How to Form a Professional LLC in Oregon

As a licensed professional in Oregon you can structure your business as an Oregon 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.

Note: Current Oregon law relating specifically to PLLCs is relatively limited compared to many other states. Unlike the law in many other states, current Oregon law does not make separate references to PLLCs, instead only referring to LLCs that render professional services. This article uses PLLC to refer to the latter type of Oregon LLC.

What is an Oregon PLLC?

An Oregon PLLC is a limited liability company (LLC) formed specifically by people who will provide state-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?

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

• Accountants
• Architects
• Attorneys
• Chiropractors
• Dentists
• Landscape Architects
• Naturopaths
• Nurse Practitioners
• Psychologists
• Physicians
• Medical Imaging Licensees
• Real Estate Appraisers, and
• Other persons providing to the public types of personal service or services substantially similar to those listed directly above and that may be lawfully rendered only pursuant to a license.

In general, anyone who has a state license to practice one of these professions from Oregon or another state can form an Oregon PLLC.

How Do I Form an Oregon PLLC?

To form your Oregon PLLC you'll need to:

• have a 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), and
• file articles of organization with the Secretary of State (SOS) which includes a description of the professional service(s) that the PLLC will provide.

You can or download a blank articles of organization form by going to the SOS website or fill out articles online. The form includes a place to describe the professional service or services the company will render. The form is in PDF format and you can type in the required information on your computer (you will have to print it out in order to sign it). The current filing fee is $100.

Naming Restrictions

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

Service and Membership Restrictions

Most states restrict the kinds of services that a PLLC can offer. For example, many states limit PLLCs to offering only the professional services indicated in their articles of organization, along with related (ancillary) services. Many states also require that all members of a PLLC be licensed in the professional service offered by the PLLC. You should consult with an Oregon business attorney to ensure you are meeting all state requirements regarding PLLC service restrictions and membership rules.

Operating Agreement

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 all members of the PLLC, 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 (including Oregon) 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. 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.

Oregon 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 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.