November 29, 2011

New Legislation Regarding Ownership of Design Firms Takes Effect January 1, 2012

November 29, 2011

NY State Bill A.4581/S.2987 takes effect January 1st, 2012 and amends the current New York business corporation law to authorize non-licensed, non-majority ownership of design professional service firms.

Prior to this amendment, New York's current business corporation law restricted ownership in design professional service corporations (architecture, professional engineering, landscape architecture and land surveying firms) to professionals licensed according to the state education law. This meant that design firms who wanted to offer non-licensed, key personnel an equity share in the firm (for example: Human Resource managers, information technology specialists and/or geologists) were prohibited from doing so.

The new legislation permits non-licensed minority ownership with the following criteria:

  • A minimum of 75% of the firm ownership must be controlled by licensed professionals.
  • A minimum of 75% of the directors and officers must be licensed design professionals, including the President, CEO and Chairman of the Board of Directors.
  • A non-licensed shareholder cannot be the single largest shareholder.

These majority ownership and management requirements are designed to offset concerns that non-licensed owners could potentially force licensed subordinates to breach their professional ethic for the sake of continued employment.

Passage of the new legislation will lead to improved recruiting possibilities. The possibility of offering non-licensed professionals the potential benefit of ownership will attract top talent. The new legislation will also result in enhanced competitiveness. The prior legislation set New York apart from almost every other state in the country as most states do not impose such strict ownership limitations on design firms. More flexible ownership structure possibilities means New York design firms can attract better talent and compete better in today's marketplace. In addition, New York law previously authorized over 120 grandfather corporations (in existence since 1935) the right to provide design services with no restriction on stock ownership (the only requirement is that the CEO be licensed). Those firms have enjoyed a competitive advantage in their ability to attract and retain key non-licensed personnel. This amendment will even the playing field.

Click here to see full text of legislation:

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