Nature of Professional Practices…
Personal services that require a license are commonly referred to as “professional services.” The types of personal services that are deemed to be “professional services” include, for example, those rendered by attorneys, certified public accountants, architects, optometrists, professional engineers, land surveyors and planners, chiropractors, physical therapists, psychologists, dentists, osteopaths, physicians, podiatrists, and veterinarians. Although professional practices are usually operated for profit, they are subject to greater regulation than other businesses.
Professional Service Corporations…
As with any for-profit venture, there are many advantages to conducting business through a corporation. For many years, those wishing to engage in a professional practice through a corporation have been permitted to do so through a special form of corporation—a professional service corporation (“PSC”). PSCs operate almost identically to business corporations. However, PSCs have certain special rules, including rules that limit who can own the corporation, control the disposition of stock upon a shareholder’s death, narrow the protections of the corporate liability shield, set standards for corporation names, and limit activities of the corporation.
Limited Liability Companies…
Limited liability companies (“LLCs”) appeared in the United States in 1977. LLCs became available in New Jersey in 1994. Due to their relative simplicity and flexibility, LLCs have become a very popular way of structuring virtually any for-profit endeavor. Several states have passed professional limited liability company (“PLLC”) laws. The laws expressly authorize the use of LLCs in connection with professional practices, subject to the limitations typically found in PSC laws. Although New Jersey does not have a PLLC law, most (if not all) professions may be practiced through a New Jersey LLC. Limitations on matters such as ownership, control, names, personal liability, and activities are established by boards that regulate specific professions. In the case of law firms, such regulations are established by the Rules of Court and the Rules of Professional Conduct.
A bill was introduced late in the last session of the New Jersey legislature that would permit the creation of PLLCs. Although most (if not all) professions are presently permitted to operate through LLCs, New Jersey would likely benefit from a law that brings New Jersey on par with other more business-progressive states and that brings greater clarity and uniformity to the regulation of LLCs engaged in professional services. Whether the notion of a separate PLLC law attracts attention in the current legislature remains to be seen.
Conclusion…
Despite most (if not all) professions being permitted to operate through New Jersey LLCs under current law and regulation, allowing the formation of PLLCs could modernize New Jersey’s approach to the use of LLCs in professional practices. Please feel free to contact me for a copy of the prior bill or information regarding rendering professional services through LLCs.
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’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.