How to Form a PLLC in Tennessee

Here are the basic rules for forming professional limited liability companies (PLLC) in Tennessee.

By , Contributing Author

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As a licensed professional in Tennessee you can structure your business as a Tennessee 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 Tennessee PLLC?

A Tennessee PLLC is a limited liability company (LLC) formed specifically by people who will provide Tennessee 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 Tennessee?

Under Tennessee's PLLC law, professional service is defined only generally, as a service that may be lawfully rendered only by a person licensed or otherwise authorized by a Tennessee licensing authority to render the service and that may not be lawfully rendered by a corporation under the Tennessee Business Corporation Act or by a typical (non-professional) LLC. Other states' laws often provide lists of professional services. These lists typically include, at a minimum, physicians, surgeons, dentists, lawyers, certified public accountants, professional engineers, architects, and veterinarians, but often include other professions, as well. If you're unsure whether your Tennessee-licensed or authorized profession is considered a professional service for the purpose of forming a PLLC, check with a local business attorney.

How Do I Form a Tennessee PLLC?

To form your Tennessee PLLC you'll need to:

  • have the state license for each professional who will be a member 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)
  • file articles of organization with the Tennessee Secretary of State (SOS) which state that the company will be a PLLC, has one or more qualified persons as members, and the professional service or services to be rendered, and
  • deliver a certified copy of the articles of organization to each licensing authority with jurisdiction over a professional service described in the articles of organization.

Regarding the first point (that each PLLC member must have a state license): A Tennessee PLLC generally may not have members who are not licensed to practice a profession stated in the PLLC's articles of organization. However, there is a key exception to this general rule: A PLLC may have non-licensed members if this is permitted by the licensing authority which licenses the professionals forming the PLLC. Check with the appropriate professional licensing authority for more information.

You can download a blank articles of organization form (Form SS-4270) by going to the SOS website. You can also file online at the state's NewBiz website. The current filing fee is $50 per LLC member with a minimum fee of $300 and maximum fee of $3000.

Naming Restrictions

A Tennessee PLLC must contain the words "professional limited company," "professional limited liability company," "professional LLC," "limited liability professional company," or the abbreviations "P.L.C.," "P.L.L.C.," or such abbreviations without punctuation. The name must not contain the word "corporation" or "incorporated" or an abbreviation of either or both of those words. The name also must not contain language stating or implying that it is organized for a purpose other than what is permissible under Tennessee's PLLC law and is stated in the PLLC's articles of organization. Additional state law restrictions also apply. For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Service Restrictions

A Tennessee PLLC can only provide the professional services indicated in its articles of organization. (This does not exclude making investments on behalf of the PLLC.) A PLLC can provide professional services within two or more professions, or engage in other business activities, if the combination of professional services and/or other business activities is specifically authorized by the Tennessee licensing laws applicable to each profession in the combination. Tennessee 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 (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 Tennessee) 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. Tennessee, unlike most other states, imposes a franchise tax and an excise tax on most LLCs. You must register for this tax through the Department of Revenue (DOR). (More information on these taxes is available in other Nolo LLC 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.

Tennessee 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 Tennessee, 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.

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