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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 who 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. (8 Del. C. 1953, § 601; 57 Del. Laws, c. 127.)
§ 602. Short title.
This chapter may be cited as "The Professional Service
Corporation Act." (8 Del. C. 1953, § 602; 57 Del. Laws, c. 127.)
§ 603. Definitions.
As used in this chapter the following words shall have the
meaning indicated:
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The term "professional service" shall mean any
type of personal service to the public which requires as a condition precedent to the
rendering of the service the obtaining of a license or other legal authorization, and
which, by reason of law, prior to June 7, 1969, could not be performed by a corporation.
In addition, and by way of example without limiting the generality thereof, the personal
services which come within 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.
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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. (8 Del. C. 1953, § 603; 57 Del. Laws,
c. 127.)
§ 604. Exemptions.
This chapter shall not apply to any individual or groups of
individuals within this State who, prior to June 7, 1969, 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 any individual or group of
individuals prior to June 7, 1969, unless, any such individual, or group of individuals,
or any such corporation bring themselves and such corporation within this chapter by
amending the certificate of incorporation, in 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 this
chapter, or be incorporated initially under this chapter. (8 Del. C. 1953, § 604; 57 Del.
Laws, c. 127.)
§ 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 this title, for the sole and specific purpose of rendering the
same professional services. (8 Del. C. 1953, § 605; 57 Del. Laws, c. 127.)
§ 606.
Number of directors; officers.
A professional corporation which has only 1 shareholder need
have only 1 director, who shall be the shareholder. The 1 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 the 1 shareholder. A professional corporation which has only
2 shareholders need have only 2 directors who shall be such shareholders. The 2
shareholders shall, between them, fill all the offices of the professional corporation. (8
Del. C. 1953, § 606; 57 Del. Laws, c. 127.)
§ 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 in this chapter, 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 of such person's employment under the direct supervision and
control of an officer, employee or agent who renders 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. (8 Del. C. 1953, § 607; 57 Del.
Laws, c. 127; 71 Del. Laws, c. 339, § 108.)
§ 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 the
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,
wrongful acts, or misconduct committed by such person, or by any person under such
person's 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,
wrongful acts, or misconduct committed by any of its officers, employees, agents or
shareholders while they are engaged in 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 such person for or to render service in a
particular field of endeavor. (8 Del. C. 1953, § 608; 57 Del. Laws, c. 127; 71 Del. Laws,
c. 339, § 109.)
§ 609. 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. (8
Del. C. 1953, § 609; 57 Del. Laws, c. 127.)
§ 610.
Issuance of capital stock to licensed individuals; voting trust agreements prohibited;
holding of stock by shareholder's estate.
No corporation, organized under 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, proxy, or any other type of agreement
vesting another person with the authority to exercise the voting power of any or all of
such shareholder's stock. Subject to 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. (8 Del. C.
1953, § 610; 57 Del. Laws, c. 127; 71 Del. Laws, c. 339, § 110.)
§ 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 either (a) is elected to a public office that,
or (b) accepts employment that, pursuant to existing law, places restrictions or
limitations upon such person's continued rendering of such professional services, such
person shall sever all employment with, and financial interests in, the 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 shall forthwith certify that fact
to the Attorney General for appropriate action to dissolve the corporation. (8 Del. C.
1953, § 611; 57 Del. Laws, c. 127; 64 Del. Laws, c. 112, § 70; 71 Del. Laws, c. 339, §
111.)
§ 612.
Sale or transfer of shares.
Except as provided in § 616 of this title, no shareholder of
a corporation, organized under this chapter, may sell or transfer such shareholder's
shares in the corporation, except to the corporation, or to another individual who is
eligible to be a shareholder of such corporation, and the 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 10 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
bylaws. At such shareholders' meeting the shares of stock held by the shareholder
proposing to sell or transfer such shareholder's 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 specific manner, or authorize the
corporation's board of directors or its shareholders to adopt bylaws 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 shares, may not be invoked at a time or in a manner that would
impair the capital of the corporation. (8 Del. C. 1953, § 612; 57 Del. Laws, c. 127; 71
Del. Laws, c. 339, § 112.)
§ 613. Price
for shares.
If the certificate of incorporation or bylaws 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 bylaws do not otherwise provide,
then the price for the share or shares shall be the book value at the end of the month
immediately preceding the death 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. (8 Del. C. 1953, § 613;
57 Del. Laws, c. 127.)
§ 614. Perpetual corporate existence.
A corporation under this chapter shall have perpetual
existence until dissolved in accordance with other provisions of this chapter. (8 Del. C.
1953, § 614; 57 Del. Laws, c. 127.)
§ 615. Conversion into business
corporation.
Whenever all shareholders of a corporation, licensed under
this chapter, 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,
the corporation shall thereupon be treated as converted into and shall operate henceforth
solely as a business corporation under applicable provisions of Chapter 1 of this title,
exclusive of this chapter. (8 Del. C. 1953, § 615; 57 Del. Laws, c. 127.)
§ 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 such shareholder's disqualification to own shares in the
corporation, as provided in this chapter, 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 such
shareholder's 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, bylaws, 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 specified by this
section, all the stock involved shall have been so transferred. (8 Del. C. 1953, § 616;
57 Del. Laws, c. 127; 71 Del. Laws, c. 339, § 113.)
§ 617.
Corporate name.
The corporate name of a corporation organized under this
chapter shall contain either a word or words descriptive of the professional service to be
rendered by the corporation or shall contain the last names of 1 or more of its present,
prospective or former shareholders or of persons who were associated with a predecessor
person, partnership, corporation or other organization or whose name or names appeared in
the name of such predecessor organization. The corporate name shall also contain the words
"chartered" or "professional association" or 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, is specifically prohibited. However, it shall be permissible for the
professional service corporation and its shareholders to render professional services and
to exercise the corporation's authorized powers under a name which is identical to its
corporate name except for the omission of the words "chartered" or
"professional association" or the omission of the abbreviation "P.A."
(8 Del. C. 1953, § 617; 57 Del. Laws, c. 127; 61 Del. Laws, c. 357, § 1.)
§ 618.
Applicability of General Corporation Law; consolidation or merger of corporations; annual
report.
This title 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 this title, and in such event the
provisions and sections of this chapter shall take precedence with respect to a
corporation organized pursuant to 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. Sections 501-518
of this title shall be applicable to a corporation organized pursuant to this chapter; but
in addition to the information called for on the annual report of all corporations by
those provisions, the annual report of a corporation organized pursuant to this chapter
shall certify that its shareholders, directors and officers listed on such report are duly
licensed, certified, registered or otherwise legally authorized to render the same
professional or other personal service in this State. (8 Del. C. 1953, § 618; 57 Del.
Laws, c. 127; 57 Del. Laws, c. 421, § 19.)
§ 619.
Construction of chapter.
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 this chapter. (8 Del. C. 1953, § 620; 57 Del. Laws, c.
127.)
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