(a) Rendering Legal Service Through a Professional Company. One or more attorneys who are licensed to practice law in Colorado may render legal services in Colorado through a professional company, as that term is defined in Section (e), provided that such professional company is established and operated in accordance with the provisions of this Rule and the Colorado Rules of Professional Conduct.
(1) Professional Company Name. The name of the professional company shall comply with the provisions of the Colorado Rules of Professional Conduct regarding the names of law firms.
(2) Owners’ Liability for Professional Acts, Errors, or Omissions. Each of the owners of the professional company shall be deemed to agree, by reason of the rendering of legal services by any attorney through the professional company, that each of them who is an owner at the time of the commission of any act, error, or omission in the rendering of legal services by any owner or other person for whose acts, errors, or omissions the professional company is liable, assumes, jointly and severally to the extent provided by this Rule the liability of the professional company for such act, error, or omission. Notwithstanding the preceding sentence, any owner who has not directly participated in the act, error, or omission in the rendering of legal services for which liability is incurred by the professional company does not assume such liability, except as provided in subsection (a)(3)(D), if, at the time the act, error, or omission occurs the professional company has professional liability insurance that meets the minimum requirements stated in subsection (a)(3).
(3) Professional Liability Insurance Policy Requirements. The professional liability insurance contemplated in subsection (a)(2) shall meet the following minimum requirements:
(A) Professional Acts Coverage. The professional liability insurance shall insure the professional company against liability imposed upon it arising out of the rendering of legal services by any attorney through the professional company and against the liability imposed upon it arising out of the acts, errors, and omissions of all nonattorney employees assisting in the rendering of legal services by any attorney through the professional company.
(B) Policy Language. The policy or policies for the professional liability insurance may contain reasonable provisions with respect to policy periods, territory, claims, conditions, and other matters.
(C) Limits of Coverage. The professional liability insurance shall be in an amount for each claim of at least the lesser of $100,000 multiplied by the number of attorneys who render legal services through the professional company or $500,000. If the policy or policies for the professional liability insurance provide for an aggregate top limit of liability per year for all claims, the top limit shall not be less than the lesser $300,000 multiplied by the number of attorneys who render legal services through the professional company or $2,000,000.
(D) Deductibles and Defense Costs. The policy or policies for the professional liability insurance may provide for a deductible or self-insured retained amount and may provide for the payment of defense or other costs out of the stated limits of the policy. The liability assumed by each owner of the professional company who has not directly participated in the act, error or omission in the rendering of legal services for which liability is incurred by the professional company shall be the lesser of the actual liability of the professional company in excess of insurance available to pay such damages or the sum of the following:
(I) such deductible or retained self-insurance; and
(II) the amounts, if any, by which the payment of defense costs has reduced the insurance remaining available for the payment of damages incurred by reason of the liability of the professional company below the minimum limit of insurance required by subsection (a)(3)(C).
(E) Determination of Coverage. An act, error, or omission in the rendering of legal services shall be deemed to be covered by professional liability insurance for the purpose of this Rule if the policy or policies include such act, error, or omission as a covered activity, regardless of whether claims previously made against the policy have exhausted the aggregate top limit for the applicable time period or whether the individual claimed amount or ultimate liability exceeds either the per claim or aggregate top limit.
(F) Limitation of Vicarious Liability. The liability assumed by the owners of a professional company under this Rule is limited to the liability of the professional company for acts, errors, or omissions incurred in the rendering of legal services by any owner or other person for whose acts, errors, or omissions the professional company is liable and shall not extend to any other liability incurred by the professional company. Liability, if any, for any and all acts, errors, and omissions, other than acts, errors, or omissions incurred in the rendering of legal services by any owner or other person for whose acts, errors, or omissions the professional company is liable, shall be as otherwise provided by law and shall not be changed, affected, limited, or extended by this Rule.
(b) Compliance with Rules of Professional Conduct. Nothing in this Rule shall be deemed to diminish or change the obligation of each attorney rendering legal services through a professional company to comply with the Colorado Rules of Professional Conduct promulgated by this Court.
(c) Violation of Rule: Termination of Authority. Any violation of or failure to comply with any of the provisions of this Rule by the professional company may be grounds for this Court to terminate or suspend the right of any attorney who is an owner of such professional company to render legal services in Colorado through a professional company.
(d) Professional Company Constituencies. A professional company may have one or more owners that are professional companies, so long as each such owner that is a professional company and the professional company of which they are owners are both established and operated in accordance with the provisions of this Rule.
(e) “Professional Company” Defined. For purposes of this Rule, a professional company is a corporation, limited liability company, limited liability partnership, limited partnership association, or other entity that may be formed under Colorado law to transact business or any entity that can be formed under the law of any other jurisdiction and through which attorneys may render legal services in that jurisdiction, except that the term excludes a general partnership that is not a limited liability partnership and excludes every other entity the owners of which are subject to personal liability for the obligations of the entity.
Source: Entire chapter repealed and adopted November 22, 1995, effective December 1, 1995; entire rule amended and effective February 26, 2009.
Annotation Law reviews. For article, “Law Firm Incorporation in Colorado”, see 34 Rocky Mt. L. Rev. 427 (1962). For comment on Empey v. United States appearing below, see 46 Den. L.J. 306 (1969). For article, “Changes in the Rule Authorizing Professional Corporations”, see 25 Colo. Law. 67 (March 1996). This rule authorizes lawyers to organize professional service corporations under the Colorado corporation code and thereafter operate them for the practice of law, provided they organize and operate such corporations in accordance with the provisions of this rule. United States v. Empey, 406 F.2d 157 (10th Cir. 1969). Such lawyers are entitled to be treated as a corporation for income tax purposes. A corporation organized to practice a learned profession under the general corporation laws of a state which has to meet requirements laid down in this rule is entitled to be treated as a corporation for federal income tax purposes. United States v. Empey, 406 F.2d 157 (10th Cir. 1969). The definition of a partnership plainly refers to unincorporated organizations; so, to treat as a partnership for federal income tax purposes, a corporation, organized and chartered under state laws as a corporation and operated as such in good faith, does violence to the statutory definitions of the terms “partnership” and “corporation” of the internal revenue statutes. United States v. Empey, 406 F.2d 157 (10th Cir. 1969). Activities of law firm incorporated as professional corporation in conducting a business of selling television advertising materials go beyond the purpose of conducting a law practice and violate this rule, and, therefore, contracts made by such professional corporation are unenforceable. Network Affiliates, Inc. v. Robert E. Schack, P.A., 682 P.2d 1244 (Colo. App. 1984). Failure of attorney to register as a professional corporation for the practice of law violated DR 1-102 and subjected attorney to disciplinary proceedings. People v. Dickinson, 903 P.2d 1132 (Colo. 1995). Requirements contained in this rule are applicable only for the acts, errors, and omissions of the employees of the corporation. Gutrich v. LaPlante, 942 P.2d 1266 (Colo. App. 1996), aff’d on other grounds sub nom. Gutrich v. Cogswell & Wehrle, 961 P.2d 1115 (Colo. 1998).
For corporations and associations, see title 7, C.R.S.
