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What is a Professional Limited Liability Company?

By: Marcus Leonard

 

What is a PLLC?

Many people are familiar with limited liability companies (“LLC”) including liability protection and other benefits provided by this type of business structure. Slightly different, a professional limited liability company (“PLLC”) is an LLC formed specifically by those who are licensed to provide professional services.

The term “professional service” means any type of personal service to the public which requires someone to obtain a license or other legal authorization to perform such service. Many medical professionals are authorized to form PLLC’s, including chiropractic physicians, dentists, osteopathic physicians, physicians and surgeons, doctors of medicine, doctors of dentistry, and podiatric physicians.

It is important to note that in Florida, a PLLC is only authorized to engage in providing the professional services for which it was organized. Additionally, all members must be licensed to provide the specific professional services offered by the PLLC and remain subject to the rules and regulations of the relevant state professional licensing authorities. For example, a group who wants to form a PLLC for a dental practice is authorized to engage only in dental services and all members must be licensed dentists. Accordingly, while practicing, the dentist will remain subject to the rules and regulations provided by the Florida Board of Dentistry.

 

PLLC’s Protections

A PLLC, like a standard LLC, offers some personal liability protections but does not shield members from all types of liability. The structure of a PLLC will provide members with protection from creditors attempting to collect unpaid debts owed by the PLLC, liability for the malpractice of other PLLC members, and from malpractice suits and other torts connected with the PLLC. Unfortunately, a PLLC will not protect members from liability if they have personally guaranteed a business loan, engaged in professional malpractice, or were negligent or intentionally committed a tort.

 

How Do You Form a PLLC in Florida?

Compared to other business structures, forming a PLLC is often more straightforward which is a major benefit for those who want to begin practicing as soon as possible. As mentioned above, it is important that all professional members of the company have the necessary state licenses and certifications. Members must then contact the relevant state licensing board to find out what approval is required for their profession. Those who wish to form a PLLC must draft and file articles of organization with the Florida Division of Corporations. This will include a statement of specific purpose, such as the practice of dentistry, medicine, or another professional service.

 

Different from a Professional Corporation

A PLLC is not to be confused with a professional corporation (“PC”).  A PLLC, like other LLCs, is comprised of members. On the other hand, a PC is comprised of shareholders. This distinction is important because PLLC ownership consists of membership interests in the business, while PC ownership is based on shares of stock.

In Florida, authorized licensed professionals can form both PLLCs and PCs. Although a PC has its appeal and provides liability protection, it requires more paperwork and, in some cases, does not benefit from the tax advantages of a PLLC.

 

Conclusion

It is highly recommended to speak with someone who specializes in healthcare when deciding on the best legal entity for your practice. The team at Jones Health Law is eager to assist authorized licensed professionals seeking instruction or guidance with the formation of a Florida PLLC or other business structure.

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It should be noted that I am not your lawyer (unless you have presently retained my services through a retainer agreement). This post is not intended as legal advice, it is purely educational and informational, and no attorney-client relationship shall result after reading it. Please consult your own attorney for legal advice. If you do not have one and would like to retain my legal services, please contact me using the contact information listed above.

All information and references made to laws, rules, regulations, and advisory opinions were accurate based on the law as it existed at this time, but laws are constantly evolving. Please contact me to be sure that the law which will govern your business is current. Thank you.

Which Business Structure is Best for my Medical Practice?

Which Business Structure is Best for my Medical Practice?

Over the years many providers have come to my office expressing an interest in owning a medical practice, healthcare facility, or healthcare business. During these meetings, it is important to obtain pertinent background information about the healthcare entity followed by a discussion about some of the regulatory and licensing issues that may arise. Equally important is determining how the healthcare entity should be structured for asset protection and tax purposes. A corporate healthcare attorney like myself can determine whether it is best for you to create a corporation, LLC, or an LLP. Admittedly, some of the more complex tax issues should be discussed with an attorney that specializes in tax law. Here is an overview of some of the basic differences between the different business entities.

