Practice Management Member Conversations

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  • 1.  State Registrations - PC or LLC

    Posted 09-26-2011 10:10 AM
    Has anyone found any states that will not allow an LLC firm to be registered and only allows Professional Corporations (PC) firms to register? 

    The reason this has come up is that we're currently a PC and have people within the firm that we'd like to make partners.  A non-licensed professional cannot be a partner in a PC so we've been thinking about changing the firm to an LLC but we've heard that some states have issues with LLC registration.

    Thanks in advance for any insight you can provide.

    Craig

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    Craig James AIA
    Principal
    Praxis 3 PC
    Atlanta GA
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  • 2.  RE:State Registrations - PC or LLC

    Posted 09-27-2011 05:01 AM
    Delaware is one that only allows Professional Corporations (called PA's here).

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    Willard Hurd AIA
    Principal
    Footprint Architecture & Design, P.A.
    Newark DE
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  • 3.  RE:State Registrations - PC or LLC

    Posted 09-27-2011 08:50 AM
    A lot of states require no state registration.  Some states can be restrictive in how firms are registered.  You really need to deal directly with the state in question to assertain their specific requirements.  It might be that you have to register as an individual.  We have managed to get registration in the states we do business in that manner with a similar non-licensed principal situation.  It has not prevented us from doing business where we need to.  Don't let a minority of states affect your decisions on how to structure your business. 

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    Kerry Hogue AIA
    HKS, Inc.
    Dallas TX
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  • 4.  RE:State Registrations - PC or LLC

    Posted 09-27-2011 10:56 AM
    Unfortunately there is no uniform answer to that question.  Some states don't allow corporate practice at all.  You have to review the licensing laws in a state you wish to practice in and make certain that you in compliance.  One structure may not work in every state where you wish to work.  If isn't particularly difficult, but one certainly must be attentive to the details.

    As for the PC corporate model, unlike physicians and attorneys (who must be PCs if they are corporations) I don't know of any state that currently requires a corporation practicing architecture to be set up as a PC (there may be a few, but it is certainly not the rule).  As such, I advise clients to use a traditional corporate structure as opposed to a PC for just the reason you state.  As your business grows there may come a time when you would like to add shareholders who aren't licensees and the PC model doesn't permit that.

    LLCs (Limited Liability Companies) are an entirely different thing.  They are similar in nature to a corporation, but they are generally disregarded entities for tax purposes.  Revenue is passed through to and reported on an individual's 1040.  The LLC itself is not required to file a tax return, nor is it required to take any special steps (such as filing a subchapter S election) to avoid the need to do so.

    The only issue I have encountered with LLCs related to employee status (the "PLLC" is the LLC equivalent of the PC).  Some states want an affirmation to the effect that the LLC employs the licensee.  In reality, at least in the case of a small firm, the LLC doesn't employ the licensee.  Instead of a salary, the licensee receives a distribution of profit.  That has beneficial tax consequences, and is a common practice, but some state licensing boards are reluctant to accept it, although I have been able to convince them this is an accepted business practice and tensed undermine the control of the business entity by the licensees (which is the real goal behind any statute that permits corporate forms of practice - to make certain that licensees remain in control of the decision making).  You will generally find that states have various minimums, such as a requirement that a certain quantum of officers and directors be licensees, or that a certain quantum of the stock be held by licensees, requirements which are aimed at exactly that goal - ensuring that licensees remain in control of the decision making process.  Thus, even where non-licensee shareholders, officers, or directors are permitted, the majority of those positions and interests must be held by licensees.

    I generally advise clients against a PC.  I also generally advise the LLC is more flexible and less restrictive business model.  That will work in most states, but unfortunately you still have to be vigilant as no one model will work everywhere.



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    Frederick Butters FAIA
    Attorney
    Southfield MI
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