One of the first steps in opening a new professional practice is to form a business entity. That process looks a little different for licensed professionals than it does for other types of business. It’s important for licensed professionals to be aware of those differences when they go to start their practice.
Washington’s Professional Service Corporation Act (RCW 18.100) places additional requirements on any business formed for the purpose of offering professional services to the public. A “professional service” is any personal service that requires a license or other legal authorization. This includes physicians, architects, dentists, massage therapists, mental health counselors, acupuncturists, CPAs, and attorneys among many other professions.
Unlike other types of business, licensed professionals are limited to forming either a professional limited liability company (“PLLC”) or a professional service corporation (“PS” or “PC”). A third option, the limited liability partnership (“LLP”), is also available to practices with multiple owners.
The PLLC and the PS function just like a regular LLC or corporation, but have certain rules intended to promote accountability and protect the relationship that exists between a professional and his or her patient or client. These include:
But there are some exceptions to this rule. The law specifically allows registered architects and registered engineers to jointly own and render professional services through one business entity. Certain types of healthcare providers may do the same. If you have questions about whether your practice is eligible for this kind of joint operation, you should consult an experienced business attorney for closer analysis.
That scenario is often the last thing on a professional’s mind when he or she goes to start a new business, but this limitation is an important estate planning and business succession issue that should be considered early on.
It’s not uncommon to see licensed professionals provide services through a regular LLC or corporation by mistake. That mistake can undermine the liability protection those entities are meant to provide and, in some cases, even violate the ethics rules governing their profession.
If you chose the wrong type of entity or completed your formation documents incorrectly, you should correct the issue(s) right away. The good news is this can usually be accomplished by filing an amended certificate of formation or articles of incorporation with the Washington Secretary of State, amending any bylaws or operating agreement, and holding a special meeting of the members or shareholders to approve the change.
Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.
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