CHAPTER 127

AN ACT TO AMEND TITLE 8, DELAWARE CODE, RELATING TO CORPORATIONS BY ADDING A NEW CHAPTER TO BE KNOWN AS "CHAPTER 6" TO PERMIT THE FORMATION OF PROFESSIONAL SERVICE CORPORATIONS AND TO SET FORTH THE LAW RELATING THERETO.

Be it enacted by the General Assembly of the State of Delaware (two-thirds of all the members elected to each House of the General Assembly concurring therein):

Section 1. Title 8, Delaware Code, is hereby amended by adding thereto a new chapter to be known as "Chapter 6" as follows:

CHAPTER 6.

PROFESSIONAL SERVICE CORPORATIONS

§ 601. Legislative intent

It is the legislative intent to provide for the incorporation of an individual or group of individuals to render the same professional service to the public for which such individuals are required by law to be licensed or to obtain other legal authorization.

§ 602. Short title

This chapter may be cited as "The Professional Service Corporation Act."

§ 603. Definitions

As used in this chapter the following words shall have the meaning indicated:

(1) The term "professional service" shall mean any type of personal service to the public which requires as a condition precedent to the rendering of such service the obtaining of a license or other legal authorization and which prior to the effective date of this chapter and by reason of law could not be performed by a corporation. In addition, and by way of example and without limiting the generality thereof, the personal services which come within the provisions of this chapter are the personal services rendered by architects, certified or other public accountants, chiropodists, chiropractors, doctors of dentistry, doctors of medicine, optometrists, osteopaths, professional engineers, veterinarians and, subject to the Rules of the Supreme Court, attorneys-at-law.

(2) The term "professional corporation" means a corporation which is organized under this chapter for the sole and specific purpose of rendering professional service and which has as its shareholders only individuals who themselves are duly licensed or otherwise legally authorized within this State to render the same professional service as the corporation.

§ 604. Exemptions

This chapter shall not apply to any individual or groups of individuals within this State who prior to the effective date of this chapter were permitted to organize a corporation and perform personal services to the public by the means of a corporation, and this chapter shall not apply to any corporations organized by such individual or group of individuals prior to the effective date of this chapter; unless, any such individual or group of individuals or any such corporation bring themselves and such corporation within the provisions of this chapter by amending the certificate of incorporation in such a manner so as to be consistent with all the provisions of this chapter and by affirmatively stating in the amended certificate of incorporation that the shareholders have elected to bring the corporation within the provisions of this chapter, or be incorporating initially under the provisions of this chapter.

§ 605. Authority to organize; law governing

One or more persons, each of whom is duly licensed or otherwise legally authorized to render the same professional services within this State, may organize and become a shareholder or shareholders of a professional corporation for pecuniary profit under the provisions of the General Corporation Law of Delaware for the sole and specific purpose of rendering the same professional services.

§ 606. Number of directors; officers

A professional corporation which has only one shareholder need have only one director, who shall be such shareholder. Such one shareholder shall also serve as the president of the corporation. The other officers of the corporation in such a case need not be licensed or otherwise legally authorized to render the same professional service within this State, as such one shareholder. A professional corporation which has only two shareholders need have only two directors who shall be such shareholders. The two shareholders shall, between them, fill all the offices of the professional corporation.

§ 607. Rendition of professional services through licensed officers, employees and agents

No corporation organized and incorporated under this chapter may render professional services except through its officers, employees and agents who are duly licensed or otherwise legally authorized to render such professional services within this State; provided, however, this provision shall not be interpreted to include in the term "employee" as used herein clerks, secretaries, nurses, administrators, bookkeepers, technicians and other assistants who are not usually and ordinarily considered by law, custom and practice to be rendering professional services to the public for which a license or other legal authorization is required in connection with the profession to be practiced, nor does the term "employee" include any other person who performs all his employment under the direct supervision and control of an officer, employee or agent who is himself rendering professional service to the public on behalf of the professional corporation; provided that, no person shall, under the guise of employment, practice a profession unless duly licensed to practice that profession under the laws of this State. Notwithstanding any other or contrary provisions of the laws of this State, a professional corporation organized under this chapter may charge for the services of its officers, employees, and agents, may collect such charges, and may compensate those who render such professional services.

