In New York State, professionals who are licensed through the Department of Education can structure their businesses in two ways: as a professional corporation (PC) or a professional limited liability company (PLLC).
Under New York Law, both structures provide identical legal protection—the legal separation of personal and business assets by establishing a corporate shield. However, to understand which entity is best for your practice, you will need to understand the tax consequences and the rules to maintain each entity.
Professional Corporation (PC)
A PC is a corporation and is subject to the rigid requirements of having the corporate structure—including, but not limited to: minutes, bylaws, board of directors, and shares. A PC can have one shareholder or more than one. As it is a corporation, one issue to keep in mind is how the entity will be taxed; will the shareholders be double taxed or will it be a pass-through corporation? This is a critical question before forming a PC.
Professional Limited Liability Company (PLLC)
The PLLC is not a corporation or a sole proprietorship, but a form of the two together. It has an operating agreement that controls how the company is managed, its overall purpose, how members can join or withdraw, and what happens should the company dissolve. It does not have any of the other formal requirements that the PC has, as stated above. However, similar to a PC, a PLLC can have one member or multiple members. The number of members is just one variable to determine how the company will be treated for tax purposes.
From a legal perspective, one primary difference between the two entities is the manner in which the business will run—whether it will be governed rigidly or loosely.
Given the recent changes in our tax laws starting in 2018, it is imperative for professionals to speak to their accountant in order to determine which entity may be more beneficial from a tax perspective. It is important to understand the tax consequences so that you can make an informed decision on how to proceed with your practice.
When forming a professional legal entity in New York, professionals should also consider the length of time it will take to form these entities. It may take up to three months from first submitting paperwork with the Department of Education for approval until filing the approved documents with the New York Department of State. Once filed, the entity will then be active and you can begin marketing under the legal name of the PC or PLLC.
If you are planning to create a legal entity for your practice, it is never too early to get started.
Contact me today with questions or comments.
Stephanie J. Rodin, Esq.
Rodin Legal, P.C.
Tel: (917) 345-8972
Fax: (917) 591-4428