Business entities such as limited liability companies (LLCs) and corporations provide a number of benefits when operating a professional services business. Such benefits include the limitation of business liabilities from reaching personal assets as well as possible income tax advantages.
Individuals who provide licensed professional services (such as psychologists, therapists, social workers, and marriage and family therapists) are regulated by the Illinois Department of Financial and Professional Regulation (IDFPR) and must be licensed by the IDFPR.
It is generally recommended that licensed professionals establish a business entity to provide such services to take advantage of its benefits. Traditionally, professional service providers had the option of organizing their business as an LLC or corporation, or as a special “professional” version of these entities – the professional limited liability company (PLLC) and the professional corporation (PC).
The differences between the “regular” and “professional” versions of these entities are subtle, but important. While the LLC and corporation can be established for “any legal purpose”, the PLLC and PC are only allowed to provide licensed professional services. Additionally, the PLLC and PC restrict owners to only those individuals licensed to provide the specific licensed services authorized by the PLLC or PC. The reason for these additional restrictions is to prohibit any non-licensed individual from having any authority over the provision of licensed services and to reduce the risk of non-licensed owners from exerting undue influence over the provision of such licensed services.
Change in the Law
Until 2018, establishing a business entity to provide licensed professional services did not require the use of a PC or PLLC. As a result, most entities providing professional services are LLCs or corporations. However, in August 2018, Illinois enacted a law that now requires all entities that perform licensed professional services under the IDFPR to register as either a PC or PLLC and must register such entity with the IDFPR.
While this law has been around for a number of years, only recently has the IDFPR been enforcing the law change. Both new and existing entities that are not PLLCs or PCs are being flagged by the IDFPR and will not renew any entity registration until the entity has been converted to a PLLC or PC.
What Should You Do
If you are affected by this law change, here is what you should do:
- If you are considering establishing a new entity to perform licensed professional services, then you must establish it as a PC or PLLC.
- If you already have your entity established as an LLC or corporation, then you must convert to a PLLC or PC. This requires, among other things, an authorizing resolution, an amendment to your organizational documents, updating your governing documents, registering with the IDFPR, as well as notifying the Illinois Department of Revenue, the Internal Revenue Service, your insurance carrier and your National Provider Identifier (NPI) number with the Centers for Medicare & Medicaid Services.
Because enforcement of this law is relatively new, the process of establishing and amending your entity registrations is not as straightforward as you might hope. If you have any questions, please contact us and we would be happy to discuss your options.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. This blog should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.