§ 608. Chapter not to affect professional relationship legal liabilities and standards for professional conduct; negligence; attachment of assets

Nothing contained in this chapter shall be interpreted to abolish, repeal, modify, restrict or limit the law now in effect in this State applicable to the professional relationship and the contract, tort and other legal liabilities between the person furnishing the professional services and the person receiving such professional service and to the standards for professional conduct, including the confidential relationship between the person rendering the professional services and the person receiving such professional service, if any; and all confidential relationships previously enjoyed under the laws of this State or hereafter enacted shall remain inviolate. Any officer, employee, agent or shareholder of a corporation organized under this chapter shall remain personally and fully liable and accountable for any negligent or wrongful acts or misconduct committed by him, or by any person under his direct supervision and control, while rendering professional service on behalf of the corporation to the person for whom such professional services were being rendered. The corporation shall be liable up to the full value of its property for any negligent or wrongful acts or misconduct committed by any of its officers, employees, agents or shareholders while they are engaged on behalf of the corporation in the rendering of professional services. The assets of a professional corporation shall not be liable to attachment for the individual debts of its shareholders. Notwithstanding the foregoing, the relationship of an individual to a professional corporation organized under this chapter, with which such individual is or may be associated, whether as officer, employee, agent, or shareholder director, shall in no way modify, extend or diminish the jurisdiction over such individual, of and by whatever State, agency or office which licensed or otherwise legally authorized him for or to render service in a particular field of endeavor.

§ 0. Engaging in other business prohibited

No corporation organized under this chapter shall engage in any business other than the rendering of the professional services for which it was specifically incorporated; provided, however, nothing in this chapter or in any other provisions of existing law applicable to corporations shall be interpreted to prohibit such corporation from investing its funds in real estate, mortgages, stocks, bonds or any other type of investments, or from owning real or personal property necessary for, or appropriate or desirable in, the fulfillment or rendering of its professional services.

§ 610. Issuance of capital stock to licensed individuals; voting trust agreements prohibited; holding of stock by shareholder's estate

No corporation organized under the provisions of this chapter may issue any of its capital stock to anyone other than an individual who is duly licensed or otherwise legally authorized to render the same specific professional services as those for which the corporation was incorporated. No shareholder of a corporation organized under this chapter shall enter into a voting trust agreement or proxy or any other type agreement vesting another person with the authority to exercise the voting power of any or all of his stock. Subject to the provisions of the corporation's certificate of incorporation, the estate of a shareholder who was a person duly licensed or otherwise legally authorized to render the same professional service as that for which the professional corporation was organized may continue to hold stock pursuant to the certificate of incorporation for a reasonable period of administration of the estate, but shall not be authorized to participate in any decisions concerning the rendering of professional service.

§ 611. Disqualification of officer, shareholder, agent or employee

If any officer, employee, agent or shareholder of a corporation organized under this chapter becomes legally disqualified to render such professional services within this State, or is elected to a public office or accepts employment that, pursuant to existing law, places restrictions or limitations upon his continued rendering of such professional services, he shall sever all employment with, and financial interests in, such corporation, forthwith. A corporation's failure to require compliance with this provision shall constitute a ground for the forfeiture of its charter and its dissolution. When a corporation's failure to comply with this provision is brought to the attention of the office of the Secretary of State, the Secretary of State forthwith shall certify that fact to the Attorney General for appropriate action to dissolve the corporation.

§ 612. Sale or transfer of shares

Except as provided in Section 616, no shareholder of a corporation organized under this chapter may sell or transfer his shares in such corporation except to the corporation or to another individual who is eligible to be a shareholder of such corporation, and such sale or transfer may be made only after the same shall have been approved, at a stockholders' meeting specially called for such purpose, or at an annual meeting with ten days' notice of such additional purpose, by such proportion, not less than a majority, of the outstanding stock entitled to be voted on that question as may be provided in the certificate of incorporation or in the by-laws. At such shareholders' meeting the shares of stock held by the shareholder proposing to sell or transfer his shares may not be voted or counted for any purpose. The certificate of incorporation may provide specifically for additional restraints on the alienation of shares and may require the redemption or purchase of such shares by the corporation at prices and in a manner specifically set forth in such certificate or the certificate may specifically authorize the corporation's board of directors or its shareholders to adopt by-laws restraining the alienation of shares and providing for the purchase or redemption by the corporation of its shares; provided, however, such provisions dealing with the purchase or redemption by the corporation of its share may not be invoked at a time or in a manner that would impair the capital of the corporation.

§ 613. Price for shares

If the certificate of incorporation or by-laws of a professional corporation fail to fix a price at which a professional corporation or its shareholders may purchase the shares of a deceased, retired, expelled, or disqualified shareholder, and if the certificate of incorporation or by-laws do not otherwise provide, then the price for such share or shares shall be the book value of such share or shares at the end of the month immediately preceding the death of or disqualification of the shareholder. Book value shall be determined by an independent certified public accountant employed by the professional corporation. The determination by the certified public accountant of book value shall be conclusive on the professional corporation and its shareholders.

