the sale of aproduct. See Act ofMay 18,2001, 77th Leg., R.S., ch. 1497, 85 5, 23, 2001 Tex. Gen. Laws 5302, 5305, 5310-13. As amended by Senate Bill 1358, section 901.354 ofthe Occupations Code requires afirm seeking alicense to “show that amajority ofthe ownership ofthe firm, interms offinancial interest and voting rights, belongs to persons who hold certificates issued under this chapter orarelicensed in another state.” See TEX.Oct. CODEANN. 5901.354 (Vernon 2002). Additionally, as amended in 2001, section 901.005 defines the practice of accountancy to include “a broad range of financial, advisory, and attest services,” such as “providing management or financial advisory or consulting services,” “recommending the sale of
aproduct ifthe recommendation requires or implies accounting or auditing skill,” and “providing litigation support services.” Id. 8901.005(a)(4)-(6).

Your request isprompted by the 2001 amendments to chapter 901 ofthe Occupations Code allowing accounting firms to have less than 100% CPA ownership and to provide additional financial and accounting services. The Secretary of State’s office, you inform us, “has stated that itwill not accept articles of incorporation submitted by accounting firms wishing to incorporate or form a limited liability company under any Texas Statute, if the accounting firm has non-CPA
owners as permitted by Senate Bill 1358.” Request Letter, supra note 1, at 2. You ask for an opinion from this office “clarifying that duly licensed Texas accounting firms with less than 100% CPA ownership may be formed under the Texas Business Corporation Act and the Texas Limited Liability Company Act as intended under the [Texas Public Accountancy Act].” Id. at 6.

To provide alegal context for your question, we review the relevant restrictions contained in the Texas Business Corporation Act, the Texas Professional Corporation Act, and the Texas Limited Liability Company Act. We begin with the Texas Business Corporation Act (the “TBCA”), TEX.Bus. CORP.ACTANN.arts. 1.01-13.08 (Vernon 1980 & Supp. 2002). A corporation may not incorporate under the TBCA ifit engages in any activity that requires a license from the state and ifacorporation may not hold such alicense. See id. art. 2.01B(2) (Vernon Supp. 2002); Tex. Att’y Gen. Op. No. MW-99 (1979) at 1. Article 2.01B ofthe Texas Business Corporation Act provides that acorporation may not organize under the Act if: [A]ny one or more of its purposes for the transaction of business in this State is to engage in any activity which cannot lawfully be engaged in without first obtaining a license under the authority ofthe laws ofthis State to engage in such activity and such
alicense cannot lawfully be granted to acorporation.

TEX.BUS. CORP.ACTANN.art. 2.01B(2) (Vernon Supp. 2002). See Tex. Att’y Gen. Op. No. MW-99 (1979) at 1 (“The learned professions could not, as a general matter, incorporate under the [TBCA].“). “Corporation,” for the purposes ofthe TBCA, is“acorporation forprofit subject to the provisions of this Act, except a foreign corporation.” TEX. Bus. CORP.ACT ANN. art. l.O2A(l) (Vernon 1980).The Honorable Ken Armbrister - Page 3 (JC-0536)

A corporation excluded by article 2.01B(2) from incorporating under the TBCA may organize under the Texas Professional Corporation Act (the “TPCA”), TEX. REV. CIV. STAT.ANN. art. 1528e (Vernon 1997 & Supp. 2002). The TPCA authorizes the formation of a professional corporation to perform a specific type of “professional service and services ancillary thereto.” See id. 0 6 (Vernon 1997); see also id. 4 3(b) (defining “professional corporation” as a corporation formed to provide one specific service); 5 4(a) (Vernon Supp. 2002) (providing that, with the exception of health professionals, professional corporation may only provide one type of professional service). Aprofessional corporation may only include individual shareholders who are licensed to render the same professional service as the corporation. See id. $5 3(b), 6 (Vernon 1997). “Professional service,” for the purposes ofthe TPCA, is:

