What form is your business? Sole proprietorship, partnership, professional association, professional corporation? There are many different forms to choose from in operating a professional practice. The form you choose will have consequences affecting taxes, operations, overhead expenses, and liability issues. Existing professional practices and start-up professional practices should consider the relatively new business form of a Professional Limited Liability Company (“PLLC”). A PLLC can be formed at the time a professional practice is started and may also be used by an existing professional practice by what is known as a “conversion”. A conversion allows an existing sole proprietor, partnership, or professional corporation/association/partnership to change its business form to a PLLC. The PLLC renders the particular professional services through the individual who is licensed to practice that profession. The relationship between the PLLC and the client or patient is deemed to be the same as that with between client or patient and the individual professional within the PLLC rendering the services. This means that such protections as the doctor patient privilege or attorney client privilege, as examples, are not undermined in any manner by the fact the services are being rendered through a PLLC.

Who can form a PLLC? State law authorizes only certain types of professions to operate under the form of a PLLC. These include certified public accountants, public accountants, architects, attorneys, podiatrists, chiropractors, dentists, pharmacists, professional engineers, land surveyors, registered professional nurses, optometrists, physicians and surgeons, psychologists, veterinarians, and certain other licensed professionals licensed, registered, certified or otherwise authorized and permitted to practice independently as provided by state law. The members (the owners) of a PLLC must be either other professional entities or what are called “qualified individuals”, which means that the individual member of the PLLC must be licensed to practice within that profession in NH.

What are the benefits of a PLLC? In selecting the best business form for your practice, certain facts should always be considered: liability, tax regimens, simplicity, flexibility and cost. A PLLC offers benefits in all these areas. Sole proprietors have unlimited personal liability while a PLLC offers a liability shield to a member’s personal assets when the claim is based on the acts of employees and other members. This limited liability shield is the same as that afforded by a corporation. An individual member of a PLLC, however, remains responsible for his or her own negligent or wrongful act or omission in which he or she personally participates to the same extent as if he or she rendered the services as a sole practitioner. A PLLC (and a professional corporation for that matter) will not insulate such a member from liability for such acts. A multi-member PLLC offers protection to the organization’s business assets from personal claims made against members of the PLLC.

The cost of forming and administering a PLLC is normally less than a professional corporation and the basic legal rules governing a PLLC are simpler and easier to understand than those governing professional corporations. The rules governing PLLCs also provide for greater flexibility in structuring equity investments and profit-sharing arrangements as well as providing for easier resolutions to disputes among owners when compared to professional corporations.

Although not for every practice, a PLLC offers another choice of business form to professionals.

Douglas Mansfield is a partner with the law firm of Donahue, Tucker & Ciandella, PLLC. His practice includes representing licensed professionals on business and employment related matters. For more information you may contact him at 603.778.0686 or dmansfield@dtclawyers.com.