Anaya Nolan
In New York, law firms can be structured as a Professional Limited Liability Company (PLLC), a variant of the standard Limited Liability Company (LLC) structure. This business structure is geared towards licensed professionals, offering personal liability protection and other benefits. PLLCs are taxed as disregarded entities, with the option to be treated as a corporation for tax purposes. To form a PLLC in New York, Articles of Organization must be filed pursuant to Section 1203 of the Limited Liability Company Law, and a Certificate of Publication must be submitted to the Department of State within 120 days.
| Characteristics | Values |
|---|---|
| Formation | PLLCs must be formed by filing Articles of Organization pursuant to Section 1203 of the New York State Limited Liability Company Law. |
| LLCs are formed by filing the Articles of Organization, pursuant to Section 203 of the Limited Liability Company Law, with the Department of State. | |
| Ownership | PLLCs must be owned and managed only by licensed professionals. |
| LLCs do not require their members to be professionals or hold any special qualifications. | |
| Liability | PLLCs protect members from company liabilities. Members are only liable for their own malpractice lawsuits. |
| LLCs protect members from all business liabilities. | |
| Taxation | PLLCs and LLCs have the same tax options. They can choose to be taxed as pass-through tax entities or corporations. |
| Naming | The name of a PLLC must comply with the guidelines established by the New York State Department Division of Corporations and must end in "PLLC". |
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What You'll Learn
Law firms can be LLCs in NY
In New York, a law firm can be a limited liability company (LLC) or a professional limited liability company (PLLC). The main difference between the two is that a PLLC is specifically for licensed professionals, whereas an LLC does not require its members to be professionals or hold any special qualifications.
LLC
An LLC can be formed by any person or business entity for any lawful business purpose. The LLC is a hybrid form that combines corporation-style limited liability with partnership-style flexibility. The owners of an LLC are "members" rather than shareholders or partners, and members can include individuals, corporations, partnerships, other LLCs, or any other legal entity.
PLLC
A PLLC is a type of business structure that offers personal liability protection for licensed professionals. It is a variant of the LLC structure, with the main difference being that every member of a PLLC must be a licensed professional. In New York, PLLCs must be owned and managed only by licensed professionals, and those who manage PLLCs must be licensed in New York.
Formation Process
The process of forming an LLC or PLLC in New York is similar. Both require filing Articles of Organization with the Department of State. Additionally, both LLCs and PLLCs must publish a copy of the Articles of Organization or a notice related to their formation in two newspapers for six consecutive weeks. The newspapers must be designated by the county clerk of the county in which the office of the LLC or PLLC is located.
Taxation
Both LLCs and PLLCs have the same tax options. The IRS does not recognize them as separate legal entity classes, allowing owners to choose whether to be taxed as a pass-through tax entity or a corporation.
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PLLC vs LLC
In the United States, a Limited Liability Company (LLC) is a popular business structure that combines the liability protection offered by incorporation while retaining some of the tax advantages of a partnership or sole proprietorship. LLCs are governed by state law, and while most states have flexible rules for who may own an LLC, some states do not allow certain licensed professionals to form LLCs.
A Professional Limited Liability Company (PLLC) is a specialized type of LLC used by certain licensed professionals in many states. In some states, professionals providing medical care, legal advice, tax services, accounting, or other services that require licensing by state regulatory boards are restricted by law from using the LLC entity structure and must form a PLLC instead. Rules and requirements for PLLC owners vary from state to state. Some states require all members to have specific licenses for the service offered, while other states mandate that a certain number of members must be licensed professionals.
In New York, there is a strict prohibition on the "corporate practice of professions." This means that a profession licensed by the New York State Education Department (NYSED) cannot be practised through a regular LLC or corporation. The only registered business entities that can provide professional services in the state of New York are the PLLC, PC, and registered limited liability partnership (LLP). Practising a profession licensed by NYSED through any other business entity in New York is a criminal class E felony.
PLLCs, like LLCs, are, by default, taxed as "disregarded entities." A PLLC is treated as one and the same as its owners for tax purposes. A PLLC is a sole proprietorship with one owner and a partnership with more. However, a PLLC can choose to be treated like a corporation for tax purposes, including a subchapter "C" corporation and subchapter "S" corporation.
While the PLLC protects members from each other's malpractice suits, it does not protect individual members from their own malpractice suits. Each member is responsible for their own malpractice suits, so it may be helpful or even required that each member carries their own malpractice insurance.
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Advantages of PLLC
In New York, a Professional Limited Liability Company (PLLC) is a type of entity formed to practice a licensed profession. A regular LLC or corporation cannot be used for this purpose. The only registered business entities that can provide professional services in the State of New York are the PLLC, PC, and registered limited liability partnership (LLP).
Liability Protection
PLLCs offer pass-through taxation, but, more importantly, they protect members from personal liability in malpractice lawsuits. In a PLLC, each member is held separately responsible for their malpractice claims. While a member is not held liable for another member's malpractice, they are personally liable for their own. This is generally better than a generic partnership, which might hold all members liable for the actions of one.
Tax Flexibility
PLLCs are taxed as "disregarded entities", which means they are treated as one and the same as their owners for tax purposes. However, a PLLC can choose to be treated like a corporation for tax purposes, including subchapter "C" and subchapter "S" corporations.