§ 614. Perpetual corporate existence

A corporation under this chapter shall have perpetual existence until dissolved in accordance with other provisions of this chapter.

§ 615. Conversion into business corporation

Whenever all shareholders of a corporation licensed under this chapter shall cease at any time and for any reason to be licensed, certified or registered in the particular field of endeavor for which such corporation was organized, said corporation shall thereupon be treated as converted into and shall operate henceforth solely as a business corporation under applicable provisions of Chapter I of this Title, exclusive of this chapter.

§ 616. Time for transfer of shares upon death or disqualification

Within 375 days following the date of death of a shareholder, or within 30 days following his disqualification as hereinbefore provided, to own shares in the corporation, all of the shares of such shareholder shall be transferred to, and acquired by, the corporation or persons qualified to own such shares. If no other provision to accomplish such transfer and acquisition is in effect and carried out within said period, the corporation shall thereafter purchase and redeem all of his shares of its stock at the book value thereof, determined as of the end of the month immediately preceding death or disqualification. For this purpose, the book value shall be determined from the books and records of the corporation in accordance with the regular methods of accounting used by it for the purposes of determining its net taxable income for Federal income tax purposes; and no subsequent adjustment of such income, whether by the corporation itself, by Federal income tax audit made and agreed to, or by a court decision which has become final, shall alter the redemption price. Nothing contained in this section shall prevent the parties involved from making any other arrangement or provision in the certificate of incorporation, by-laws, or by contract to transfer the shares of a deceased or disqualified shareholder to the corporation or to persons qualified to own the same, whether made before or after the death or disqualification of the shareholder, provided that within the period herein specified all the stock involved shall have been so transferred.

§ 617. Corporate name

The corporate name of a corporation organized under this chapter shall contain the last names of one or more of its shareholders and shall also contain the words "chartered" or "professional association", or the abbreviation "P.A.". The use of the word "company", "corporation" or "incorporated", or any other word, words, abbreviations, affix or prefix indicating that it is a corporation, in the corporate name of a corporation organized under this chapter, other than the words "chartered" or "professional association", or the abbreviation "P.A.", is specifically prohibited. It shall be permissible, however, for the corporation and the shareholders to render professional services and to exercise its authorized powers under a name which is identical to its corporate name except that the words "chartered" or "professional association" or the abbreviation "P.A." is omitted.

§ 618. Applicability of General Corporation Law; consolidation or merger of corporations; annual report

The General Corporation Law of Delaware shall be applicable to a corporation organized pursuant to this chapter except to the extent that any of the provisions of this chapter are interpreted to be in conflict with the provisions of the General Corporation Law of Delaware, and in such event the provisions and sections of this chapter shall take precedence with respect to a corporation organized pursuant to the provisions of this chapter. A professional corporation organized under this chapter may consolidate or merge only with another professional corporation organized under this chapter, empowered to render the same specific professional service; and a merger or consolidation with any foreign corporation is prohibited. A corporation organized and operating under this chapter shall furnish a report to the office of the Secretary of State on or before the second day of January of each year showing the names and post office addresses of all its shareholders, directors, and officers, which shall certify, that all such persons are duly licensed, certified, registered or otherwise legally authorized to render the same professional or other personal service in this State. This report shall be made on forms prescribed and furnished by the Secretary of State, but shall contain no fiscal or other information except that expressly called for by this section. It shall be signed by the president or vice-president and the secretary or an assistant secretary of the corporation, and acknowledged before a notary public by one of the persons signing the report, shall be filed in the office of the Secretary of State, and shall be in lieu of the regular annual report of corporations otherwise required by the General Corporation Law of Delaware.

§ 619. Partial invalidity; repeal of conflicting laws

If any provision of this chapter or the application thereof to any person or circumstances be held invalid, such invalidity shall not affect other provisions or applications of this chapter which can be given effect without the invalid provision or application, and to this end the provisions of this chapter are declared to be severable. All laws and parts of laws in conflict with any of the provisions of this chapter are hereby repealed, to the extent so in conflict.

§ 620. Construction of chapter

The provisions of this chapter shall not be construed as repealing, modifying or restricting the applicable provisions of law relating to incorporations, sales of securities or regulating the several professions enumerated in this chapter except insofar as such laws conflict with the provisions of this chapter.

Approved June 7, 1969.