Any type ofpersonal service which requires asacondition precedent to rendering of such service, the obtaining of a license, permit, certificate

. . . and which prior to thepassage of this Act and by
reason oflaw, could not beperformed byacorporation, including by way of example and not in limitation

. . . the personal services rendered by architects, attorneys-at-law, certifiedpublic accountants, dentists, public accountants

.... Id. 63(a) (emphasis added). Thus, the TPCA applies to corporations that perform personal services which could not be legally performed by a corporation prior to the passage of the statute, i.e., January 1, 1970. See id.; Act ofMay 28, 1969,61 stLeg., R.S., ch. 779, 5 1, 1969 Tex. Gen. Laws 2304; see also Tex. Att’y Gen. Op. No. M-55 1(1970) at5(date ofpassage means date law becomes operative).
Such acorporation may also organize under the Texas Limited Liability Company Act (the “TLLCA”), TEX. REV. CIV. STAT.ANN.art. 1528n (Vernon 1997 & Supp. 2002). Under its general provisions, TLLCA authorizes the formation of alimited liability company engaged in abusiness subject to regulation by another statute ifitisnot prohibited by the other statute. See id. art. 2.01B (Vernon 1997). The limited liability company remains subject to all the limitations of the other statute. See id. Part eleven of the TLLCA specifically authorizes the formation of aprofessional limited liability company. See id. art. 11.OlA (Vernon Supp. 2002). Similar to the TPCA, a professional limited liability company organized under part eleven ofthe TLLCA may, in general, only perform one specific type ofprofessional service, see id. art. 11.OlA(2), B(2) (Vernon 1997);
see also id. art. 1l.OlA(3)-(4) (Vemon Supp. 2002) (exception for named health professional services); and it may include as members only professional individuals or entities licensed or authorized to render the same service as the company, see id. art. 11.OlB(2)-(4) (Vernon Supp. 2002). Additionally, “professional services” is “any type of personal service that requires as a condition precedent to the rendering of the service the obtaining of a license

. . . including the personal service rendered by.

.. [a]certified public accountant,

...public accountant,

. . ..” Id. art. ll.OlB(l) (Vernon 1997).The Honorable Ken Armbrister - Page 4 (JC-0536)

With this background, we return to your question regarding the incorporation of apublic accounting firm with less than “100% CPA-ownership.” Prior to the 2001 amendments to chapter 901 of the Occupations Code, accounting firms with 100% CPA-ownership incorporated as a professional corporation under the TPCA or organized as aprofessional limited liability company under part eleven ofthe TLLCA. See Request Letter, supra note 1,at 1,5; see also Tex. Att’y Gen. Op. No. M-556 (1970) (indicating that public accounting firms must organize under TPCA because Public Accountancy Act of 1945 did not authorize corporations topractice public accounting). You agree that an accounting firm with non-CPA owners that “now provide amyriad ofservices” cannot incorporate under the TPCA ororganize under part eleven ofthe TLLCA. See Request Letter, supra note 1, at 2-3. Again, aprofessional corporation formed under the TPCA may only perform one specific type of “professional service” and all its shareholders must be licensed to render the same service. See TEX.REV. CIV. STAT.ANN.art. 1528e $5 3(a)-(b), 6 (Vernon 1997). Similarly, a professional limited liability company organized under part eleven ofthe TLLCA may only perform
one specific type ofprofessional service and have asmembers only professional individuals licensed
orauthorized torender the same service asthe company. See id. art. 1528n, art. 11.OlA(2), B(2)-(3) (Vernon Supp. 2002).

But you suggest that an accounting firm with non-CPA owners “should be permitted to incorporate under the [TBCA] and form limited liability companies under the general provisions of’ the TLLCA. Request Letter, supra note 1, at 3. We consider the provisions of chapter 901 of the Occupations Code and the limiting provisions of the TBCA and the TLLCA and conclude that they do not preclude such accounting firms from incorporating under the TBCA or forming under the general provisions of the TLLCA.

