Years ago, it was probably fairly difficult for the average person to form a legal entity like a corporation or limited liability company (LLC). Nowadays, however, it’s much easier and can often be done with a few clicks online and a credit card. The result I’ve seen is that entities like corporations and LLCs are much more common now with people who have small business or are otherwise self-employed.
Because an entity like a corporation or LLC is its own distinct entity, however, problems can sometimes arise. One of the problems I see by virtue of what I do is when the entity needs to go to court. For example, the entity might need to sue to collect from a customer or client who is refusing to pay their bill. Or, the entity might be sued by someone else for breaching a contract, for instance.
If an actual person needed to file a lawsuit or defend against a lawsuit, they can hire a lawyer, but they can also represent themselves in court. If your business is the same as yourself (i.e. a sole proprietorship), you can represent your business also because the two of you are one and the same. However, if you have a legal entity of some kind — for example, a corporation or LLC — that ability goes away. In other words, if you have a legal entity for your business, you can’t represent that entity in California unless you’re also a California-licensed attorney.
Phrased another way: legal entities must be represented by attorneys in court in California. In most situations, the cost of hiring an attorney to represent the company is an unpleasant expense that many self-employed people or small business owners weren’t prepared for.
If you’re interested in the California authority for this, you can look at the California Court of Appeals case of CLD Construction, Inc. v. City of San Ramon case from 2004 (Citation for the lawyers: 120 Cal.App.4th 1141, 1146) which stated: (internal citations omitted)
“A corporation has the capacity to bring a lawsuit because it has all the powers of a natural person in carrying out its business. However, under a long-standing common law rule of procedure, a corporation, unlike a natural person, cannot represent itself before courts of record in propria persona, nor can it represent itself through a corporate officer, director or other employee who is not an attorney. It must be represented by licensed counsel in proceedings before courts of record.”
The rationale for such a rule is that even though a corporation, LLC, or other entity has certain person-like rights (e.g. own property, etc), it is at the end of the day just a legal construct. Even though an entity like a corporation exists, it can only act through actual people. To allow for a non-attorney to act on the entity’s behalf would, thus, be the unauthorized practice of law. If you’re interested in the authority for that, see section 6126(a) of California’s Business and Professions Code the relevant portion of which states: (emphasis added)
“Any person advertising or holding himself or herself out as practicing or entitled to practice law or otherwise practicing law who is not an active licensee of the State Bar, or otherwise authorized pursuant to statute or court rule to practice law in this state at the time of doing so, is guilty of a misdemeanor punishable by up to one year in a county jail or by a fine of up to one thousand dollars ($1,000), or by both that fine and imprisonment.”
Bottom line: if you’ve formed a corporation, limited liability company, or other legal entity for your business, be aware that you’ll likely have to shoulder the expense of hiring an attorney if or when your business gets involved in a legal matter of some kind.
As always, I hope this post helped. It is not intended to be an exhaustive or comprehensive discussion on the topic(s) mentioned. For example, the CLD Construction case is not the only one that supports the rule that corporate entities must be represented by legal counsel in court proceedings in California. If you are going to rely on this post, please do your own research because the legal authority that I’ve mentioned might have changed in the time between when I wrote this post and when you’re reading it. If you have a case involving a corporation, LLC, or any other entity that needs legal representation in a California case, please do find an attorney in your area with whom you can discuss your matter.
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