More than once since I formed Andrew Abramowitz, PLLC, I’ve been asked “What’s the ‘P’ in PLLC?” The answer is “professional.” New York requires that business entities engaging in one of the professions regulated at the state level (e.g., law, medicine, architecture) be conducted in a special professional form of the entity, so corporations are called PCs and limited liability companies are called PLLCs.
In the most basic sense, these entities are like the non-professional version of each: they offer limited liability for shareholders/members (though those individuals remain liable for “any negligent or wrongful act or misconduct”) and pass through taxation for PLLCs and PCs that elect to become S-corporations. However, there are a couple of important differences that those working with these entities should be aware of:
- Unlike non-professional entities that can be formed immediately upon a filing with the Department of State, there are other hoops to jump through, depending on the profession. For my law firm, I had to submit evidence to the state that I was in good standing with the state bar.
- Each shareholder/member of the entity must be a licensed practitioner of the applicable profession. This restricts the ability of the entity to seek outside equity financing from passive investors, and also restricts the entity from being able to issue equity to service providers as compensation. This rule isn’t universal – Australia permits outside equity investment, and there have been calls to permit it here, as described in this New York Times article.