Federal Court Upholds Rules Prohibiting Practice of Law by Corporations

Federal Court Upholds Rules Prohibiting Practice of Law by Corporations

On April 19, 2019, the US Court of Appeals for the Fourth Circuit rejected a trade association’s constitutional challenge to the North Carolina rules that prevent corporations from providing legal advice.

North Carolina’s rules on the unauthorized practice of law (UPL) strictly limit the types of entities that may practice law. Professional corporations owned exclusively by lawyers may practice law. So too may nonprofit corporations functioning as public-interest law firms. Otherwise, corporations may not offer legal advice. Though in-house lawyers may advise their corporations, they may not provide legal advice to those outside the corporation.

Ally Law Corporate Law Prohibited

The Fourth Circuit’s decision in Capital Associated Industries, Inc. v. Stein concludes for now the battle—fought in both the legislature and the courts—over whether North Carolina’s general prohibition bars a trade association (i.e., a corporation) from giving legal advice to its members. Capital Associated Industries wanted to increase its membership revenue by adding legal advice to its repertoire of member services, such as answering members’ questions and drafting documents. The court’s decision means that members of a trade association will need to obtain legal counsel in the traditional manner, i.e., through outside law firms, and cannot obtain counsel from an in-house lawyer for the trade association as a member service.

The Fourth Circuit’s decision indicates that North Carolina’s restriction on legal advice by corporations is likely to remain in place for the foreseeable future, for at least two reasons: First, neither North Carolina’s General Assembly nor its State Bar seems inclined to depart from the prohibition. Second, federal courts continue to grant state regulators considerable leeway in defining who may offer legal services.

UPL rules, however, have changed in the past and may change further with evolving standards in the economy. Click here to learn more and to read the full article by Edward Roche of Ally Law member Smith Anderson.

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