In Michigan, persons in a learned profession requiring a license or other legal authorization to practice, including but not limited to, physicians, dentists, attorneys, and certified public accountants, must incorporate as a professional entity rather than a general business entity. The choice of professional entity will depend on a variety of factors, including tax considerations. The most popular professional entity choices are the Professional Limited Liability Company (“PLC” or “PLLC”) and the Professional Services Corporation (“PC”).
Unlike general business entities, there are certain restrictions on Professional Entities. Both Professional Corporations and Professional Limited Liability Companies are required to operate for the specific purpose of providing one or more professional services.
Generally, all shareholders of the Professional Corporation or members or managers of the Professional Limited Liability must be licensed persons in one or more of the professional services the Professional Entity renders. However, persons in certain professions must comply with additional requirements when structuring their professional entity. For example, all of the members or shareholders of certain health and legal professional entities must hold the same professional license.
A shareholder or member that wants to transfer or sell his or her shares or membership interests cannot do so except to another licensed person who is eligible to be a member of the PC or PLC.
Another important aspect of the professional entity is that it provides protection to its shareholders and members from personal liability for the PLC or PC’s acts, debts or other obligations. However, the professional shareholder or member may still be personally liable under common law for his or her negligence or malpractice, or the malpractice of others under the member or shareholder’s direct supervision and control.
This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.
