Michigan’s New Position on The Professional Corporation Act - Who must be Incorporated as A Professional Corporation - Part I

In what many believe to be an unfortunate trend by insurers to avoid payment for services otherwise properly and reasonably delivered, a Michigan Insurer sought to avoid payment to a provider of Physical Therapy Services under Michigan’s “No-Fault” insurance statute [Miller v Allstate, 275 Mich App 649 (2007)].  Claiming that the provider was “improperly incorporated” under the Michigan Business Corporation Act, the insurer argued that the provider was not entitled to payment.

What is important to advisors is that the case raised the question whether a particular occupation may incorporate only under the Michigan Professional Corporation Act.  This law essentially provides that certain “professional services” are so personal in nature that the professionals will not be allowed to shield themselves from liability for negligence in the provision of such services by incorporating.  The Professional Corporation Act allows them to take advantage of other corporate “advantages,” but limits the corporate protections. Traditionally, based on a 1968 Attorney General Opinion, this limitation was restricted to “Learned Professions.”  The list was relatively short, including doctors, dentists, lawyers, accountants, etc.

The Michigan Court of Appeals did not decide the real issue brought before them:  whether the payments were proper.  Instead, they “remanded” the case for consideration of other issues under the “No-Fault” statute.  In fact, they decided that it was unnecessary to determine whether the PT service was “properly incorporated.”

In a rather bizarre turn of “jurisprudence” which bewilders most observers, they then proceeded into the murky waters (some believe they were clear until churned up by this decision) of corporation issues.

Two important new developments come from their opinion.  First, they ruled that a corporation that can be formed under the Professional Corporation Act cannot be formed under the general corporation act.  This is a significant departure from existing law and the way the Michigan Department of Labor and Economic Growth’s Corporations Division has historically treated incorporation.  They have announced that they will not accept for general incorporation, entities which can form under the Professional Corporation Act.  Second, the Court significantly expanded the range of occupations which are considered “professional service providers” under the Professional Service Corporation Act.

So what does this all mean to advisors and their clients?  Part 2 of this Article attempts to address that.

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at: arichards@smithbovill.com, or by Telephone at 989-652-9923.

Andy Richards