Professional Limited Liability Company v. Limited Liability Company: What is a PPLC?

 Posted on October 17, 2022 in Business Law

What is a Limited Liability Company (LLC)?

We’ve all heard the term LLC before but, do you know what it means and what it does? LLC stands for Limited Liability Company, which is a popular structure used to form a business. 

An LLC is essentially a mixture of the best parts of a Partnership business structure (including the tax benefits) and the best parts of a Corporation business structure (including the protection from personal liability). 

Partnership Business Structure

There are different types of Partnership business structures. A General Partnership requires no formal formation process, while others simply require a filing with the State. Those that own a Partnership are called Partners. A Partnership business structure offers no personal liability protection in the event that the Partnership or another Partner were to be sued. Simply by the nature of being a Partner in a Partnership, they are subject to liability personally (this includes their own personal assets that have no connection to the business), even if they had nothing to do with the event giving rise to the lawsuit. 

Corporation Business Structure

A Corporation has many working parts, but those that are subject to liability in a Corporation are called Members. This type of business structure provides protection for its Members from being sued personally for the business judgements and debts of the business. At the same time, a Corporation also suffers when it comes to tax benefits. Although a Member is not personally liable in a Corporation, it should be noted that all Members may still lose the money that they have invested into the Corporation. Personal liability is a Member’s own personal assets, not affiliated with the business. Additionally, a Corporation requires a heavy number of formalities that must be followed and constant continuing paperwork that must be done and promptly filed with the State in order to keep the Corporation running, in good standing, and able to operate properly under the law. 

LLC Business Structure

The formation of an LLC is much simpler than that of a Corporation and does not require the same burdensome formalities, paperwork, and annual filings with the State. Those subject to liability in an LLC, like in a Corporation, are called Members. Generally, an LLC Member is not personally liable for the business’s liabilities. This includes actions taken by other Members of the LLC that give rise to liability. 

With the combined tax benefits, personal liability protection, and the simplicity of its formation, it is easy to see why the LLC is an attractive business structure for business owners and is one of the most commonly chosen.

What is a Professional LLC (PPLC)? 

Some states, including Illinois, do not allow certain professional service businesses to use the LLC business structure. In recent years in Illinois, there has been strict enforcement of the rule forbidding a business to use the LLC structure for those that are professionals licensed by the Illinois Department of Regulation (also known as the IDFPR).

There is an extensive list of all included professionals on the IDFPR website (see the list here), but this generally includes any licensed professional such as CPAs, therapists, counselors, psychologists, physical and occupational therapists, cosmetologists, barbers, chiropractors, physicians, dentists, attorneys, engineers, salons, and more. A PLLC has the same personal protection as the LLC, shielding Member’s personal assets and the business’s assets in a lawsuit. In general, A PLLC provides its Members the same protections as Members of an LLC. 

Note: No matter the business structure, one is always responsible for their own negligent or illegal actions in a business. Additionally, if an LLC or Corporation Member personally guarantees a loan for the business in their own name rather than the business, they may be held personally liable by virtue of the personal guarantee. Further, if a court finds that an LLC or a Corporation has failed to comply with regulations or has acted in bad faith, inconsistent with the actions of a properly run LLC or Corporation, the court may “pierce the corporate veil.” In this situation, the personal assets of the Members are at risk and the court may use them to settle debts or lawsuits for the LLC or Corporation.

How Do I Form a PLLC?

Although the formation of a PLLC is easier than that of a Corporation, for example, it is still critical that all required steps are followed, all required documentation is provided and correct, and all necessary fillings with the State are completed and filed accurately. In addition to providing certain documentation, there generally must be an Operating Agreement that is created by those forming the business. An Operating Agreement explains the rules of the business, the duties and responsibilities Members will have, and other important information concerning the internal operations of the business. There are also certain nuances to the law, including naming restrictions that are important to note and to follow when forming a PLLC. It is strongly recommended to seek legal counsel when forming a business entity. Having the assistance of an experienced and knowledgeable attorney ensures not only that you and your business are following the proper steps, according to the law, but also the legitimacy of your business because all requirements by the State have been met.

What if I Am on The IDFRP List and My Business is Already an LLC?

According to the 2018 update to the Illinois Professional Limited Liability Act (see 805 ILCS 185/) and the Illinois Limited Liability Company Act (see 805 ILCS 180/), businesses that qualify (see list above) have options. Such businesses are required by the State of Illinois to amend their LLC formation documents with the Secretary of State to instead form a PLLC. It is important that this change be made as soon as possible to avoid penalties with the State and a disruption in the running of the business.

Experienced, Reliable Business Attorneys in Kendall County

Running a business can be difficult, especially when it comes to the legal side of things. Forming and amending business documents with the State can be confusing and intimidating, but it doesn’t have to be. You want to make sure your business follows Illinois protocol and we can help simplify that process. At Gateville Law Firm we have the proper knowledge and experience assisting business owners in Yorkville, Oswego, Plainfield, Aurora, Joliet, Plano, Bristol, Newark, and other areas in Kendall County, Illinois with PLLCs. Contact us today at 630-780-1034.

Sources:

Illinois Limited Liability Company Act (see 805 ILCS 180/)

Illinois Professional Limited Liability Act (see 805 ILCS 185/)

www.corpnet.com

https://idfpr.illinois.gov/profs/proflist.asp