How to Form a PLLC in Arkansas

As a licensed professional in Arkansas you can structure your business as an Arkansas professional limited liability company (PLLC). This will give you protection from several important types of liability. It also may provide certain tax advantages compared to other ways of structuring your business.

What is an Arkansas PLLC?

An Arkansas PLLC is a limited liability company (LLC) formed specifically by people who will provide Arkansas licensed professional services. LLCs in general are businesses registered with the state that consist of one or more people—called LLC members—who own the business. Like other LLCs, PLLCs protect their individual members from people with claims for many (but not all) types of financial debts or personal injuries.

What is a Professional Service in Arkansas?

Under Arkansas's LLC law, a professional service is "any type of professional service which may be legally performed only pursuant to a license or other legally mandated personal authorization." As examples, the law lists the services provided by:

• certified public accountants
• architects
• engineers
• dentists
• doctors, and
• attorneys at law.

Anyone who is licensed to practice one of the latter professions in Arkansas can form an Arkansas PLLC. In addition, people who are licensed in other professions may also be able to form an Arkansas PLLC. If you're unsure whether your particular Arkansas-licensed profession is considered a professional service for the purpose of forming an Arkansas PLLC, check with a local business attorney.

How Do I Form an Arkansas PLLC?

To form your Arkansas PLLC you'll need to:

• have state licenses for professionals who will be members of the company
• check with the state licensing board for your profession to see if its prior approval is required, (and, if so, obtain the necessary documentation showing that approval), and
• file articles of organization with the Arkansas Secretary of State (SOS).

PLLCs providing medical services also must obtain a certificate of registration from the Arkansas State Medical Board. And, similarly, PLLCs providing dental services must obtain a certificate of registration from the Arkansas State Board of Dental Examiners. (Arkansas's LLC law does not mention an equivalent requirement for other professionals, such as lawyers or accountants, but you may want to check any laws or rules governing your profession.)

You can file the articles online or download a blank articles of organization form (Form LL-01) by going to the SOS website. The downloadable form is designed for both regular LLCs and PLLCs. The current filing fee is $45 for online filings and $50 for filings by mail.

Naming Restrictions

The name of an Arkansas PLLC must contain the words "Professional Limited Liability Company" or "Professional Limited Company" or the abbreviations "P.L.L.C.," "P.L.C.," "PLLC," or "PLC." The words "Limited" and "Company" may be abbreviated as "Ltd." or "Co." The name may not contain the name of any person who is not a member, except that the name of a former member or member of a predecessor organization may continue to be included in the name. For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Service and Membership Restrictions

Arkansas's LLC law does not clearly state that there are restrictions on what services a PLLC can provide. The law also does not clearly state that there are restrictions on who can be a member of an Arkansas PLLC. However, in most other states, the law is that a PLLC can only provide one or more types of professional service (along with directly related (ancillary) services), and only people licensed in the relevant profession can be members. If you're planning on having your PLLC provide more than one kind of professional service, or additional, non-professional services, or if you're planning on having members who will not be professionally licensed, consult with a local business attorney to ensure you are not violating any current Arkansas LLC laws. Also, remember that Arkansas PLLCs and/or their members are subject to the regulation of the relevant state professional licensing authorities.

Operating Agreement

You should make sure you have an operating agreement for your PLLC. Unlike professional licenses, articles of organization, naming restrictions, and service restrictions, this is not a state requirement. However, it is important to have an operating agreement so that other members of the PLLC (if any), as well as outside companies and businesses (for example banks), know what the internal rules are for the company. Depending on your own level of knowledge and expertise, you should consider having a lawyer assist you in preparing this document.

A PLLC Will Not Protect You From All Liability

Forming your professional service business as a PLLC will protect you personally from:

• creditors seeking to collect unpaid debts owed solely by the PLLC
• liability for the malpractice of other PLLC members, and
• people who are personally injured in connection with your PLLC because of things having nothing to do with your own professional malpractice or torts (for example, if someone slips and falls in your PLLC's offices).

Regarding protection from liability for the malpractice of fellow PLLC members, be aware that, for some professions in some states, PLLC members are required to have a minimum amount of malpractice insurance before they are eligible for such protection. Therefore, it's always a good idea to double check your state's PLLC laws, as well as your state's rules for your particular profession, regarding minimum insurance requirements.

Meanwhile, you are personally responsible if:

• you personally guarantee repayment of a business loan
• you engage in professional malpractice (such as completely botching a patient's treatment or egregiously mishandling a client's case), or
• you intentionally or negligently commit a tort (such as assaulting someone).

Because you are not protected from your own malpractice, you should make sure you have professional liability insurance—and, if applicable, that your coverage meets any minimum insurance requirements.

A PLLC is Different From a Professional Corporation

A PLLC is not the same thing as a professional corporation (PC). A PLLC is a newer type of business entity than a PC. Here are some of the key differences:

• a PLLC, like other LLCs, is comprised of members, but a PC, like other corporations, is comprised of shareholders
• following from the previous point, PLLC ownership consists of so-called membership interests in the business, but PC ownership is based on shares of stock; and
• a PLLC, like other LLCs, is a so-called pass-through tax entity, meaning that in most states only the individual members have income tax obligations, while a PC, like other corporations, usually has its own income tax obligations.

The tax differences between PLLCs and PCs can become complicated. Arkansas charges all LLCs a flat $150 annual franchise tax. (More information on this tax is available in other Nolo articles.) Moreover, a PC can elect a special tax status (S corporation status) that effectively makes it a pass-through tax entity like a PLLC. And, meanwhile, PCs that don't elect special status may be subject to double taxation—in other words, both the PC itself and its shareholders may have to pay taxes on business income.

Arkansas allows professionals to form both PLLCs and PCs, and both PLLCs and PCs provide liability protection for, respectively, their members or shareholders. Because the protection is essentially the same for both PLLCs and PCs, but PLLCs are simpler to create and operate, many professionals prefer the PLLC structure.

Additional Information

For more information on the requirements for forming and operating an LLC in Arkansas, such as those relating to annual reports and taxes, see Nolo's articles in 50-State Guide to Forming an LLC and 50-State Guide to Annual Report and Tax Filing Requirements for LLCs, along with the other articles on LLCs in the LLC section of the Nolo website.