An LLC after a doctor’s name, just like in every other place, means a Limited Liability Company. Structured as separate legal entities from their owners, limited liability companies (LLCs) benefit from limited liability protection. They are a good option when starting a business or running a small business for liability and tax reasons.
However, a professional can’t use a corporation or an LLC to protect themselves from their own malpractice. Though it does not mean that a practice should ever be run as a sole proprietorship or partnership. Absolutely not!
What Type of LLC is a Doctor Allowed to Form?
A doctor is expected to form either a professional corporation or a professional LLC (PLLC). The only difference is that in a “regular” corporation or LLC the “professional” is not protected in the practice of their profession. Each state statute has a long list of professionals that have to establish a professional corporation or a PLLC.
What is the Difference Between PLLC and LLC?
Note that the PLLC will give you all of the asset protection any other LLC would offer, but it won’t insulate you from the professional malpractice issues. The irony is that most of the lawsuits and liability issues will involve issues other than professional malpractice.
Regarding the management flexibility and taxation, a PLLC has the same advantages of an LLC. The difference between the two is that the PLLC has some restrictions on who may be a member of the PLLC and the limitation of liability of the members.
Note that with an LLC, anyone can be a member, or owner, of the business. State PLLC laws often provide that only licensed professionals can be members, or that a certain number of members must be licensed professionals. A PLLC cannot be used to shield members from claims for malpractice. However, the malpractice of one member cannot create liability for other members.
How Do You Prepare a PLLC Operating Agreement?
An employee can sue over a HR problem. A patient will slip and fall in the parking lot. Your “partner” or bookkeeper will embezzle money. The list can go on forever. Forming a PLLC is the same procedure as establishing any other LLC, but you have to check the “professional” box on the state filing forms. The operating agreement will read a little different though.
The PLLC operating agreement should be about 20 pages long. If it is only a five – page agreement, the issues that need to be addressed weren’t addressed. Have it in mind that if an issue is not addressed in a PLLC operating agreement, the issue will “default” to whatever the state statute says about the issue. What most people don’t understand about an operating agreement is that you get to write it.
5 Steps on How to Form a PLLC in the United States
Note that your state law will determine whether you can form a PLLC, and set forth the requirements for formation. These requirements are more or less found in the statutes that allow for a PLLC, but in some states the particular profession’s licensing agency also has rules governing PLLCs.
Some states list the professions that may form a PLLC. The list varies from state to state, but typically includes professionals such as physicians, dentists, attorneys, accountants, architects, engineers, veterinarians, real estate agents, and psychologists.
However, the procedure for forming a PLLC is the same as that for forming an LLC, except that you need to tick the “professional” check box on your filing form.
1. Prepare Articles of Organization
This is the principal document for forming a PLLC. Forming a PLLC will require that certain documents, such as Articles of Organization, be filed with the appropriate state agency. These documents will be tailored to a PLLC, but will be similar to those filed for an LLC, setting forth the name of the PLLC, the names of the members, etc.
2. Submit your Articles of Organization for approval of the state licensing board
The state licensing board of your profession must approve your Articles of Organization before you can form a PLLC. Upon approval by the licensing board, the articles of organization and all other required paperwork must be filed with your Secretary of State or other LLC filing office. To learn more about the filing process, review the Secretary of State’s website in the state where you plan to incorporate or organize.
3. Operating Agreement
In some states, you must also prepare an operating agreement for internal functioning of the organization. This document specifies rights and responsibilities of members and sets out procedures for operating the business. Although this is not mandated by-law, it is advisable to have one in place with other members should your LLC have more than one member.
4. Register with the Department of Revenue
In the United States, LLC members are expected to file individual income tax returns with their State Department of Revenue. All LLCs are also expected to register with the Department of Revenue, which may be done online. These registrations require an SSN or EIN, the LLC business address, the commencement dates for accounts and contact information for business officers.
Note that you must also file the state tax registration application form CRF-002. All LLCs that opt to be treated as corporations are subject to net worth tax for income tax purposes.
5. File Annual Registrations
All LLCs doing business in Georgia are required to file an annual registration with their Secretary of State and pay a $50 filing fee. The initial registration is due between January 1 and April 1 of the year following the calendar year in which the LLC was formed. The registration should be filed online.
Conclusion
One of the major reasons to form a PLLC is because it creates a separation between the individual and the entity. In most cases, if a PLLC is formed, the individual will not be personally liable for the business’ debts or any lawsuits against the business. However, you must be licensed by your professional body to form a PLLC. Depending upon the state of formation, you may have to add PLLC at the end of your business name.