5 Legal Must-Haves for Therapists Forming a PLLC
As a therapist forming a Professional Limited Liability Company (PLLC), it’s essential to understand the legal requirements and protections that come with this structure. A PLLC is a powerful business entity that offers liability protection and professional credibility, but it’s not without legal responsibilities. Setting up your PLLC properly ensures you avoid future legal issues and run a compliant, successful practice.
In this blog, we’ll walk through the 5 legal must-haves for therapists forming a PLLC. Whether you're just starting or revisiting your business structure, these legal essentials will keep your practice protected and in compliance with state and federal laws.
1. Choose an Appropriate Business Name
One of the first legal steps in forming a PLLC is choosing a business name that complies with state regulations. Most states have specific rules for naming your PLLC to ensure clarity, professionalism, and compliance with licensing laws.
Key Points to Consider:
Include "PLLC": Your business name must include “PLLC” or “Professional Limited Liability Company” to clearly designate your practice as a PLLC.
Avoid Misleading Terms: Your business name should reflect the nature of your services. For example, you can’t use terms like “therapy” or “counseling” if you are not licensed in that field, or words that could mislead clients about your qualifications.
Check State-Specific Requirements: Each state has specific rules about what words are allowed in a PLLC name. Make sure your chosen name is available and not already in use by another business.
Tip: Before finalizing your business name, check the state’s Secretary of State website to ensure the name isn’t already taken.
2. File Articles of Organization
Filing the Articles of Organization (sometimes called a Certificate of Formation or Certificate of Organization) is a required legal step in establishing your PLLC. This document officially registers your business with the state and provides essential details about your practice.
Key Points to Consider:
Information Required: Typically, you’ll need to provide your business name, address, the purpose of the PLLC (e.g., providing therapy services), and the name and address of your registered agent (the person designated to receive legal notices).
State Fees: There are filing fees associated with submitting the Articles of Organization. Fees vary by state, so check the amount on your state’s official website.
Registered Agent: You are required to designate a registered agent to receive official documents and legal notices on behalf of your PLLC. This could be a professional service or an individual within the business.
Tip: Ensure your registered agent is reliable and that their contact information is updated, as they will be the point of contact for any legal or state correspondence.
3. Draft an Operating Agreement
While not always required by law, an Operating Agreement is an essential legal document for your PLLC, especially if you have multiple members or partners. This document outlines the management structure and operational rules of your practice.
Key Points to Consider:
Ownership Structure: If you’re the sole owner of your practice, this agreement is simpler, but it still lays out key elements like profit distribution and decision-making processes. If you have business partners, the Operating Agreement will define each member’s roles, responsibilities, and shares of the business.
Internal Policies: This document covers important aspects such as dispute resolution, hiring practices, and how the business will operate day-to-day. It’s crucial for maintaining clarity and avoiding misunderstandings down the road.
State Requirements: Some states don’t require an Operating Agreement for a PLLC, but having one in place ensures smoother business operations and clearer terms for all members involved.
Tip: Even if you’re a solo practitioner, it’s a good idea to have an Operating Agreement in place to ensure clear guidelines for business operations and financial management.
4. Secure Professional Liability Insurance (Malpractice Insurance)
While forming a PLLC protects your personal assets from business-related liabilities, it doesn’t shield you from professional liability claims, such as malpractice or allegations of negligence. To cover these risks, you need professional liability insurance, often referred to as malpractice insurance.
Key Points to Consider:
Importance of Coverage: Malpractice insurance is vital for any therapist, as it helps protect you from legal costs and financial damages if a client files a lawsuit claiming negligence, breach of confidentiality, or harm resulting from your professional services.
Choose the Right Coverage: Work with an insurance agent to find the best policy that covers the specific risks of teletherapy, in-person counseling, or any other services you offer.
Ensure PLLC Coverage: Make sure your insurance covers both individual actions and those arising from your business as a PLLC. Some policies may also extend coverage to employees or contractors working under your practice.
Tip: Consider coverage that also includes protection against cyber liabilities, especially if you’re providing teletherapy or storing sensitive patient data electronically.
5. Obtain an Employer Identification Number (EIN)
An Employer Identification Number (EIN) is required for tax purposes and is necessary even if you don’t have employees. The EIN functions as a Tax ID number for your PLLC and allows you to open a business bank account, file taxes, and hire employees if needed.
Key Points to Consider:
Application Process: You can easily apply for an EIN through the IRS website. The application process is free, and you typically receive your EIN instantly upon submission.
Tax Reporting: Your EIN is essential for filing your business taxes. If you elect to have your PLLC taxed as an S-corp or partnership, the EIN will be used to identify your practice in all tax filings.
Required for Bank Accounts: Most banks require an EIN to open a business account, ensuring that your practice’s finances are separated from your personal finances.
Tip: Even if you're a sole practitioner and don’t have employees, an EIN is still crucial for keeping your finances organized and meeting legal obligations.
Legal Essentials for Therapists Forming a PLLC
Forming a PLLC is a smart way to protect your therapy practice, but it’s crucial to make sure you meet all the legal requirements from the start. By securing an appropriate business name, filing the Articles of Organization, drafting an Operating Agreement, obtaining professional liability insurance, and acquiring an EIN, you can establish a solid legal foundation for your practice.
ABOUT MJ MORLEY LAW PC
MJ Morley Law PC provides comprehensive legal solutions tailored for entrepreneurs and businesses at every stage of growth. From entity formation to intellectual property protection, our dedicated team is here to ensure your business thrives in a complex legal landscape. Ready to take the next step? Book a free consultation with us today or explore our services to learn more about how we can support your business goals.