Friday, June 20, 2008

Professional Services LLCs

Every state except California allows licensed professionals to run their professional services practice through an LLC. The two main differences between a professional services LLC and a standard LLC is that only professionals licensed by the state may be members of a professional services LLC and, in many states, there is not complete personal liability protection to professional from the LLC (as is the case with professional services corporations). An example of state law on personal liability for a professional rendering services through an LLC is found in Arizona's LLC Act:
§ 29-846. Professional relationship and responsibility.
This chapter shall not alter any law applicable to the relationship between a person performing professional services and a person receiving those services, including liability arising out of those professional services. Each member, manager or employee performing professional services shall remain personally liable for any results of the negligent or wrongful acts, omissions or misconduct committed by him or by any person under his direct supervision and control while performing professional services on behalf of the limited liability company. * * *
Another strange quirk of the LLC laws of the various states regards use of the "PLLC" versus "LLC" to designate professional services LLCs. In the 49 states and District of Columbia that allow licensed professionals to practice their profession in the LLC form, some mandate use of PLLC in the name, some mandate use of LLC (or LC) while still other allow either PLLC or LLC. Go figure.

Another common issue with professional service LLCs is exactly what professions are covered by the law. Most states, if their statutes distinguish between professionals service and regular LLCs, do not give a specific list of those professions included within the definition of "professional services". Florida is one of the fews states whose LLC statute does give us a list of covered professions.
§ 621.03 Definitions.--As used in this act the following words shall have the meaning indicated:
(1) The term "professional service" means any type of personal service to the public which requires as a condition precedent to the rendering of such service the obtaining of a license or other legal authorization. By way of example and without limiting the generality thereof, the personal services which come within the provisions of this act are the personal services rendered by certified public accountants, public accountants, chiropractic physicians, dentists, osteopathic physicians, physicians and surgeons, doctors of medicine, doctors of dentistry, podiatric physicians, chiropodists, architects, veterinarians, attorneys at law, and life insurance agents.
This list is not exhaustive but give one an idea of the breadth of the covered professions.

Operating agreements for PLLCs are generally more difficult to draft than for standard LLCs. PLLCs, by their nature, rely heavily upon the delivery of services for generating revenue and less on capital invested by its members. Thus, compensation formulas are the norm in PLLC operating agreements. Here is a link to a PLLC operating agreement template from my commercial web site.