January 28, 2020
A professional entity is a type of incorporated business structure used exclusively by owners in professional occupations. Importantly, because professional entities are incorporated structures, they provide basic liability protections for owners. In-fact, this is the hallmark of business incorporation; incorporated structures like LLCs and corporations are considered their own legal entity, with obligations, assets, liabilities, and debts separate from that of their owners.
What’s considered a “professional” career depends on your state’s legal code, but commonly includes licensed and/or regulated occupations like medical practitioners and financial professionals. When these types of individuals want to start their own incorporated business (for example, a private practice), they may be prohibited from forming the usual LLC or corporation, and might instead be required to form a professional LLC (PLLC) or professional corporation (PC).
These are called “professional entities” and they’re largely analogous their non-professional counterparts. For example, PLLCs are subject to many of the same rules and requirements as LLCs. The same can be said about PCs and regular corporations. What, then, is the difference between professional entities and non-professional incorporated structures? The key distinction with professional entities is that while owners enjoy most of the same liability protections, they aren’t protected from their own malpractice. In other words, owners of professional entities remain liable for malpractice claims brought against themselves, despite the fact that their business is in-fact incorporated. However, although owners aren’t shielded from claims brought against themselves, they are protected from the negligence of their fellow owners.
5 Things to know before Forming your Florida Professional Entity
First and foremost, rules regarding professional incorporation are incredibly state-specific. All states allow professionals to create some type of professional entity. Most states permit PCs, while a fewer number allow PLLCs. Likewise, almost every state will define “professional” differently. For example, a veterinarian may be considered a professional occupation in some states, but not others.
In Florida, many of the laws regarding professional entities are established in two pieces of legislation: 1) the Florida Professional Service Corporations and Limited Liability Companies Law and 2) the Florida Business Corporation Act. Here are five key take-aways from these regulations:
1. Florida Allows Both PLLCs and PCs
Many states allow the formation of PCs, while a fewer number permit the formation of PLLCs. However, Florida allows both of these types of professional entities. Furthermore, a handful of states use the designation “professional association” to denote a separate type of professional entity, but Florida is one of many states that use the words “professional association” and “professional corporation” interchangeably.
2. Occupations that are Considered "Professional" under Florida Law
States tend to disagree on which occupations should be considered “professional”. Some states define the term rather broadly, considering all licensed professions as professional occupations. The Florida code doesn’t go quite this far, but does have a relatively wide interpretation of “professional”, which includes physicians, surgeons, osteopathic physicians, chiropractors, podiatrists, dentists, veterinarians, attorneys, architects, certified public accountants, and life insurance agents.
3. Special Naming Restrictions for Florida Professional Entities
According to Florida law, professional corporations must contain the words “professional association”, “P.A.”, or “chartered”. Likewise, registered PLLCs must contain the phrase “Professional Limited Liability Company” or it’s abbreviation, PLLC.
4. All Shareholders Must be Licensed
In Florida, all shareholders of the professional corporation must be licensed to render the services that the corporation is authorized to provide. Of course, the business can still have non-licensed employees to preform non-specific duties (ie. record-keepers and secretaries), however the shareholders themselves must have the proper licensure.
5. Single Purpose Business Requirements
Professional entities are only allowed to provide the services of the legally licensed professionals. This must be the sole purpose of the professional entity, and expansion into other non-licensed services is strictly forbidden.
How Do I Form A Professional Entity?
The actual act of forming your professional entity isn’t necessarily difficult, however you’ll need to know which type of structure best suits your needs (ie. PLLC or PC) and the required documentation to file with the Secretary of State’s office. The exact documents will vary depending on whether the business is a PLLC or a PC.
In either scenario, documents must be filed that provide the basic information of the incorporating business. For a PLLC, this includes the Operating Agreement and the Articles of Formation, whereas PCs will file the Articles of Incorporation and perhaps their Corporate Bylaws. These filings will detail things like the name of the business, its address, the name of the owners, the specific purpose of the business, the business ground-rules, the relationship of the owners, and the ownership structure.
An experienced legal professional can be of great assistance in these situations, especially when deciding on the optimal business structure for your operation. Again, the laws regarding professional entities vary state-to-state, so ensure your representative is not only knowledgeable in business law, but is also familiar with the Florida-specific regulations.
