Business Organizations for Doctors and Other Licensed Professionals

In most states, a professional service provider (who is anyone that must have a license to before they can perform a specific service, e.g. a doctor, attorney, dentist, veterinarian, or CPA) cannot form a standard limited-liability entity (corporation, LLC, limited partnership, etc.) Most professionals must instead form the professional variant, such as a Professional Corporation (PC) or Professional Limited Liability Company (PLLC), or sometimes a Limited Liability Partnership (LLP).

Although Professional Companies are mostly like their non-professional counterparts, there are a few differences. Such differences generally include:

• The company does not limit the liability of the professional if he commits malpractice. In other words, his personal assets are still at risk if he loses a malpractice suit or settles the suit out of court. This means it’s very important for professionals to protect their personal assets, which can be done with standard limited liability entities. However, a PC, PLLC, or LLP can prevent a professional from being liable for the malpractice of the company’s other owners (which is not the case with a general partnership.)
• Professional companies generally have restricted stock. This means that if a PLLC is a dental practice, then only other dentists can own or manage the PLLC. Note that merely having a license does not mean you can own a certain professional company. A CPA could not hold stock in a doctor’s PC, for example. This is actually helpful from an asset protection perspective. For example, if a doctor is sued, his ownership interest in a PC could not be seized, unless the creditor was also a doctor.

The type of professional company one should form is often dependant on the state in which s/he resides. For example, California does not allow the formation of PLLCs, so we must form a PC instead. Other states allow for formation of a Professional Association (PA) as an alternative to the PC or PLLC. PF Shield often forms professional companies for its clients while working under the supervision of their local attorney.