A professional service limited liability company (PLLC) is a type of business structure geared toward professionals. It is a variant of the limited liability company (LLC) structure that protects business owners and investors from personal liability.
If you are a professional, the following information will help you understand the basics of PLLCs. For more information, contact us for our New York PLLC formation services.
What Is a New York PLLC?
A PLLC New York is a professional service limited liability company (PSLLC). However, under limited liability company law, the difference between PLLCs and PSLLCs is largely just letters; they are essentially the same thing.
This type of business structure offers a way for licensed professionals to enjoy the personal liability protections offered by the LLC structure and other benefits. In other words, a PLLC is an LLC for licensed professionals.
Who Needs to Form a PLLC in New York?
Professionals are typically defined as those with high levels of skill that require some sort of state licensing. These licensing requirements are an acknowledgment by the state that certain jobs have much higher stakes than others. For example, a person who sells t-shirts would not need a professional license, but a surgeon would.
Some New York State licensed professions include:
- Interior designers
- Mental health counseling professionals
- Nurse Practitioners
- Social workers
With a PLLC designation, professionals can work together without worrying about being held personally liable for things that occur during the course of running their businesses.
PLLCs vs. LLCs in New York
The standard LLC structure offers many advantages, including ease of formation, certain tax advantages, and strong personal liability protection. The PLLC is essentially an LLC but with a few distinctions that differentiate it from the standard LLC.
1. Ownership and Management Restrictions
PLLCs are only available to licensed professionals, such as those listed. Additionally, those who manage PLLCs must be licensed in New York, although this is not the case in every state. On the other hand, LLCs do not require their members to be professionals or hold any special qualifications; they are available to anyone.
2. Professional Requirements for PLLCs
The professional requirements for PLLCs in New York are that relevant professionals must own and manage the company. For example, a dentist's office organized as a PLLC must be owned and managed by licensed dentists. Additionally, PLLCs may have to comply with certain requirements from licensing boards that govern their professions.
3. Taxation Differences
A PLLC is a type of limited liability company, so its members enjoy pass-through taxation. However, PLLCs may be subject to certain tax obligations specific to their professions. Additionally, New York requires that income over a certain threshold be counted as wages and thus subject to payroll taxes. So it is important to research all existing potential tax obligations.
Professional Corporation (PC) vs. PLLC
Licensed professionals can form a professional corporation (PC) or a professional limited liability company. Both are excellent options for professionals who are looking to limit their liability through a separation of business dealings and members' personal assets. However, there are important differences between the two.
One of these differences is that PCs do not offer pass-through taxation. So company income is taxed twice, once at the corporate level and again on the personal income tax returns of the corporation's owners. PLLC members, on the other hand, only see business income taxed at the personal income tax level.
Additionally, PLLCs can also choose to be taxed as an S Corporation or a C Corporation, which can have certain advantages for PLLC members.
Another big difference between the two is in the ease of formation. PLLCs are not subject to many of the rigid requirements that go along with forming a PC. This laxness of requirements for forming PLLCs vs. PCs and the ease at which PLLCs can be formed make PLLCs an attractive option for many professionals looking to open up shop.
New York PLLC Requirements
Forming a professional limited liability company in New York State is not as strict or rigid as forming a PC. However, there are important eligibility requirements that must be met. First and foremost, as mentioned, the members of the PLLC must be professionals who are licensed in the professional activities the PLLC will be engaged in.
Other essential PLLC requirements in New York include:
- PLLCs must prepare and submit a certificate of incorporation to the New York State Education Department and the Secretary of State;
- The New York State Education Department must issue pre-approval before the PLLC can be filed with the New York State Department of State;
- PLLCs must have articles of formation completed and on file. Additionally, the PLLC must publish these articles for at least six consecutive weeks in two newspapers in the area where the PLLC will be conducting its business;
- PLLCs must choose a business name that meets the naming requirements for PLLCs;
- PLLCs must explicitly stipulate the nature and type of activities they will be engaged in and not conduct business outside of the scope of these professional services;
- PLLCs must create an operating agreement. The operating agreement details the rules that govern how the company will operate and establishes the rights and duties of PLLC members. Operating agreements need not be filed with any New York department. However, PLLCs should have copies of the operating agreement at the PLLC office.
For business owners who do not meet the requirements of a PLLC or prefer not to use this designation, other business structures are available, including professional corporations and LLCs. Meeting with an experienced business lawyer will help you understand your options and which structure may be most beneficial for your operation.
How to Form a PLLC in New York: Step-by-Step Guide
Although forming a PLLC in New York is not as rigid and technical as forming a professional corporation, there are important formation requirements you must comply with. Choosing to enlist the professional services of an attorney will help ensure that you get things right the first time.
1. Choose a Name
The name you choose for your professional LLC must comply with the guidelines established by the New York State Department Division of Corporations.
New York PLLC Name Requirements
The naming rules require that the letters "PLLC" follow your chosen name. Additionally, the professional body governing your licenses may have naming requirements and restrictions of its own.
2. Appoint a Registered Agent
You must choose a registered agent for your PLLC. A registered agent is a person who is legally authorized to receive legal documents and paperwork for the PLLC. This person must have an address within the state of New York and must be available during normal business hours.
3. Obtain Licensing Approval
The appropriate licensing entity, such as the New York State Department of Education, must issue pre-approval confirming that you possess licensure in good standing for the PLLC you wish to form.
4. File the Articles of Organization
You will next file your articles of organization. These articles are the official creation document of your PLLC and must be filed with the New York Department of State Division of Corporations. You can do this online for a filing fee of $135.
5. Create an Operating Agreement
An operating agreement outlines in detail how the PLLC is to be structured and operated. With a well-thought-out operating agreement, a PLLC can avoid or minimize future conflicts and other issues that can cause business setbacks and problems. An operating agreement can also establish dispute resolution and problem-solving measures to handle issues when they arise.
6. Obtain Any Necessary Permits or Licenses
Depending on the scope of your business and the industry you operate in, you may be required to obtain certain operating or business permits. These should be pursued as soon as possible. Additionally, an experienced business attorney can make sure you are not missing any required permits or licenses before you start operating.
7. Publish a Notice of Formation
After you have filed your articles of organization, you will have a window of 120 days to publish the notice of the formation of your PLLC. The publication must occur in two area newspapers in the county where the PLLC has its business address.
Additionally, the newspapers you choose to publish your articles of organization must be authorized to publish legal notices by the county clerk, and you must include information about your PLLC in the notice.
8. Handle New York Tax Obligations
There are several tax obligations you'll need to keep in mind:
All PLLCs must obtain a federal employer identification number (EIN) before conducting business. Even if a PLLC has no employees, it must still acquire an EIN. The EIN is important because the IRS uses it to identify PLLCs on their tax returns. Obtaining an EIN is simple and requires only that you contact the IRS. Once a PLLC receives its EIN, the company can open an official business bank account.
Although the PLLC has pass-through taxation, individual members must pay federal income taxes on their income.
Depending on how you structure a PLLC, your business may be required to pay business franchise taxes. Additionally, individual PLLC members are responsible for personal state taxes.
City and county governments may also have tax requirements for PLLCs operating in their jurisdictions that vary by location. Check local rules for more information regarding these requirements, or hire an experienced business formation lawyer to handle this and other PLLC tasks for you.
Forming a PLLC in New York: Final Thoughts
Opting for a PLLC structure for your professional business dealings can potentially benefit your company greatly. You will enjoy pass-through taxation and personal liability protection, as well as flexibility. To learn more about how a PLLC can potentially benefit your company, contact an experienced business formation lawyer for a free consultation.
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