In this article, our business attorneys discuss the difference between a PLLC and an LLC, forming a PLLC, and what to do after forming your PLLC.
PLLC Versus LLC
A professional limited liability company is a focused type of limited liability company that is meant for licensed professionals, such as dentists, chiropractors, physicians, accounters, architects, etc. PLLCs exists because many states do not allow LLCs to be formed by professionals whose work requires a license. However, PLLCs act much the same as LLCs, giving the professionals business owner(s) the same benefits including the tax breaks, limited liability, and a host of other benefits. To learn more about Limited Liability Companies in Illinois read our article, How to Form an LLC in Illinois.
For example, a group of doctors want to form a PLLC because it separates their personal liability from the liability of the business so that if one of the doctors gets sued for malpractice the other doctors won’t also get sued. PLLCs also offer licensed professionals an option outside of professional corporations (PC), which don’t always confer as many benefits. Just remember, every business is different and if you’re not sure what legal and tax structure is the best fit for your company, speak with a qualified business attorney.
Forming a PLLC
“This company doesn’t need no stinking name!” said no one ever. Not only do you have to name your company for registration and legal needs, but a quality name is also the first thing potential customers will see and what they will remember.
Picking a name can be stressful. There’s no end of information devoted to determining the best name for your business. In the end, you must pick something that you’ll be comfortable and confident saying over and over. Beyond whatever mystical means you use to conjure up the perfect business name, there are two legal factors to consider and one important step to take once you have the name picked out: 1) The name must contain “Professional Limited Liability Company,” “P.L.L.C.,” or “PLLC.”
It can’t contain words such as “incorporated,” “limited partnership” or anything that might confuse the type of legal structure of the company. 2) It can’t be the same as another company’s name. Use the Iowa Secretary of State Business Entities Search or the Illinois Secretary of State Corporation/LLC search to make sure the name you just fell in love with is not already taken. Once you’ve cleared up the first two steps you can pay a fee of $25 to the secretary of state to reserve your name for up to 90 days.
Choosing a Registered Agent
The registered agent receives government correspondence and other important notifications on behalf of the company. This individual or entity then forwards the pertinent information to the company.
The PLLC cannot be its own registered agent, and the agent has to reside in Illinois and have a physical street address in Illinois where it can receive legal documents during normal business hours. In Iowa, the registered agent must be a resident, an Iowa corporation, or a foreign corporation eligible to do business in Iowa. Most PLLCs and other company structures that require registered agents utilize companies that provide registered agent services. Having a registered agent is critical for a number of reasons, including keeping good standing with the state the company is located in and notifying the company of legal actions against them, such as a lawsuit.
Filing the Right Documents
The Articles of Organization is the primary document that registers your business with the state. In order to properly fill out this form, you’ll need the following information:
- Business name;
- What date the Articles of Organization go into effect;
- Information on the organizers, including name address and their signatures;
- Address of the PLLCs principal place of business;
- Name and office address of the registered agent;
- Name and address of any business managers or anyone else with managing authority;
- Your company’s purpose, including what type of professional, licensed service your company will provide;
- Any other stipulations or provisions affecting the internal workings of your company
The filing fee for the Articles of Organization in Illinois is $150, and $30 in Iowa ($45 if mailed in). Processing time in Illinois is a minimum of 10 days (this can be fast-tracked by paying an extra fee). Iowa can take anywhere from 25 to 30 days.
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Create An Operating Agreement
While the operating agreement is not legally required to start your business in Illinois or Iowa, it is extremely important and a bank will often ask for this in addition to your business plan if you are seeking a small business loan. The operating agreement, along with your business plan, essentially serve as the blueprint for your business.
The operating agreement is also the official document that binds the PLLC members to its terms. New partners and/or managers will likely want to view your operating agreement before joining your company. Items that should be included in the operating agreement are:
- Individual ownership percentages
- Rules regarding the management of the PLLC
- Owner, manager and other member voting powers
- Meeting guidelines
- Allocation of profits and losses
- Rights and responsibilities
- Stipulations on buying out other owners’ shares or transferring shares in the event of an owner’s death
It’s best to speak with an attorney or at least have a qualified business attorney review your operating agreement before it’s finalized.
Taxes
Get a federal tax ID number and/or EIN. An EIN is required to hire employers and to open up accounts for your business at most banks. You can get an EIN for free through the IRS. Get a good accountant to guide you through any other tax concerns for your business. Having everything in place before opening helps to avoid a lot of headaches later on.
Licenses
Check the Illinois Department and Financial Regulation for information on what licenses you need to operate your business; the website will have a list of regulated businesses. If doing business in Illinois you will have to register with the Illinois Department of Revenue by submitting an Illinois Business Registration Application. This can be done on the MyTax Illinois website or by mailing in the form to the IDR.
What’s Next?
After you’ve completed all the necessary steps to form your PLLC the hard work is done! Just kidding, now the real work starts. A few things you’ll need to do right away include:
- Getting business insurance;
- Get a good accountant;
- Figure out income reporting and annual reporting (hence the accountant!)
- Have fun!
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