|What Are Professional Limited Liability Companies?|
Do I Need A Professional Limited Liability Company?
The Arizona statutes address two types of limited liability companies – the general purpose limited liability company and a professional limited liability company. The general purpose LLC may be set up for any general purpose allowed by the Arizona Limited Liability Company Act (“LLC Act”). A professional limited liability company is organized for the purpose of rendering one or more categories of professional services. A professional service is defined as “a service that may be lawfully rendered only by a person licensed or otherwise authorized by a licensing authority in [Arizona] to render the service.” A “Licensing Authority” is defined as “the officer, board, agency, court or other authority in this state empowered by law to license or otherwise authorize the rendition of a professional service.”
Check with your licensing agency. The LLC Act does not require professionals to form PLLC’s; rather, it provides the professional with the choice to form an LLC or a PLLC with one exception. If the licensing authority for the profession in Arizona requires the use of a PLLC, then the individual is required to form a PLLC to provide professional services. For instance, licensed real estate agents are required to form a PLLC if they want to hold their license in an entity; they may not use an LLC. Attorneys, on the other hand, may form either an LLC or a PLLC to practice law.
PLLC Requirements. There are several requirements related to PLLC’s that are important to note. First, a PLLC may render its professional services only through its members, managers, officers, agents and employees who are themselves licensed persons qualified in Arizona to perform that category of professional services. However, the PLLC may hire additional employees who are not licensed to perform professional services that are rendered by the professional limited liability company as long as the employee works at the direction or under the supervision the licensed persons; they do not hold themselves out to the public generally as being authorized to perform the professional services rendered by the limited liability company; and they are not prohibited by the board regulating any of the professional services rendered by the professional limited liability company from being so employed.
Who can hold an interest in a PLLC? An additional requirement relates to who may own an interest in a PLLC. A PLLC may issue membership interests to:
1. Individuals who are licensed by law in this or another state to render a professional service described in the articles of organization of the professional limited liability company.
2. General partnerships, registered limited liability partnerships, other partnerships and joint ventures, domestic or foreign, in which all of the partners are licensed persons with respect to the profession to be conducted by the professional limited liability company and in which at least one partner is authorized by law in this state to render a professional service described in the articles of organization of the professional limited liability company.
4. Other persons, if after the issuance of voting membership interests, the other persons in the aggregate do not hold more than forty-nine percent of the membership interests entitled to vote for the election of officers and managers of the professional limited liability company, unless a greater or lesser percentage is prescribed by the board.
What about a spouse of a member of PLLC? It is not a violation of the above requirements for an unlicensed spouse to hold a community interest in the membership interest that is issued to a licensed spouse as long as the membership interest does not have any voting rights to the unlicensed spouse. Additionally, the licensed individual may hold the membership interest a trust established for the benefit of a licensed individual or members of the licensed individual’s immediate family in which the licensed individual has the right to vote the membership interest and the trust and the members of the licensed individual’s immediate family do not have the right to vote the membership interest.
If a membership interest is issued in violation of the above provisions, it will be void.
Why would a person select an LLC versus a PLLC? The all important question regarding the PLLC is how does the PLLC address the negligence of a member? In a PLLC, each member remains responsible for his or her negligence in providing professional services: “[e]ach member, manager or employee performing professional services shall remain personally liable for any results of the negligent or wrongful acts, omissions or misconduct committed by him or by any person under his direct supervision and control while performing professional services on behalf of the PLLC.” However, the good news is that the liability of a member, manager or employee of the PLLC does not extend to the other members, managers or employees: “a member, manager or employee of a limited liability company is not vicariously responsible for the liability of another member, manager or employee unless such other member, manager or employee was acting under his direct supervision and control while performing professional services on behalf of the limited liability company.”
Where can I find information about my licensing requirements? For a list of all licensing agencies in Arizona, click here.