How to Form a PLLC in Minnesota

As a licensed professional in Minnesota you can structure your business as a Minnesota 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 Professional Service in Minnesota?

Under Minnesota's Professional Firms Act, a professional service is a service that a professional is required or permitted to perform under a Minnesota license, registration, or certificate. Under the Act, professional services include:

• practicing medicine and surgery
• acting as a physician assistant
• chiropractic
• registered nursing
• optometry
• psychology
• social work
• marriage and family therapy
• professional counseling
• dentistry and dental hygiene
• pharmacy
• pediatric medicine
• veterinary medicine
• architecture, engineering, surveying, landscape architecture, geoscience, and certified interior design
• accountancy, and
• law.

Anyone who is licensed, registered, or certified to practice one of these professions in Minnesota can form a Minnesota PLLC (professional firm).

How Do I Form a Minnesota PLLC?

To form your Minnesota PLLC you'll need to:

• have the state license, registration, or certificate for every professional who will be a member of the company (all owners must meet the state's professional licensing requirements)
• 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 Secretary of State (SOS) including a statement that the business will operate under, and be subject to, the appropriate sections of the Professional Firms Act, and specifying what professional services the business will provide.

You can file your articles online or download a blank articles of organization form by going to the SOS website. The form is in PDF format and you can type in much of the required information on your computer (you will have to print it out in order to sign it). However, be aware that the form does not include any provision specifically for professional firms; therefore, you should strongly consider working with a Minnesota business attorney to ensure you provide all required documents and information to the Secretary of State. The current filing fees are $155 for online and in-person filings and $135 for filings by mail.

Naming Restrictions

Minnesota requires that your PLLC contain one of the following phrases or abbreviations: "Professional Limited Liability Company"; "Limited Liability Company"; "P.L.L.C."; "P.L.C."; or "L.L.C." In addition, under the Professional Firms Act, the name of your PLLC "must not imply or be used to imply superiority." For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Service and Membership Restrictions

A Minnesota PLLC can provide more than one kind of professional service. The articles of organization must state each type of professional service that will be provided, and each of the PLLC's owners (members) must be licensed to provide at least one of those services. A Minnesota PLLC may not provide professional services other than those specified in its articles of organization and for which at least one PLLC owner is licensed. There are also special rules regarding providing combinations of professional health services. Minnesota 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 all members of the PLLC, as well as outside companies and businesses (for example banks), know what the internal rules are for the business. 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 (technically known as "vicarious liability"), 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 (though not Minnesota) 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. For example, 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. In addition, Minnesota is one of a few states that imposes a separate fee on LLCs for the privilege of doing business in the state. In Minnesota, the fee is graduated and applies to LLCs that have $500,000 or more of in-state property, payroll, sales, or receipts.

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.

Minnesota allows professionals to form both PCs and PLLCs. Minnesota's rules for PLLCs rely heavily on the Professional Firms Act, which in turn has provisions applicable to LLCs, corporations, and partnerships.

Additional Information

For more information on the requirements for forming and operating an LLC in Minnesota, 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.