As a licensed professional in Colorado you can structure your business as a Colorado 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 Colorado PLLC is a limited liability company (LLC) formed specifically by people who will provide Colorado 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.
Note: Unlike the majority of other states, Colorado’s LLC Act doesn’t include provisions specifically for LLCs that will provide professional services, nor is there a separate PLLC Act. Also unlike almost every other state, Colorado’s corporation laws do not specifically include provisions for professional corporations (PCs). (A few other states largely base their rules for PLLCs on pre-existing PC laws.) Instead, the legal basis for PLLCs in Colorado—as well as for other forms of so-called professional service entities—derives from the state’s various laws regulating professions and occupations (Title 12 of the Colorado Statutes).
Under Colorado’s laws for professions and occupations, the following professionals would be considered to provide professional services:
Anyone who is licensed to practice one of these professions in Colorado can form a Colorado PLLC. If you are licensed to practice another profession and want to form a PLLC, check with a local business attorney to see if the laws for that profession permit practitioners to form PLLCs.
To form your Colorado PLLC you’ll need to:
You may also need to register your PLLC with the appropriate professional regulating agency after formation.
The articles of organization must be filed electronically. You can, however, view and download a sample articles of organization form by going to the SOS website. Be aware that the statute governing your particular profession, or the regulating authority for your profession, may require that you include additional language in your articles of organization. For more information, check with the regulating agency or a local business attorney. The current filing fee is $50.
In general, all Colorado LLCs, including PLLCs, must contain the term or abbreviation “limited liability company”, “ltd. liability company”, “limited liability co.”, “ltd. liability co.”, “limited”, “l.l.c.”, “llc”, or “ltd.”. The laws for your particular profession may impose additional restrictions on names. For additional important information on LLC names generally, check the Business Name, Location & Licenses section of the Nolo website.
Service and membership restrictions on Colorado PLLCs can differ among the various professions. For example, if a PLLC provides CPA services, a majority of its members must be licensed certified public accountants in good standing in Colorado or another state. Moreover, the Colorado statute governing certified public accountants seems to state that PLLCs providing CPA services are not permitted to provide other kinds of services (with some exceptions). Check the statute for your particular profession or consult with a local business attorney for more details. Also, keep in mind that Colorado 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 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 corporation (PC). A PLLC is a newer type of business entity than a PC. Here are some of the key differences:
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.
Colorado 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.
For more information on the requirements for forming and operating an LLC in Colorado, 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.