Are you looking to form a business entity in New York for people who are licensed to provide professional services? If so, you may be interested in starting a professional limited liability company (PLLC).
The PLLC is a popular choice for licensed entrepreneurs looking to start businesses with fellow doctors, attorneys, accountants, engineers, or other professionals, thanks to its ability to reduce each professional’s personal liability while also providing a host of other benefits.
In this article, we’ll walk you through the steps required to form a professional LLC in New York in compliance with state and federal laws. Let’s get started!
What Is a Professional Limited Liability Company?
For the most part, professional limited liability companies are quite similar to standard LLCs, and they share many of the same benefits.
In general, an LLC is a business entity type that brings together some of the most popular attributes of casual entities, like sole proprietorships and general partnerships, with the formality of corporations. The resulting entity is one that is highly flexible and customizable, while also providing some great benefits to its owners.
The factor that differentiates a PLLC from a standard LLC is that the PLLC is strictly for licensed professionals to operate their businesses with other licensed professionals. In New York, the types of professionals who form PLLCs include “any type of service to the public that may be lawfully rendered by a member of a profession within the purview of his or her profession.” Some other states are much more specific in this regard, listing each individual profession that should form a PLLC, but New York keeps things pretty vague in this area.
The state of New York only allows licensed professionals to be members of PLLCs. In some states, only half of all members of a PLLC need to be licensed, but New York is pretty strict regarding PLLC membership.
Let’s discuss a couple of the attributes that make the PLLC such a popular option for these professionals.
A big benefit of a professional limited liability company is its ability to provide personal asset protection to its owners/members. Let’s say you operate a general partnership instead of a PLLC. If your business is sued, your creditors can pursue your personal assets to satisfy the lawsuit. This means your house, car, personal bank accounts, and personal possessions are all fair game.
However, for PLLC owners, this isn’t the case. Instead, creditors can only pursue the assets of your actual business. It’s important to note that this doesn’t defend your PLLC from malpractice suits. For example, if you are a member of a PLLC for doctors and you botch a surgery, the PLLC will not protect you from the patient filing a malpractice suit.
One of the main benefits of the PLLC is the fact that it gives its owners some options regarding how they want to be taxed. While a professional corporation also gives you choices regarding taxation, to an extent, the PLLC is much more flexible in this regard.
You can choose to have your PLLC taxed as a pass-through entity (similar to sole proprietorships or general partnerships), which means that your PLLC itself will not owe taxes. Instead, your profits and/or losses will “pass through” your PLLC to your owners, who will then pay taxes on that money on their own personal returns.
Another option is to be taxed like a C corporation or an S corporation. C corporation taxation is the most common form of taxation for corporations, but as this tax structure leaves its owners subject to double taxation (wherein the same money is taxed both at the corporate level and the individual level), it’s not a popular option for PLLCs.
The S corporation is a similar form of taxation to the pass-through method but avoids the self-employment taxes that come with partnership or sole proprietorship-style taxes. While this can save you some money because you won’t have to pay both the employer and employee portions of Medicare and Social Security, people who choose this form of taxation should be careful to ensure they’re still paying enough into Social Security to be able to draw from this entitlement when they retire.
How to Form a New York Professional Limited Liability Company
Each state has its own method for forming PLLCs, as there is no uniform nationwide formation process. In New York, the formation process for a PLLC is similar to the process for a standard LLC, but there are some crucial differences.
Step 1 – Name Your PLLC
The first step is to choose a business name. New York requires that the name of every PLLC registered in this state must end with the words “Professional Limited Liability Company” or “Limited Liability Company,” or the abbreviations “P.L.L.C.,” “PLLC,” “L.L.C.,” or “LLC.” The PLLC’s name must not contain the name of a deceased person unless that name was already part of the PLLC’s name when the person was alive, or if the deceased person was part of a partnership or professional corporation and at least ⅔ of that company’s partners or shareholders are now members in the PLLC.
In addition to the legal requirements, there are also some practical applications to discuss. Generally speaking, your business name should indicate what your PLLC does. For instance, if you operate a PLLC for attorneys, you should probably have either the words “attorneys” or “lawyers,” or the phrase “law office” in your business name.
When you’ve come up with a name you like (we suggest making a list of 3-4 name ideas, in case your first choice is already taken), you should perform a name search on the Department of State website. If you’d like more information about business name searches in New York, check out our guide.
