Should I Establish a PLLC or an LLC for My Illinois Healthcare Practice?

How do you know whether to choose a PLLC or an LLC for your healthcare practice? Getting it wrong can hold up your IDFPR registration. We review the basics.

Business owner opening a notice of deficiency.

As we’ve discussed in a previous blog, business entities are legal structures that allow organizations to conduct business in certain ways and with certain protections. By forming a business entity, organizations and their owners can separate personal assets from identified professional assets. Personal assets then become protected from business liabilities.

Business incorporation and formation are managed at the state level. In Illinois, the Secretary of State (SOS) is the appropriate filing office for entity formation registration, including limited liability companies (LLCs). Professional limited liability companies (PLLCs) also file through the SOS, with licensure oversight from the Illinois Department of Financial and Professional Regulation (IDFPR).

What is an LLC, and what are its advantages as an entity type?

Forming an LLC allows a business to separate the business entity from its owner. The owner then becomes a “member” of the LLC. An LLC’s business assets stand apart from members’ personal assets to gain the liability protection of those personal assets. LLCs are also popular because they can provide for a member to continue running the business even with protected assets. Furthermore, LLC formation is relatively inexpensive. 

Additionally, the IRS offers LLCs a unique and flexible tax category known as “pass-through” taxation. At the same time, LLCs may alternatively elect to be taxed as a corporation or S Corporation. We recommend consulting with a tax specialist with experience in healthcare business structures to obtain optimal tax treatment. 

What is a PLLC, and who needs to form one instead of an LLC in Illinois?

While an LLC can be created to serve “any legal purpose,” a PLLC is a type of LLC that provides licensed services. Typically, its members need to belong to the same profession, though there are some exceptions. A PLLC must serve a specific purpose: to provide services related to its member or members’ profession. For example, the purpose of a healthcare practice forming a PLLC may be “the provision of medical services by a licensed physician.”

Some states no longer allow organizations formed by people of certain professions—including licensed healthcare professionals—to form an LLC. These organizations must form a PLLC. In most other respects, a PLLC operates the same as an LLC.

In August 2018, Illinois issued an updated statute stating that all businesses listed as LLC providing professional services licensed by the IDFPR must register as a PLLC. 

Meanwhile, the Illinois Secretary of State is still accepting and filing LLC forms even when IDFPR licensure requires PLLC formation. In other words, the SOS will not prevent you from forming the wrong entity type for your practice. Nonetheless, the IDFPR will not accept your application for registration if the entity type isn’t correct.

What if my practice is an LLC?

If your healthcare practice currently provides professional services licensed by the IDFPR but operates as an LLC, the 2018 statute applies to you. We recommend that you amend your LLC filing to comply.  The state hasn’t yet created new forms for PLLC filing, so the process requires using  LLC forms and following statutory guidance about acceptable business names and purposes. 

Filing the amendment with the Secretary of State is only the first step, however. Typically, you will also need to amend your operating agreement and create resolutions that acknowledge and accept the change. You may need to request a new Employee Identification Number (EIN). You’ll also need to update your liability insurer and possibly insurance companies with whom you’re credentialed.  Finally, you’ll need to register your newly compliant PLLC with the IDFPR.

As you might have surmised, correcting your entity type is not a do-it-yourself project. We recommend finding an attorney with experience in forming PLLCs for healthcare services. Any missteps in structuring your PLLC can delay the formation and registration. In addition, an improperly formed PLLC may allow the piercing of the corporate veil and fail to protect you from personal liability for your practice’s actions.

The experienced attorneys at Jackson LLP can help you meet all of the requirements to launch or maintain healthcare practice in Illinois, including a properly formed PLLC. Learn more about us by scheduling a consultation with one of our lawyers.

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.

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