Is a PLLC a Corporation in New York? Key Facts Explained

Key Takeaways

• A Professional Limited Liability Company (PLLC) in New York is a specific type of LLC designated for licensed professionals.
• A PLLC is not a corporation but shares certain structural similarities while retaining pass-through taxation and flexible management.
• Only licensed individuals in fields like medicine, law, engineering, and more can form a PLLC.
• PLLCs offer liability protection, but not from personal malpractice or supervisory negligence.
• New York requires biennial statements and prior approval from licensing boards for PLLC formation.
• Naming a PLLC must follow specific legal conventions and may require professional identifiers.
• Some states restrict PLLCs to a single professional service type.
• PLLC members might be required to carry malpractice or liability insurance.

A New York state PLLC is a special type of LLC. An LLC is a type of business entity that provides individuals with some of the benefits common to partnerships and corporations. All businesses can be formed as LLCs, no matter their size.

Forming a PLLC

The choice of business structure is usually governed by the scale of business, types of products/services offered, and the state's rules and regulations regarding the formation of companies.

The aim of setting up a business as an LLC is to take advantage of its partnership pass-through taxation and corporate limited liability protection.

The limited liability protection afforded to LLCs protects the personal assets of business owners or members from the adverse consequences of actions undertaken by the company. It also limits the owners' liability for most lawsuits and business debts.

The partnership pass-through taxation afforded to LLCs frees the company from the burden of taxation. Instead, its members are responsible for all taxes arising from the profits and losses of the company. As such, LLC members are protected from the double taxation that happens with corporations.

A PLLC has the same benefits as an LLC. The major difference between a PLLC and an LLC is that the former can only be formed by professionals that are recognized and licensed by the state. Such professionals include:

• Lawyers.
• Medical practitioners.
• Architects.
• Engineers.

The article of organization for a PLLC is similar to that of an LLC, but its filing requires additional steps.

Only licensed professionals are allowed to sign the PLLC's filing documents. The certified copy of the professional license or a license number must be included in the filing documents.

Furthermore, the filing documents must be submitted to the state's licensing board for approval before filing with the Secretary of State. Due to the additional approval required by the licensing board, the process for forming a PLLC is longer than that for standard LLCs.

Who Can Form a PLLC in New York?

Only individuals who are licensed by the state of New York to provide professional services may form a PLLC. Examples include, but are not limited to:

• Attorneys
• Physicians and surgeons
• Dentists
• Engineers
• Architects
• Certified public accountants
• Chiropractors
• Veterinarians

Each member of the PLLC must be licensed to provide the specific professional service for which the PLLC is being formed. Additionally, the New York Department of State requires that the PLLC render a single type of professional service. This means that, for example, a law practice cannot also offer accounting services under the same PLLC.

Some states, such as California, do not permit licensed professionals to form PLLCs. In those cases, professionals must form a Professional Corporation (PC) or, if applicable, a Registered Limited Liability Partnership (LLP) instead.

Naming Requirements for a New York PLLC

When naming a PLLC in New York, businesses must comply with specific legal requirements. The name must:

• Include the phrase “Professional Limited Liability Company” or an accepted abbreviation such as “PLLC” or “P.L.L.C.”
• Reflect the professional service being offered.
• Avoid language that could mislead the public or imply services not legally authorized.
• Be distinguishable from existing business names on record with the Department of State.

Certain professions may require the PLLC name to include the surnames of the licensed members (e.g., law firms). It is advisable to consult the rules of the applicable professional licensing board when selecting a business name.

Tax Purposes

The IRS doesn't recognize the PLLC as a separate entity for tax purposes. Multi-member LLCs (MMLLC) must file as a C corporation, S corporation, or partnership. Single-member LLCs (SMLLC), on the other hand, may file as corporations or sole proprietorships.

