March 09, 2020
A professional entity is a special type of incorporated structure used exclusively by individuals of professional occupations. Regulations for professional entities are largely established at the state-level. As a result, rules vary considerably state-by-state, and New York is no exception.
For New York business owners interested in forming a professional entity, it’s important to first review the state’s current legislation. This is generally best done with the expertise of a legal professional. Forming a professional entity in New York involves many nuanced and ill-defined procedures; having an experienced attorney on your side—so long as they’re familiar with New York state statutes—can be highly beneficial in these situations.
In many ways, forming a professional entity in New York is similar to forming a regular incorporated business. In both scenarios, owners are required to draft and file a particular set of documents with the appropriate state officials. The exact protocol will depend on a few things:
1. The Type of Structure (ie. LLC or Corporation)
2. Whether the Structure is Professional or Traditional (ie. PLLC or LLC, Professional Corporation or Corporation)
In general, the procedure for forming a professional entity is more regulated and strenuous than forming a traditional incorporation. For example, both will involve the New York Department of State, but many professional occupations are also subject to the laws of the New York State Education Department’s Office of the Professions. The Office of the Professions is often considered the chief regulator of professional entities in New York and, as such, is heavily involved throughout the process of professional business formation.
Unfortunately, the Office has a reputation for being picky when it comes to reviewing business formation documents. Small mistakes or errors in your filings can result in denial of the application. Of course, you can always revise and resubmit. However, the process in its entirety may take up to 8 weeks, resulting in considerable lag for the formation of your business. Thus, it’s highly advised to 1) first gain an understanding of New York’s professional entity formation process, and 2) seek guidance and insight from an experienced attorney.
3 Easy Steps to Forming your New York Professional Entity
Forming a professional entity in New York is a multi-step process that involves both the Department of Education and the Department of State. Importantly, the procedure will vary depending on a number of factors, most notably your particular occupation and the type of professional entity to be formed. Nonetheless, for most occupations, professional entity formation involves three parts:
1. Obtaining a Certificate of Authority from the Department of Education: before taking any action with the State Department, business owners must first gain consent from the Department of Education’s Office of the Professions. The Office will require a completed Certificate of Incorporation and a filing fee. If the Certificate is sufficient and mistake-free (and if the proposed name of the business is compliant with the special naming restrictions for professional businesses), the body will issue your Certificate of Authority. This certificate is of the utmost importance, as it states that each owner or shareholder is licensed to offer the professional services in the specified area that the corporation provides. Notably, while the Department of Education has authority over most types of professional occupations, they don’t regulate attorneys. For legal professionals, a Certificate of Good Standing can be obtained from their governing bar association.
2. Filing Formation Documents with the New York Department of State: once you’ve obtained the Certificate of Authority, the next step is to file the appropriate documentation with the Department of State. This step is fairly standard for all types of business incorporation—professional and otherwise. The State Department will require the Certificate of Incorporation (the same one that was filed with the Department of Education earlier) as well as various other documents depending on the type of entity being formed. In general, for PLLCs and RLLPs you must have an operating agreement and for PCs you’ll execute bylaws and a shareholder’s agreement. Although the exact paperwork varies, the State generally wants to see the name of the proposed business, its street address, the professional service that it’s licensed to offer, the names/addresses of the owners, their certified licenses, and the contact information of the registered agent.
3. Re-File with the Department of Education: finally—and perhaps most easily—the recently approved documents from the Department of State must be filed back with the Department of Education. Once they notify you that they’ve received your State-approved documents, you’ll be eligible to form a professional entity in New York.
Importantly, the process doesn’t exactly “end” here. While the formation procedure is indeed done, there are also periodic requirements regulated and enforced by the Department of Education. Furthermore, if you’re forming an LLC, you must adhere to the New York Limited Liability Company Laws regarding public notice, which essentially requires owners to publish an advertisement of the newly-formed business in at least two newspapers for six consecutive weeks. After these six weeks, the newspaper company will issue an affidavit that must be filed with the Department of State.
