As a licensed professional in New Jersey you may be able to structure your business as a New Jersey 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.
In New Jersey, a PLLC is simply a limited liability company (LLC) formed specifically by people who will provide New Jersey 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: New Jersey law doesn’t use the term PLLC. For this article, a PLLC simply means an LLC formed by licensed professionals providing professional services.
New Jersey’s LLC Act does not mention professional services. The Act merely states that an LLC “may have any lawful purpose.” By contrast, other states’ LLC laws frequently 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. (New Jersey’s law for professional corporations, which are entities similar to PLLCs, does provide a list of examples of professionals that can form professional corporations, including: certified public accountants, architects, optometrists, ophthalmic dispensers and technicians, professional engineers, land surveyors, land planners, chiropractors, physical therapists, registered professional nurses, psychologists, dentists, osteopaths, physicians and surgeons, doctors of medicine, doctors of dentistry, podiatrists, veterinarians, and attorneys-at-law.)
In a few instances, New Jersey regulatory laws or licensing board rules for specific professions (such as accounting) indicate that professionals in these areas can form LLCs. Moreover, as a practical matter, many New Jersey LLCs in areas like accounting and law already exist. However, regulatory laws for some other professions (such as architecture or professional engineering) seem to indicate that professionals in those areas are prohibited from forming LLCs. In sum, if you have any question about whether your licensed or authorized profession is prohibited from forming a New Jersey LLC, you should check the state law and regulatory board rules for your profession, and consult with a local business attorney.
Assuming you’re not otherwise prohibited from doing so, to form your New Jersey PLLC you’ll need to:
The DOR has a Public Records Filing form available on its website. The form is designed to work for multiple kinds of new business entities, not just LLCs, so it can be a little confusing to properly complete. However, the form does include detailed instructions. You can file the form by mail or online. The current filing fee for the Public Records Filing is $125.
A New Jersey LLC’s name must contain the words “limited liability company” or the abbreviation “L.L.C.” or “LLC”. “Limited” may be abbreviated as “Ltd.”, and “company” may be abbreviated as “Co.”. Other naming restrictions also apply. For additional important information on LLC names, check the Business Name, Location & Licensessection of the Nolo website.
There can be service or membership restrictions on New Jersey PLLCs providing specific types of professional services. For example, for an accounting PLLC, New Jersey law requires that a majority of the ownership be licensed accountants. Check the regulatory statute and licensing board rules for your particular profession and consult with a local business attorney for more details. Also, keep in mind that New Jersey 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 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.
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.
New Jersey 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 New Jersey, 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.