As a licensed professional in Illinois you can structure your business as an Illinois 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.
An Illinois PLLC is a limited liability company (LLC) formed specifically by people who will provide Illinois 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: Illinois law doesn’t use the term PLLC. For this article, a PLLC simply means an LLC formed by licensed professionals providing professional services.
Under Illinois’s LLC Act, professional service is not directly defined. However, in general the Act does not prohibit professionals from forming LLCs. For comparison purposes, be aware that other states’ laws often provide specific 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. Moreover, one section of Illinois’s LLC Act does reference special requirements for dentists or doctors wishing to form LLCs, and the regulatory statutes for several Illinois regulated professions (such as architects and professional engineers) refer to LLCs. And, finally, rules issued by Illinois regulatory boards for some professions (notably attorneys) allow for the creation of professional service LLCs. In sum, if you’re unsure whether there is any prohibition on members of your Illinois-licensed profession forming an LLC, check the regulatory statute and official state rules governing your profession, or consult with a local business attorney.
To form your Illinois PLLC you’ll need to:
You can file the articles online or download a blank articles of organization form (Form LLC-5.5) by going to the SOS website. The downloadable form is intended for use with all LLCs, not just PLLCs. However, as noted on the form, LLCs providing professional services must list the address(es) from which those services will be rendered. The current basic filing fee is $150.
Among other naming rules, an Illinois PLLC’s name must:
Other naming restrictions also apply. For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.
Illinois laws and regulatory board rules for various professions lay out an array of service and membership restrictions for PLLCs. For example, the LLC Act itself states that all members or managers of an LLC formed for the practice of dentistry must be Illinois-licensed dentists, and all managers (if any) of an LLC formed for the practice of medicine must be licensed to practice medicine under Illinois law. Similarly, the Illinois law regulating architects states that the state regulatory board will not register a PLLC providing architectural services unless at least two-thirds of the company’s members are licensed under the laws of any state to practice architecture, professional engineering, land surveying, or structural engineering. And the Illinois Supreme Court has issued rules for lawyers wishing to form PLLCs including minimum malpractice insurance requirements. Your best bet is to review both the state law and board rules regulating your profession and, if you still have questions about service or membership restrictions, consult with an attorney.
Also, remember that Illinois 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. Some Illinois lawyers have suggested that, in at least some cases in Illinois, there is a legal requirement that an LLC have an operating agreement. (This would be in contrast to many other states, where such agreements are not legally required.) However, even if not required, having an operating agreement is strongly recommended because it lets 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. (For example, in Illinois, lawyers who form LLCs are required to have minimum amounts of insurance.) Therefore, it’s always a good idea to double check your state’s LLC 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, Illinois imposes a separate state tax directly on LLCs. Illinois more specifically calls this a personal property replacement tax. (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.
Illinois 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 Illinois, 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.