New Jersey allows professional practices to operate through limited liability companies. What happens if you decide to expand your practice to another state? Consider the following…
Professional corporations
New Jersey law has, for many years, prohibited the rendering of professional services (e.g., medicine, dentistry, law, engineering, chiropractic, nursing, psychology, and podiatry) through business corporations. Instead, professionals seeking the business and legal advantages of operating through a corporation are required to operate through a special form of corporation known as a “professional service corporation” (PSC).
Limited liability companies
New Jersey adopted its limited liability company (LLC) law in 1994. The simplicity and flexibility of LLCs have made them a very popular choice for structuring virtually any for-profit business venture. Over the years, most (if not all) regulatory bodies have authorized the use of LLCs for the purpose of rendering professional services through licensed practitioners. However, New Jersey does not have a “special form” of LLC for professional practices.
Doing business in foreign states
It is well-established that a corporate entity formed in one state is free to transact business in other states. However, when the business activities of the entity will be significant, the state in which the company wishes to expand can require the company to obtain “authority to transact business” in the state. A professional practice that operates through a “generic” LLC in New Jersey may be barred from transacting business in a state that requires a “special form” of LLC (e.g., a “professional LLC”) for professional practices. In such cases, the New Jersey professional may be required to form a new entity in the other state or first “convert” its LLC to a PSC and then register the PSC as a foreign professional corporation.
Conclusion…
Although New Jersey allows professional service providers to operate through the same form of LLCs as non-professionals, an LLC engaged in a professional practice may be prevented from operating in states that require professionals to operate through a special form of LLC. While this is unlikely to prevent expansion, it may require some extra steps. Also, for those thinking of starting a professional practice in New Jersey, it would be prudent to consider the possibility of later expansion when deciding how to structure their practice. Please feel free to contact me if you would like more information about structuring or expanding your professional practice.
PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you would like to have a free initial telephone consultation or learn more about me or my practice. Thank you.