Key Takewaway
- Healthcare professionals must use a professional entity, such as a PLLC.Illinois law requires physicians, psychologists, therapists, social workers, and other licensed professionals to operate through a professional entity such as a PLLC.
- The PLLC requirement applies regardless of practice size.Even solo practitioners must comply with Illinois professional entity rules when providing licensed healthcare services.
- Noncompliance can trigger IDFPR regulatory action.The Illinois Department of Financial and Professional Regulation (IDFPR) can investigate and act against practices that fail to operate through the correct entity type.
You are a therapist with a successful psychotherapy practice. Two years ago, you formed an LLC on your own for your practice. At a networking event, you spoke with an attorney who mentioned you shouldn’t be operating as a limited liability company. An accountant in the conversation agreed.
What do they know that you don’t?
They know that many states, including Illinois, require licensed professionals to operate through a specific type of legal entity, a professional limited liability company (PLLC) or a professional corporation (PC).
The same rule applies not only to therapists, but also to physicians, psychologists, nurse practitioners, social workers, and many other licensed healthcare professionals practicing in Illinois. If your healthcare practice is structured as a standard LLC, you may need to convert the entity to a PLLC to comply with Illinois law.
Our attorneys can handle this process for you. Contact us today to learn how.
Why Illinois Requires a PLLC for Licensed Healthcare Practices
Licensed professionals operate under stricter regulatory rules than ordinary business owners. Because of this, many states require them to use a specialized entity designed for professional services. In Illinois, you generally have two options:
- PLLC: A professional limited liability company.
- PC: A professional corporation.
Both are designed specifically for licensed professions such as healthcare.
Under Illinois law, certain healthcare professionals, including physicians, clinical psychologists, and licensed clinical social workers, must operate through a professional entity rather than a standard LLC.
The Illinois Department of Financial and Professional Regulation (IDFPR) oversees licensing and professional compliance.
If you hold one of these licenses and currently operate as an LLC, you should evaluate whether your entity structure complies with Illinois law. Converting an LLC to a PLLC is often the appropriate solution.
PLLC vs LLC: What the Difference Means for Your Practice
The difference between an LLC and a PLLC is not merely a difference in the name.
A PLLC is specifically designed for businesses that provide services requiring a professional license. Illinois law imposes additional requirements intended to ensure that only qualified professionals own and control licensed practices.
When it comes to healthcare practices, several key restrictions could apply:
Ownership Limitations
Only properly licensed professionals may own or control the entity in many circumstances. For example, physicians may generally form professional entities only with other physicians.
Regulatory Oversight
A PLLC must typically register with both the Illinois Secretary of State and the IDFPR, depending on the profession.
Disclosure Obligations
Professional entities may have ongoing disclosure requirements, such as reporting changes to ownership or business addresses.
Despite these regulatory differences, PLLCs and LLCs usually share similar tax treatment options. Many PLLCs elect pass-through taxation similar to an LLC, though taxation decisions should always be discussed with a qualified accountant.
When a Professional Corporation (PC) May Be Better Than a PLLC
For many small healthcare practices, a PLLC offers comparable liability protection while maintaining operational flexibility. However, some practices prefer the corporate structure of a professional corporation. Reasons may include:
- Familiar governance structures.
- Investor expectations.
- Long-standing legal precedent for corporations.
- Preference for formal corporate management systems.
The PLLC statute is newer than corporate statutes, which sometimes allows for greater flexibility in governance. The best entity type depends on the practice’s size, ownership structure, and long-term growth plans.
How to Form a PLLC for a Healthcare Practice in Illinois
Forming a professional limited liability company involves several steps beyond what is required for a typical LLC. Because healthcare practices are regulated businesses, proper formation is essential to protect your license.
1. File Articles of Organization
The first step is filing Articles of Organization with the Illinois Secretary of State. These documents establish the legal existence of the PLLC.
The filing identifies:
- The name of the professional entity.
- The business address.
- The entity’s managers or members.
- The professional services the PLLC will provide.
Illinois also requires the entity’s name to include a professional designator, such as:
- “PLLC”
- “P.L.L.C.”
- “Professional Limited Liability Company”
2. Designate a Registered Agent
Every Illinois PLLC must designate a registered agent. This individual or entity accepts legal documents, government notices, and service of process on behalf of the company.
The registered agent must maintain a physical address in Illinois.
3. Draft a Professional Operating Agreement
Although Illinois does not require an operating agreement to be filed with the state, every PLLC should have one.
A properly drafted operating agreement governs:
- Ownership percentages.
- Voting rights.
- Profit distributions.
- Admission of new members.
- Exit or retirement of existing members.
For healthcare practices, operating agreements often include additional provisions addressing professional licensing requirements and regulatory compliance.
