As a licensed professional in Kentucky you can structure your business as a Kentucky 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.
A Kentucky PLLC is a limited liability company (LLC) formed specifically by people who will provide Kentucky 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.
Under Kentucky's LLC Act, a professional service is a service provided by:
Anyone who is licensed to practice one of these professions in Kentucky can form a Kentucky PLLC.
To form your Kentucky PLLC you'll need to:
You can file the articles online or download a blank articles of organization form (Form PLC) by going to the SOS website. The downloadable Form PLC is specifically for PLLCs rather than regular LLCs. The current filing fee is $40.
The name of a Kentucky PLLC must contain the words "professional limited liability company," "professional limited company," "PLC," or "PLLC." For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.
A Kentucky PLLC Act may provide more than one type of professional service if doing so is allowed by the state laws and regulatory board rules for each of the professional services involved. Similarly, the state laws or regulatory board rules for your profession may require a certain proportion—or all—of your PLLC members to be licensed in the profession. (Kentucky's law for professional service corporations, which are entities similar to PLLCs, requires all owners to be licensed in the professional service provided by the corporation.) You should check the relevant professional statutes and board rules for more information. Kentucky PLLCs and/or their members are subject to the regulation of the relevant state professional licensing authorities.
You should make sure you have an operating agreement for your PLLC. Unlike professional licenses, articles of organization, naming restrictions, and service and membership 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.
Forming your professional service business as a PLLC will protect you personally from:
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:
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 not the same thing as a professional service corporation (PSC). A PLLC is a newer type of business entity than a PSC. (In most other states, PSCs are known simply as professional corporations or PCs.) Here are some of the key differences:
The tax differences between PLLCs and PSCs can become complicated. For example, Kentucky imposes a Limited Liability Entity Tax (LLET) on LLCs that have more than $3 million in gross receipts or profits. (More information on this tax is available in other Nolo LLC articles.) Moreover, a PSC can elect a special tax status (S corporation status) that effectively makes it a pass-through tax entity like a PLLC. And, meanwhile, PSCs that don't elect special status may be subject to double taxation—in other words, both the PSC itself and its shareholders may have to pay taxes on business income.
Kentucky allows professionals to form both PLLCs and PSCs, and both PLLCs and PSCs provide liability protection for, respectively, their members or shareholders. Because the protection is essentially the same for both PLLCs and PSCs, but PLLCs are simpler to create and operate, many professionals prefer the PLLC structure.
For more information on the requirements for forming and operating an LLC in Kentucky, 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.