Professional Limited Liability Company

Fundamentals Of The Illinois Professional Limited Liability Company

A Professional Limited Liability Company (PLLC) in Illinois is a special type of business entity created under the Professional Limited Liability Company Act (805 ILCS 185). This type of entity is designed specifically for licensed professionals who want to provide professional services through an LLC.

Similar to a regular LLC, a PLLC provides limited liability to its members, protecting their personal assets from the company’s debts and obligations. However, it’s crucial to note that members of a PLLC remain personally liable for their own professional malpractice.

One key characteristic of a PLLC is that all its members must be licensed in the profession that the PLLC provides. This is different from other business entities where there are no specific professional licensing requirements for members.

PLLCs have a flexible management structure. Members can choose to manage the company themselves (member-managed) or appoint managers (manager-managed) to handle the company’s daily operations. This flexibility can make a PLLC more appealing compared to a professional corporation, which has a more structured and formal management requirement.

Taxation of a PLLC follows the pass-through principle, similar to a standard LLC. This means that the company’s profits and losses are reported on the members’ individual tax returns, avoiding the double taxation that can occur with traditional corporations.

Before selecting a PLLC as their preferred business entity, licensed professionals should consider these characteristics against their professional goals, potential risks, and financial circumstances.

Operating A Professional Limited Liability Company – Advantages and Disadvantages

A Professional Limited Liability Company (PLLC) holds specific advantages and disadvantages when compared to both a Professional Service Corporation (PSC) and a traditional Limited Liability Company (LLC).

One major advantage of a PLLC over a PSC is the flexibility in management. While a PSC requires a formal structure with directors and officers, a PLLC can opt for a more relaxed structure, either being member-managed or manager-managed. This flexibility may make running the business easier and more adaptable to changing circumstances.

Another advantage of a PLLC is its pass-through taxation. The PLLC itself does not pay income tax; instead, profits and losses pass through to the individual members who report this income on their personal tax returns. A PSC, on the other hand, can be subject to double taxation if it is taxed as a C corporation, where the corporation pays tax on its income and shareholders pay tax on dividends.

However, a potential disadvantage of a PLLC, when compared to both a PSC and traditional LLC, is the restriction on ownership and management. In a PLLC, all members (and any managers) must be licensed professionals in the same profession as the company’s purpose. This is also true for a PSC, but it is a contrast to a traditional LLC, which has no such restrictions.

Additionally, while a PLLC offers protection from personal liability for the company’s debts and obligations, members are still personally liable for their own professional malpractice. This personal liability is also true for a PSC but is not typically the case with a traditional LLC where members are not usually personally liable for business debts or liabilities.

Finally, it’s worth noting that PLLCs are not recognized in all states, and professional licensing boards have differing regulations, which could limit the ability to move or operate across state lines. This potential lack of flexibility is a disadvantage compared to both PSCs and traditional LLCs, which are widely recognized business entities.

Organizing a Professional Limited Liability Company In Illinois

In order to register a Professional Limited Liability Company (PLLC) in Illinois under the Professional Limited Liability Company Act (805 ILCS 185), certain legal forms must be submitted and crucial legal documents developed.

To form a PLLC, the entity must file Articles of Organization (using Form LLC 5.5) with the Illinois Secretary of State. The Articles of Organization will include information such as the name of the PLLC (which must include “Professional Limited Liability Company,” “P.L.L.C.” or “PLLC”), the specific professional service it will provide, and the names and addresses of the initial members. The document must also include a statement that all members are licensed to provide the stated professional service in Illinois.

A filing fee is due upon submission of the Articles of Organization. Once approved by the Secretary of State, the PLLC is officially registered. Licensed professionals should understand that even if the professional service corporation’s name is available to register with the Illinois Secretary of State, this does not mean it is available for use under trademark law. Licensed professionals are encouraged to conduct a search and clearance of all state and federal trademark databases to ensure the name is available for use before registering the professional limited liability company.

While not necessary for the registration process, there are important documents that should be drafted for proper organization of the PLLC. A key document is the Operating Agreement, which outlines how the PLLC will be managed and operated. It will typically cover aspects such as member responsibilities, voting rights, distribution of profits and losses, procedures for adding or removing members, and how disputes will be resolved.

Additionally, any necessary business licenses or permits must be obtained from the relevant state or local agencies to legally operate the professional service. The PLLC must also apply for an Employer Identification Number (EIN) from the IRS, which will be required for tax purposes, registering the professional service corporation with the Illinois Department of Revenue, registering the professional service corporation with the Illinois Department of Financial and Professional Regulation, and applying to do business in the city and/or county where the corporations operations are conducted.

Our Chicago Business Attorneys

Starting a business is a journey filled with both exciting opportunities and complex legal requirements. As you embark on this journey, we understand the importance of ensuring every step you take is sound, secure, and beneficial for your long-term success. We regularly assist individuals and organizations navigate the intricate process of business formation. Our team has an in-depth understanding of the various types of business entities — be it Limited Liability Companies, Corporations, Partnerships, or others.

Our legal services are comprehensive, ranging from advising on the appropriate business structure to meet your unique needs and goals, drafting organizational documents, ensuring compliance with state regulations, assisting with licensing requirements, and much more.