How to Form a Professional Services LLC in Oregon

As a licensed professional in Oregon, you can structure your business as an Oregon limited liability company (LLC). This structure will give you protection from several important types of liability. It might also provide certain tax advantages compared to other ways of structuring your business.

In many states, professionals who want LLC protection can set up an LLC that is specific to them (known as "Professional Limited Liability Companies," or PLLCs). But in Oregon, professionals set up a regular LLC and disclose their status as a professional in their articles of incorporation (see below). This article uses "professional services LLCs" to describe such companies.

What Is an Oregon Professional Services LLC?

An Oregon professional services LLC is a limited liability company (LLC) formed by people who will provide state-licensed professional services. LLCs are businesses registered with the state, which consist of one or more people—called LLC members—who own the business. LLCs protect their individual members from personal liability for the debts of the business and other claims against the company (see below).

What Is a Professional Service?

Under the applicable Oregon law, a professional service is a service provided by one of the following types of licensed professionals:

• accountants
• architects
• attorneys
• chiropractors
• dentists
• landscape architects
• naturopaths
• nurse practitioners
• psychologists
• physicians
• medical imaging licensees
• real estate appraisers, and
• other professionals not listed above who provide licensed professional services.

How Do I Form an LLC for an Oregon Professional Services Business?

To form your Oregon professional services LLC you'll need to:

• have a state license for each professional who will be a member of the company, and
• file articles of organization with the Secretary of State (SOS), which include a description of the professional service(s) that the LLC will provide.

You can or download a blank articles of organization form from the Secretary of State's website or fill out articles online. The form includes a place to describe the professional service or services the company will provide.

Naming Restrictions

All Oregon LLCs must contain the words "limited liability company" or the abbreviation "L.L.C." or "LLC" In their names. For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Operating Agreement

Make sure you have an operating agreement for your LLC. An operating agreement is a written agreement between the members as to how the company will be managed and how their membership (ownership) interests will be governed. While the state requires you to obtain professional licenses, file articles of organization, and adhere to naming restrictions, it does not insist on your having an operating agreement. But having an operating agreement shows that all members are on the same page in terms of LLC ownership and management, and can help to avoid confusion and disputes down the road. Also, you might need to provide a copy of your operating agreement to your bank in order to open an account or borrow money in the LLC's name. Depending on your own level of knowledge and expertise, consider having a lawyer assist you in preparing this document.

An LLC Will Not Protect You From All Liability

Forming your professional service business as an LLC will protect your personal assets from:

• creditors seeking to collect unpaid business debts of the LLC, and
• judgments for legal claims (damages) against the company, such as for breach of contract or the personal injuries of someone who slips and falls in your LLC's office.

However, you are personally responsible if:

• you personally guarantee lease obligations or repayment of a business loan
• you engage in professional malpractice, or
• you intentionally or negligently commit a tort (such as defaming someone).

Because you are not protected from settlements or awards arising out of professional malpractice, you should make sure you have professional liability insurance.

An LLC That Provides Professional Services Is Different From a Professional Corporation

A professional services LLC is not the same thing as a professional corporation (PC). Oregon does recognize PCs as a unique type of corporation. Here are some of the key differences between LLCs and PCs:

• The owners of an LLC are called "members" and their membership (ownership) interests are usually stated as a percentage of the total interests.
• A corporation is owned by shareholders who own, not surprisingly, shares of stock, and
• For income tax purposes, an LLC is a "pass-through tax entity," meaning that the LLC does not pay tax on its profits or accumulate losses. Instead, any profit or loss is allocated to the individual owners, who report it and pay any tax due on their personal returns.

The tax differences between LLCs and PCs can become complicated. For example, a PC can elect a special tax status (S corporation status), which makes it a pass-through tax entity like an LLC. However, PCs that don't elect special status may be subject to double taxation—in other words, business income is taxed at the corporate level and again at the individual level when the company pays dividends.

Additional Information on Oregon LLCs

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