By C. Jaye Berger, Esq.
Law Offices of
C. Jaye Berger
As a construction attorney, I can say that it is rare that a change is made in the law which revolutionizes the design industry.
Up until now, the laws in the State of New York only allowed architectural and engineering firms to be owned solely by licensed individuals in those respective fields.
In other words, an architectural or engineering firm may have employees who have worked for them for 20-years, but who have for some reason never became licensed in that field.
There may be interior designers who have perhaps gone to architectural school, but never became licensed.
These individuals could never become shareholders in the firm under the existing law, which limited their advancement within the company. This also caused some people to perhaps “secretly” do what they knew they could not do openly.
However all of this is about to change, effective January 1, 2012, with the enactment of a new statute in the State of New York creating a new entity to be known as a “Design Professional Service Corporation.”
This law would now allow individuals who are not licensed, to owns shares in architectural and engineering firms, subject to the limitations within the law requiring greater than 75% of the shares to be owned by licensed design professionals.
One possibility is that an employee stock option plan could be the largest shareholder as long as greater than 75% of the plan’s voting trustees and committee members are design professionals.
In other words, the State still wants licensed design professionals to be in control of and running the company. The same percentage is required for the directors and officers. The president, chairperson of the Board of Directors, chief executive officers and the single largest shareholder must all be licensed design professionals.
This would open the doors wide to allowing designers in other states to do business in the State of New York and would make New York a more competitive place to do business. It would also apply to combinations of the other licensed professionals ie. architecture, engineering, landscape architecture and land surveying.
It is interesting to note that many other states and countries already allow employees in design firms, who are not licensed, to become owners in the firm.
In the past, this made New York State architectural and engineering firms less competitive with firms in other states and in other countries in the same market place.
This new law came about as a result of much lobbying by design professionals, especially engineers, and opens up a whole new chapter in the design industry.
It allows employees with company stock ownership plans to have a piece of the ownership and would allow outside investors to come into these firms in a limited way. There are a lot of possibilities. Of course the services would still need to be rendered through licensed individuals.
It would be set up much like architecture and engineering firms currently under the Business Corporation Law and the Education Law. We are all familiar with Professional Corporations which have “P.C.” at the end of the name. This new entity would have “D.P.C.” at the end.
There are a number of rules and requirements under the law, such as the requirement for a certified statement to be filed every three years containing certain information about each shareholder, officer and director, such as their name and address.
Shareholders leaving the firm would need to sell their shares back to the corporation. This type of restriction would have to be noted on the stock certificates. If the corporation failed to redeem the shares, there could be litigation to recover the purchase price, with an award of reasonable attorneys fees.
This is significant, because there are few areas in which attorneys fees can be granted.
It will be interesting to see the evolution of the rules, regulations and shareholder agreements governing these companies and how it changes the practice.
Anyone considering setting up such a corporation should seek legal counsel knowledgeable in this area.