4. Obtain an Employer Identification Number (EIN)
Your healthcare practice needs an Employer Identification Number (EIN) from the IRS. This number functions as the entity’s tax identification number and is required for:
- Filing taxes.
- Opening business bank accounts.
- Hiring employees.
Your accountant can advise on whether the PLLC should elect a particular tax classification, such as S corporation status.
5. Register With the IDFPR
Healthcare PLLCs must register with the Illinois Department of Financial and Professional Regulation.
This step verifies that the owners hold valid professional licenses and that the entity complies with professional licensing requirements. Depending on your practice type, additional documentation may be required.
6. Verify Local Licensing Requirements
Many municipalities require additional local business licenses for healthcare practices.
Before opening your doors, confirm compliance with all applicable:
- City licensing rules.
- County regulations.
- Local zoning restrictions.
7. File Required Annual Reports
Maintaining your PLLC is just as important as forming it. Illinois requires annual filings to keep your entity in good standing. Missing these filings can lead to penalties or administrative dissolution.
What Happens If You Have an LLC Instead of a PLLC?
Operating a healthcare practice through the wrong entity type can create serious regulatory and financial risks. Potential consequences include:
Licensing Scrutiny
The IDFPR has the authority to investigate compliance issues involving professional entities.
Insurance and Reimbursement Concerns
Third-party payors may question reimbursement claims submitted by an improperly structured entity.
Corporate Practice of Medicine Issues
Contracts between an LLC and licensed healthcare professionals may trigger scrutiny under corporate practice of medicine rules.
These risks can often be addressed by converting an existing LLC into a PLLC and bringing the entity into compliance with Illinois requirements.
Converting an LLC to a PLLC in Illinois
Many healthcare professionals start their practices as standard LLCs without realizing that Illinois law requires a professional entity. Fortunately, conversion from an LLC to a PLLC is usually possible without shutting down the business.
The process involves:
- Amending the entity’s formation documents.
- Updating the business name to include a professional designation.
- Confirming that all owners hold the appropriate licenses.
- Completing IDFPR registration.
- Updating contracts, insurance policies, and billing credentials.
Handling the conversion properly helps preserve existing contracts, tax identification numbers, and operational continuity. Having a healthcare attorney on your side through this process can ensure you take the necessary steps to protect yourself and your practice.
Structuring Your Healthcare Practice Correctly From the Start
Healthcare professionals face complex regulatory requirements that go beyond typical business formation. Choosing the correct entity structure affects:
- License compliance.
- Ownership eligibility.
- Insurance coverage.
- Payor contracts.
- Liability protection.
Operating through an improperly structured entity carries real risk. The IDFPR can investigate and take action against any licensed healthcare professional who is not operating through the correct entity type. When possible, choose the correct structure from the start.
Let Our Team Help Your Illinois Practice
Jackson LLP advises healthcare professionals across Illinois on PLLC formation, professional entity compliance, and LLC-to-PLLC conversions. Our attorneys prepare the necessary filings, complete IDFPR registrations, and draft operating agreements tailored to healthcare practices.
Schedule a 15-minute consultation to determine whether your current business structure complies with Illinois law and protects your professional license.
Free Attorney Consultation
Frequently Asked Questions
What is the difference between an LLC and a PLLC for healthcare practices?
A PLLC is a professional limited liability company specifically designed for licensed professionals. A standard LLC can be used for most other businesses. In Illinois, healthcare providers who deliver licensed services must use a PLLC or another professional entity instead of a regular LLC.
Do I need a PLLC instead of an LLC if I am the only provider in my practice?
Yes. In Illinois, licensed healthcare professionals generally must operate through a professional entity such as a PLLC or professional corporation, even if they are the only provider in the practice. The requirement applies to solo practitioners, including therapists, physicians, psychologists, and other licensed clinicians.
Can I convert my existing LLC to a PLLC in Illinois?
Yes. Illinois allows healthcare practices to convert an existing LLC into a professional limited liability company (PLLC). The process typically involves amending formation documents with the Illinois Secretary of State and completing registration with the Illinois Department of Financial and Professional Regulation (IDFPR). At Jackson LLP, we handle these conversions regularly.
What happens to my contracts and bank accounts when converting an LLC to a PLLC?
In most cases, existing contracts, bank accounts, and business relationships can continue after an LLC-to-PLLC conversion. However, documents need to be updated to reflect the professional entity name. This may include payor agreements, leases, insurance policies, and employment contracts.
Can different types of healthcare providers own a PLLC together in Illinois?
It depends. Illinois restricts ownership based on license type. For example, physicians may form a professional entity only with other physicians. Because ownership rules vary by profession, healthcare providers should confirm eligibility before forming a multi-license PLLC.
How long does it take to form a PLLC in Illinois?
Standard processing typically takes about ten business days, though timelines vary. Expedited filing options may shorten the process. An attorney can help move things forward and avoid delays from incomplete filings.
