How to Form a PLLC in Kentucky

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.

What is a Kentucky PLLC?

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.

What is a Professional Service in Kentucky?

Under Kentucky's LLC Act, a professional service is a service provided by:

• physicians
• osteopaths
• optometrists
• podiatrists
• chiropractors
• dentists
• nurses
• pharmacists
• psychologists
• occupational therapists
• veterinarians
• engineers
• architects
• landscape architects
• certified public accountants
• public accountants
• physical therapists, and
• attorneys.

Anyone who is licensed to practice one of these professions in Kentucky can form a Kentucky PLLC.

How Do I Form a Kentucky PLLC?

To form your Kentucky PLLC you'll need to:

• have the state license for each professional who will be a member of the company (licenses may be required for either some or all members depending on the profession)
• check with the relevant state licensing board for your profession to see if its approval is required (and, if so, obtain the necessary documentation showing that approval), and
• file articles of organization with the Kentucky Secretary of State (SOS) that includes a statement of the professional services that will be provided by the PLLC.

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.

Naming Restrictions

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.

Service and Membership Restrictions

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.

Operating Agreement

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.

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 Service Corporation

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:

• a PLLC, like other LLCs, is comprised of members, but a PSC, like other corporations, is comprised of shareholders
• following from the previous point, PLLC ownership consists of so-called membership interests in the business, but PSC 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 (though not Kentucky) only the individual members have income tax obligations, while a PSC, like other corporations, usually has its own income tax obligations.

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.

Additional Information

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.