Ease of Formation
PLLCs are not subject to the same rigid requirements as forming a PC, making them an attractive option for professionals. However, it is important to note that PLLCs must be owned and managed by licensed professionals in the field of practice and may have to comply with additional requirements from licensing boards.
Credibility
Operating as a PLLC can provide increased credibility for a professional practice.
Flexibility in Management Structure
Like LLCs, PLLCs offer a flexible management structure, allowing owners to shape the business to meet their needs.
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Requirements for PLLC
In New York, a Professional Limited Liability Company (PLLC) is identical to a Limited Liability Company (LLC) with two exceptions. Firstly, every member of a PLLC must be a licensed professional. Secondly, members are personally liable for their professional negligence but not for other members' malpractice.
The following are the requirements for a PLLC in New York:
Licensing
Every member of a PLLC must be a licensed professional. The company must be managed by those with the proper licensing as well. This licensing will be checked by the state board. The name of the PLLC must also meet licensing requirements. For example, certain medical licenses require the full license to be identified in the legal entity name. The PLLC name must contain the profession(s) the PLLC will practice and cannot be misleading or contain claims of superiority.
Formation
A PLLC in New York requires a certificate of incorporation, licensing board approval, articles of organization, and a six-week publication requirement in two newspapers in the area the company is based. The articles of organization must include the names and addresses of all members.
Ownership
There is no minimum number of owners required to form a PLLC. A New York solo practice can use a PLLC. However, PLLCs can only have licensed professionals as members.
Taxation
PLLCs are, by default, taxed as "disregarded entities." A PLLC is treated as one and the same as its owners. However, a PLLC can choose to be treated like a corporation for tax purposes.
Compliance
PLLCs have additional compliance steps compared to LLCs. PLLCs must file a biennial statement that identifies the company's address or its resident agent's address. As you add or remove members, you must amend your articles. Each member of a PLLC must maintain their licenses.
Restrictions
PLLCs cannot engage in business activities beyond the scope of the specific remit of its profession. PLLCs can practice multiple professions, as long as at least one owner of the PLLC is licensed in each of the professions practiced. However, a PLLC cannot be formed to practice more than one profession if it will practice certain restricted professions.
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PLLC formation process
In New York, a PLLC (Professional Limited Liability Company) is a business entity that can provide professional services. The formation of a PLLC requires careful planning and adherence to specific guidelines. Here is a step-by-step guide to forming a PLLC in New York:
Choose a Name for Your PLLC
Select a unique and distinguishable name for your PLLC. The New York Department of State, Division of Corporations, will reject any name that is not sufficiently "distinguishable" from existing names on file. You can search for name availability by submitting a written request or using the online Corporation and Business Entity Database. Each name search costs $5.
Prepare the Articles of Organization
The Articles of Organization is a crucial document in forming your PLLC. It must be filed with the New York Department of State, pursuant to Section 1203 of the New York State Limited Liability Company Law. The articles should include the designated county within New York State where the PLLC's office will be located. Avoid using dark paper, light or colored inks, and ensure the PLLC name is typed identically in all required fields.
Obtain Necessary Certificates
Along with the Articles of Organization, you must submit a Certificate of Good Standing from the appropriate Appellate Division or a Certificate of Authority (Form PLS709) from the New York State Department of Education, Division of Professional Licensing Services.
Publication Requirements
According to Section 206 of the Limited Liability Company Law, a copy of the Articles of Organization or a notice related to the formation of the PLLC must be published in two newspapers designated by the county clerk of the PLLC's office location. This publication must run for six consecutive weeks, and the newspapers will charge a fee for this service.
Submit the Certificate of Publication
Within 120 days of publication, submit the Certificate of Publication, along with the affidavits of publication from the newspapers, to the Department of State. There is a $50 filing fee for this step. Failure to meet this deadline will result in the suspension of the PLLC's authority to conduct business.
Operating Agreement
The Operating Agreement is an internal document that establishes the rights, powers, duties, and obligations of the members of the PLLC. While it is not filed with the Department of State, it is essential for governing the internal affairs of the PLLC. The Operating Agreement may be entered into before, at the time of, or within 90 days after filing the Articles of Organization.
Biennial Statement Filing
Domestic PLLCs must file a Biennial Statement two years after the initial filing of the Articles of Organization and every two years thereafter. The filing period corresponds to the calendar month of the original filing, and the fee is $9.
Tax Considerations
By default, PLLCs are taxed as "disregarded entities," meaning they are treated as one and the same as their owners for tax purposes. However, a PLLC can elect to be taxed as a corporation, including a subchapter "C" or "S" corporation.
It is important to note that forming a PLLC in New York can be a lengthy and complex process, and seeking legal advice from a professional is recommended to ensure compliance with all applicable laws and regulations.
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Frequently asked questions
A PLLC is a type of LLC, specifically for licensed professionals. PLLCs are only available to licensed professionals, whereas LLCs do not require their members to be professionals or hold any special qualifications.
Yes, a law firm can be an LLC in New York. A law firm can be a PLLC, which is a type of LLC.
To set up an LLC in New York, you must file the Articles of Organization with the Department of State. You must also publish a copy of the Articles of Organization or a notice related to the formation of the LLC in two newspapers for six consecutive weeks. The newspapers must be designated by the county clerk of the county in which the LLC office is located.
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