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Miller v. Allstate: The Michigan Supreme Court Skirts the Controversy Over How to Properly Incorporate the Businesses of Licensed Professionals in Michigan

In a previous post, I discussed the case of Miller v. Allstate and the oral arguments that were held in the Michigan Supreme Court on the issue of whether those providing a service requiring a license must incorporate under the Michigan Professional Services Corporation Act (PSCA) instead of under the Michigan Business Corporation Act (BCA).

Before the Miller case reached the Michigan Supreme Court, the Michigan Court of Appeals ruled that under the language of the PSCA, any licensed professional who incorporates had to do so under the PSCA and not the BCA. The Michigan Court of Appeals' ruling caused quite an uproar and had the Michigan business law community very concerned about the possible outcome of this case in the Michigan Supreme Court and the ramifications for structuring business entities. Traditionally, only members of the ?learned professions? (i.e., doctors, lawyers, and the clergy) have been required to incorporate under the PSCA. All other businesses that provide personal or professional services have had the option to incorporate under the BCA or the PSCA, even if a license was required to provide those services.

Well, all of the speculation ended when the Michigan Supreme Court issued its decision in Miller v. Allstate. To the surprise of many, the Michigan Supreme Court avoided the issue of whether those providing a service requiring a license must incorporate under the PSCA or the BCA. The Court held that the defendant (Allstate) did not have standing to challenge the incorporation status of the plaintiff (PT Works) because only the Michigan Attorney General has the authority to pursue a claim that a Michigan business entity has been improperly incorporated.

Soon after the Court's decision, the Corporation Division of the Michigan Department of Labor and Economic Growth announced that it would revert to its previous standard of requiring only members of the "learned" professions to organize their business entities as "professional" organizations (i.e., professional corporations and professional limited liability companies). This standard is supported by a Michigan Attorney General Opinion that had been followed before the Miller case.

Choosing the right form of business organization is one of the most important choices a new business can make. Given the various issues that can arise, an experienced Michigan corporate lawyer should be consulted if a business or professional has any questions about the issues raised in the Miller case, or any other issues concerning the proper incorporation of a business.

Full post as published by Michigan Business Lawyer Blog on September 17, 2008 (boomark / email).