To classify your LLC, you must also file Form 8832 Entity Classification Election. If you don't fill out this form, you will be classified automatically — possibly into the wrong category. For instance, if your business has two or more members and is supposed to be taxed as a corporation, it could be automatically classified as a partnership by the IRS if you don't fill out Form 8832.

SMLLCs are automatically classified as disregarded entities, entities with sole proprietorship status that are regarded as distinct from the owner.

PLLC vs. Corporation: Key Differences

A common question is: Is a PLLC a corporation? While both entities offer limited liability, they are fundamentally different in structure and taxation.

Here are the primary distinctions:

Thus, while a PLLC is not a corporation, it does share the liability shield benefits and some operational flexibility. However, corporations may be better suited for raising capital or issuing stock, which PLLCs cannot do.

Liability

Although the members of PLLCs and LLCs aren't usually liable for their employees' actions, they become liable for actions undertaken under their direct supervision. PLLCs and LLCs don't usually provide liability protection from malpractice lawsuits.

Businesses that offer certified or licensed professional services in states like California are not allowed to form PLLCs. However, they can form a professional corporation (PC). Some states, like California, don't allow LLCs to offer licensed or certified professional services.

When PLLC Liability Protection Does Not Apply

A PLLC protects its members from the actions and debts of the business, but there are important exceptions:

• Personal Malpractice: Members remain personally liable for their own acts of malpractice or professional misconduct.
• Supervisory Negligence: If a member supervises another professional who commits malpractice, that supervisor may also be held liable.
• Personal Guarantees: If a member personally guarantees a business loan, they are liable regardless of PLLC status.
• Intentional or Reckless Acts: Members are not shielded from the consequences of willful misconduct or gross negligence.

New York may require professionals in certain fields to carry malpractice insurance or set aside funds to cover claims. These requirements vary by licensing board, and it is crucial to verify them prior to forming a PLLC.

PLLC vs. LLP vs. PC: Choosing the Right Entity

Professionals may also consider forming a:

• Professional Corporation (PC): Structured like a standard corporation with shareholders and a board of directors. PCs may be preferred in fields where corporate tax benefits outweigh pass-through structures.
• Registered Limited Liability Partnership (LLP): Offers flexibility in management and taxation, but may provide different liability protection than a PLLC.

Here’s a quick comparison:

Each structure offers trade-offs depending on liability, taxation, and business goals.

Biennial Statements

According to Section 301(e) of the New York LLC laws, PLLCs must file biennial statements with the Department of State. The statement should set forth the address where the Secretary of State can mail copies of legal processes that it accepts on the PLLCs behalf. Forms for biennial statements are provided by the New York Department of State.

An LLC's filing period is the calendar month in which its article of the organization was filed. The Department of State automatically mails biennial statements to the address it has on record to be processed one month prior to the due date.

Any PLLC that wishes to file biennial statements but hasn't received the proper forms can request one from the Department of State. PLLCs that fail to file their biennial statements on time will be designated in the records of the Department as past due.

This will be reflected in all status letters or certificates that are obtained from the Department of State. Consequently, the PLLC may be unable to complete certain business transactions.

Frequently Asked Questions

1. Is a PLLC considered a corporation in New York?
   No, a PLLC is not a corporation. It is a special type of LLC created for licensed professionals. It shares some traits with corporations, like limited liability, but differs in structure and taxation.
2. Can a PLLC have non-professional owners in New York?
   No. In New York, all members of a PLLC must be licensed to provide the professional service the company offers.
3. What professions can form a PLLC in New York?
   Professions like law, medicine, dentistry, engineering, and accounting are commonly eligible to form a PLLC, provided the members are licensed by the state.
4. Do PLLCs offer liability protection from malpractice?
   A PLLC protects members from malpractice claims against other members but not from their own malpractice or gross negligence.
5. Is malpractice insurance required for PLLCs?
   Some states and licensing boards mandate malpractice or professional liability insurance for PLLC members. It's essential to verify requirements with the appropriate board.

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