Sole Proprietorship

An individual who does not create an entity.

  • No taxes are imposed on the entity. Instead, the individual owner reports the income and pays the income taxes.

Professional Corporation (a/k/a “P.A.”):

A corporation in which one or more shareholders must be licensed professionals (or entities that themselves are wholly-owned by licensed professionals). The P.A. can be taxed either as an S Corporation or as a C Corporation.

 

Corporation:

A corporation whose owner is not limited solely to licensed professionals. The corporation can be taxed either as an S Corporation or as a C Corporation.

  • C Corporation: Unless it elects otherwise, a corporation must report its own income and pay its own income taxes, under Subchapter C of the Internal Revenue Code.
    • A C Corporation is also subject to Florida’s state corporate income tax at a rate of 5.5%. Any distributions of its earnings to its shareholders requires the shareholders to recognize dividend income, resulting in a second layer or taxation.
    • Many professional C Corporations attempt to avoid distributing dividends by paying all income as compensation (because although it is still taxable to the recipient employee/shareholder, the C corporation gets a deduction for such compensation, resulting in one-layer of taxation).
    • If a C corporation pays excessive compensation, the IRS may try to treat some of the compensation as a dividend distribution and deny the deduction to the corporation with respect to such imputed dividend.

LLLP

A limited liability limited partnership comprised of at least one general partner and at least one limited partner, which is created by filing a Certificate of Limited Partnership and indicated LLLP status in such certificate. The status provides a general liability shield for all of the general partners.

S Corporation

No tax generally imposed on a corporation that elects to be treated as an “S Corporation” under Subchapter S of the Code. Rather, the tax consequences flow-through to the shareholder(s).

  • Each shareholder reports his or her pro rata share of the tax consequences based on his or her ownership in the S corporation and pays the income tax at his or her effective personal income tax rate.
  • Any distribution to the shareholder(s) is not treated as a dividend, but rather first is a return of basis and then excess is capital gain: provided, however, if the S corporation was formerly a C corporation within the past 10 years and had earnings and profits, then a portion of the distributions of the S corporation could be subject to tax as a dividend (Rather than a return of basis).
  • Shareholder distributions:
    • must be made in the ratio or ownership;
    • can be abused to “save” payroll taxes applicable to compensation; and
    • lack the asset protection potential of compensation payable to the head of a family under Florida law.
    • A P.A. generally should elect to be taxed as an S corporation, preferably from inception.
    • If a corporation has already been taxed as a C corporation, then conversion to S Corporation status must be carefully considered to ensure that the “built-in gains” tax on unrealized receivables can be handled through proper accrual and payment of accounts payable and compensation.

Professional Limited Liability Company (a/k/a “P.L.”)

A limited liability company in which one or more members must be licensed professionals (or entities that themselves are wholly-owned by licensed professionals). The P.L. can be taxed either as a disregarded entity (if there is only one member), as a partnership (if there is more than one member), or an S Corporation (whether it has one or more members.)

LLC

A limited liability company whose ownership is not limited solely to licensed professionals. The LLC can be taxed either as a disregarded entity, a partnership or an S corporation.

General Partnership

An entity that is comprised of two or more general partners. No written document is necessary to create a general partnership.

LLP

A limited liability partnership is comprised of two or more general partners, which registers with the state by filing a Statement of Qualification. The registration provides a general liability shield for all of the partners.

Limited Partnership

An entity comprised of at least one general partner and at least one limited partner, which is created upon the filing of a Certificate of Limited Partnership with the state.

There are many factors to consider when deciding how to structure your medical practice or healthcare entity. You should obtain an in-depth analysis of the various business structures so that you can choose the best one suited for your needs. While it is not impossible to change from one business entity type to another, it is always best to choose the best structure from the very beginning. A capable attorney at Jones Health Law, P.A. would be happy to guide you through this process.

***This blog post does not constitute legal advice and is only intended for educational purposes. You should consult a licensed attorney in the State of Florida that specializes in healthcare law.***