Step 2 – Designate a Registered Agent
Every PLLC operating in the state of New York is required to have a registered agent who acts as a middleman between your business and the state. The registered agent’s role is to accept important document deliveries from the state — especially service of process — inform you of the delivery, and then forward the materials on to your business.
There are quite a few options when it comes to who can serve as your registered agent in this state. You can hire a registered agent service, designate a trusted friend or family member, or even serve as your PLLC’s own registered agent yourself. However, we typically advise against serving as your own registered agent because you would need to be available during all standard business hours in case the state needs to make a delivery.
If you choose to use an online formation service to create your PLLC, you may be able to get a full year of registered agent service for free. If you’re interested in this option, we recommend Northwest Registered Agent or IncFile, our two favorite services for PLLC formations.
Step 3 – File Your Articles of Organization
Next, you’ll need to fill out a formation document known as the Articles of Organization. It’s important to note that the document used to form a standard LLC is also called the Articles of Organization in this state, so make sure you’re using the right version of this document.
Among the information you’ll need to complete this form is the name of your PLLC, the professional service the PLLC was formed to provide, the county where your PLLC’s primary office is located, the address of your registered agent, the names and addresses of all of your original members and/or managers, a copy of your certificates from the relevant licensing authority, and your name and signature.
When you’re ready to file this form, you can submit it to the Department of State online, by fax, by mail, or in person, along with your $200 filing fee. It typically takes the state up to seven business days to process your filing, unless you choose to expedite the service: an extra $25 for 24-hour service, $75 for same-day service, or $150 for two-hour service (available only by fax or by hand).
Once you’ve filed this document, you will need to submit a certified copy of your completed Articles of Organization with the state agency that oversees your certified profession. You are required to complete this step no later than 30 days after you file your Articles of Organization.
Next, you will have to publish your PLLC’s formation in two newspapers in the same county where your PLLC’s principal office is located. These advertisements need to run for six straight weeks. When this step is complete, you will receive affidavits of your publication that you will file with the Certificate of Publication.
This document has a $50 filing fee, not including the expense of publishing your PLLC in newspapers. This step must be completed within 120 days of filing your Articles of Organization. If you would rather hire a service to complete this step on your behalf, check out our New York publication service guide.
Step 4 – Create an Operating Agreement
An operating agreement is a crucial part of any PLLC, as this internal document outlines your company’s financial structure, as well as how the business will be managed. You don’t actually need to submit this document to the state, but it is still legally required that you have one in this state because it can help you avoid conflicts between your member/owners down the line.
What information should be included in your New York operating agreement? It’s up to you to determine what you want in your company’s agreement, but we recommend the following sections:
- Ownership interests
- The rights and responsibilities of the members
- Voting rights
- Profit/loss allocation
- Management by a manager or by members
- Guidelines for voting and holding meetings
- Plans for replacing a member, if necessary
Step 5 – Obtain an EIN
A federal tax ID number — also known as an Employer Identification Number (EIN) — is essentially the business equivalent of a Social Security number. It’s a nine-digit number that serves as an identifier for your specific business entity.
If you operate a PLLC, you should absolutely get an EIN for your business, as this will help you pay taxes, hire employees, open business bank accounts, and more.
Thankfully, acquiring an EIN is a painless process, and it’s also entirely free of charge. All you need to do is head over to the EIN Assistant on the IRS website and fill out the form. It’s just that easy — once you finish the form, the IRS will provide your EIN immediately.
Step 6 – Apply for Licenses, Taxes, and Income Reports
At this point, your PLLC has been successfully created, but that doesn’t mean the process of getting your business off the ground is complete. You still need to acquire any applicable business licenses that may apply to your PLLC.
Depending on the nature of your business, your professional licenses will vary, so you should check out the state’s professional licensing website to figure out which licenses you’ll need.
You will also most likely need to register for sales and use tax, withholding tax, and unemployment insurance tax. Thankfully, New York makes this step easy as well, as you can register for all of these taxes on the New York Business Express website.
Finally, there are a couple of additional filings you should keep in mind as you wrap up your PLLC’s first year in business. You need to pay an annual filing fee with the Department of Taxation and Finance, and you’ll also need to file a biennial statement at the end of your second year.
Forming a professional limited liability company in the state of New York requires quite a bit of information, and there can be a significant amount of legwork involved in forming one as well. Still, the process is certainly simpler than the process of forming a professional corporation, which is the other popular option for certified professionals in New York.
As long as you follow the steps in this guide — and seek advice from a reputable attorney if you run into any questions or concerns — you should be able to form your new PLLC in a compliant fashion that allows your business to thrive for many years to come.