We conclude that chapter 901 of the Occupations Code authorizes the practice of public accountancy by acorporation incorporated under any applicable statute including the TBCA orby
alimited liability company formed under the TLLCA. Chapter 901 expressly authorizes the grant of alicense to a“firm” that meets the requirements of section 901.354. See TEX.Oct. CODEANN. 0901.354 (Vernon 2002); see also id. 8901.002(a)(5) (“‘Certified public accountancy firm’ means aperson who holds afirm license.“). A “firm” may provide attest services and use the designation “certified public accountants” or otherwise indicate that it is “acertified public accountancy firm” if it holds a license and otherwise complies with the requirements of chapter 901 and rules promulgated thereunder. See id. 8 901.45 l(b). Under chapter 901, a “firm” means “a sole proprietorship, partnership, corporation, limited liability company, orother business entity engaged in the practice of public accountancy.” Id. § 901.002(a)(8) (emphasis added). “Corporation,” in turn, is broadly defined: “a corporation authorized by a statute applicable to this state or by an equivalent law of another state or a foreign country, including a professional public accounting corporation organized under [the TPCA]

.” Id. 5 901.002(a)(7) (emphasis added). The term expressly includes acorporation incorporated under any state statute.
While the definition of “corporation” specifically references acorporation organized under the TPCA, itisnot limited to such acorporation. See TEX.GOV’TCODEANN. 8311.005( 13) (Vernon 1998) (“‘Includes’ and ‘including’ are terms of enlargement and not of limitation or exclusiveThe Honorable Ken Armbrister - Page 5 (JC-0536)

enumeration

. . . .”). In 1991, the legislature specifically broadened “corporation” to embrace corporations other than those incorporated under the TPCA. See Act of May 26, 1991, 72d Leg., R.S., ch. 533, 8 1, 1991 Tex. Gen. Laws 1817. Prior to 1991, the term was limited to acorporation organized under the TPCA: “‘Corporation’ means a professional public accounting corporation organized under The Texas Professional Corporation Act, as amended (Article 1528e, Vernon’s Texas Civil Statutes),

. . .or an equivalent law of another state, territory, or foreign country.” Act ofMay 28, 1989,71st Leg., R.S., ch. 892’5 1’1989 Tex. Gen. Laws 3901. In 1991, the legislature inserted after the TPCA cite the phrase “orother corporation authorized by applicable statutes.” See Act of May 26, 1991,72d Leg., R.S., ch. 533, 5 1, 1991 Tex. Gen. Laws 1817. Significantly, the legislature also added a definition of “firm”: “a sole proprietorship, partnership, professional or other corporation, or other business engaged in the practice of public accountancy.” See id. (emphasis added). While the 1999 codification of the public accountancy law re-worded these definitions to their current form, it did not change or, more importantly, constrict these definitions. SeeAct ofMay 13, 1999,76thLeg.,R.S., ch. 388, 8 1, 1999Tex. Gen. Laws 1431,2127. Finally, the 2001 amendments did not alter the definition of “corporation”; and it added the term “limited liability company” to the definition of “firm.” See Act ofMay 18,2001,77th Leg., R.S., ch. 1497, 8 1,200l Tex. Gen. Laws 5302.

We next consider the TBCA. The statute, by its terms, does not exclude apublic accounting firm from incorporating under itsprovisions. As discussed earlier, acorporation may not incorporate under the TBCA (1) ifit engages in any activity that requires alicense from the state and (2) if a corporation subject to the TBCA may not hold such alicense. See TEX.BUS.CORP. ACTANN.arts. l.O2A( 1l), 2.01B(2) (Vernon Supp. 2002). Chapter 901 ofthe Occupations Code, aswe determined earlier, allows acorporation organized under any applicable state statute, including the TBCA, to hold apublic accounting license and to practice public accounting.

We do not believe the fact that public accounting firms previously organized under the TPCA precludes incorporation under the TBCA. This office has said that when the TPCA was enacted, the TBCA and the TPCA were intended to be mutually exclusive: an entity could incorporate under only one ofthese statutes. See Tex. Att’y Gen. Op. Nos. MW-99 (1979) at 3; H-442 (1974) at 2;M-551 (1970) at 3,5; see also Welmaker v. Cuellar, 37 S.W.3d 550, 551 (Tex. App.-Austin 2001, pet. denied) (concluding that TPCA and Texas Professional Association Act are mutually exclusive, citing attorney general opinions). However, this office has also recognized the legislature’s power to change the mutually exclusive character ofthe two statutes, concluding that the two statutes are mutually exclusive unless the legislature has expressly authorized a specific profession to incorporate under either statute. See Tex. Att’y Gen. Op. No. MW-99 (1979) at3. We believe the legislature did so in chapter 901 ofthe Occupations Code when it allowed accounting firms to form corporations under the TPCA or any other applicable state statute in 1991. Finally, we look atthe TLLCA. By its terms, the TLLCA’s general provisions also do not exclude a public accounting firm from organizing under its provisions. The TLLCA’s general provisions permit the formation of a limited liability company engaged in abusiness subject to regulation by another statute, but only ifthe formation is not prohibited by the other statute. SeeThe Honorable Ken Armbrister - Page 6 (JC-0536)

TEX.REV.CIV.STAT.ANN.art. 1528n, art. 2.01B (Vernon 1997). Chapter 901 of the Occupations Code does not prohibit the formation of an accounting firm under the TLLCA.
While the TPCA and part eleven of the TLLCA expressly apply to the practice of public accounting, we cannot say that accounting firms eligible for alicense under chapter 901 are limited to those provisions and may not incorporate under the TBCA or organize under the general provisions of the TLLCA. We have not found, nor have we been directed to, any persuasive authority to support such a limited construction. Chapter 901, as amended in 2001, clearly contemplates the existence and operation in the state of accounting firms with members or owners who are not certified public accountants. The TPCA does not prohibit the organization of an accounting firm with non-CPA owners under the TBCA, and part eleven of the TLLCA does not prohibit the formation ofsuch an accounting firm under its general provisions as abrief received by this office appears to suggest. 3 We do not disagree that the 2001 amendment to chapter 901 permitting accounting firms to include non-CPA members or owners might present organizational issues for which no provision is made in the TBCA or the TLLCA. But such organizational
concerns as well as public policy concerns raised by the incorporation of accounting firms that include non-CPAs and the provision offinancial, consulting, and marketing services by such firms
are more appropriately addressed by the legislature. See TACPA Brief, supra note 3, at 1O-l 1.

3SeeBrief to the Attorney General, Request No. 0508-JC, on behalf ofTexas Association of Certified Public Accountants, from William H. Caudill and Jayash M. Chadha, Fulbright &Jaworski L.L.P. (Mar. 29,2002) at 8-10(on file with Opinion Committee) [hereinafter TACPA Brief].The Honorable Ken Armbrister - Page 7 (JC-0536)

SUMMARY

A public accounting firm with owners who are not certified public accountants that is eligible for afirm license under the Public Accountancy Act, TEX.Oct. CODE ANN.$0 901.001-.605 (Vernon 2002), may incorporate under the Texas Business Corporation Act, TEX.Bus. CORP.ACTANN.arts. 1.01-13.08 (Vernon 1980 & Supp. 2002), or the general provisions of the Texas Limited Liability Company Act, TEX.REV.CIV.STAT.ANN.art. 1528n (Vernon 1979 & supp. 2002).

Yo ve truly 

# 42c,,

JOHN CORNYN Attorney General of Texas

HOWARD G. BALDWIN, JR. First Assistant Attorney General
NANCY FULLER Deputy Attorney General -General Counsel
SUSAN DENMON GUSKY Chair, Opinion Committee
Sheela Rai Assistant Attorney General, Opinion Committee