Choosing Between a PC and PLLC for Your Mental Health Practice in New York
If you’re a psychologist, therapist, or mental health professional in New York looking to start your own practice, one of the first big decisions you’ll need to make is choosing the right legal structure.
Should you form a Professional Corporation (PC) or a Professional Limited Liability Company (PLLC)?
This choice can affect how your practice runs, your personal liability, and your taxes. This guide will break down the differences between PCs and PLLCs in simple terms to help you decide which is best for you.
Understanding Legal Structures for Mental Health Professionals in New York
What Is a Professional Corporation (PC)?
A Professional Corporation (PC) is a special type of corporation for licensed professionals like psychologists and therapists in New York. Here’s what you need to know:
• Who Can Own It: Only people licensed in New York to provide the professional services (like therapy) can be owners, directors, or officers.
• Liability Protection: As an owner, you’re generally not personally responsible for the company’s debts or for malpractice committed by other professionals in the company. However, you are responsible for your own malpractice.
• Management: PCs have a formal structure with a board of directors and officers (like president, treasurer, etc.).
• Taxes: PCs are usually taxed as corporations, which can mean paying taxes at the company level and again on your personal income (double taxation). But you can choose S-Corporation status to avoid this.
What Is a Professional Limited Liability Company (PLLC)?
A Professional Limited Liability Company (PLLC) combines features of corporations and partnerships. Here’s the scoop:
• Who Can Own It: Members (owners) must be licensed professionals authorized to provide the services offered. At least one member must be licensed in New York.
• Liability Protection: Members aren’t personally responsible for business debts or for malpractice by other members, but they are responsible for their own malpractice.
• Management: PLLCs offer flexibility. You can choose to have all members manage the company or appoint managers.
• Taxes: PLLCs typically don’t pay taxes at the company level. Instead, profits and losses pass through to members, who report them on their personal tax returns. You can choose to be taxed as a corporation if you prefer.
PC vs. PLLC: Which Is Better for Psychologists and Therapists?
Advantages of a PC
• Structured Management: PCs have a clear, formal management structure, which can be good for larger practices with multiple professionals.
• Professional Image: Some believe PCs appear more established or traditional due to their corporate setup.
• Tax Options: You can elect S-Corporation status for potential tax benefits.
Advantages of a PLLC
• Flexible Management: PLLCs are less rigid. You can design the management structure to suit your needs, which is great for solo practitioners or small groups.
• Simpler Administration: There are fewer formalities and paperwork compared to PCs.
• Pass-Through Taxation: Profits go directly to members, potentially making taxes simpler and possibly reducing your tax bill.
• Custom Profit Sharing: You can decide how to split profits and losses among members in the operating agreement.
Key Differences
• Ownership Rules: Both require all owners to be licensed professionals in New York.
• Formation Complexity: PCs have more rules and steps to set up and run compared to PLLCs.
• Taxation: PLLCs automatically get pass-through taxation. PCs have to take extra steps to avoid double taxation.
• Liability: Both protect you from business debts and others’ malpractice, but not from your own malpractice.
Formation Process in New York
Steps to Form a PC
1. Choose a Name:
• Must include “Professional Corporation” or “P.C.”
• Make sure the name isn’t already taken and follows New York’s naming rules.
2. Reserve the Name (Optional):
• You can file a form to hold the name while you prepare your paperwork.
3. Draft and File the Certificate of Incorporation:
• List the services you’ll offer.
• Include names and addresses of all initial owners, directors, and officers.
• Designate the Secretary of State as the agent for legal notices.
4. Get Approval from Licensing Authorities:
• Provide proof that all owners, directors, and officers are licensed in New York.
5. File with the Department of State:
• Submit your Certificate of Incorporation and pay the required fees.
6. File with Professional Licensing Authorities:
• Within 30 days of filing, send a certified copy to the appropriate New York licensing board.
7. Get an EIN:
• Apply for an Employer Identification Number from the IRS for tax purposes.
8. Create Bylaws:
• Write the rules for how your corporation will operate.
9. Hold an Organizational Meeting:
• Approve the bylaws, elect officers, and take care of other initial business.
10. Publication Requirement:
• PCs generally don’t have to publish notices in newspapers in New York.
Steps to Form a PLLC in New York
1. Choose a Name:
• Must include “Professional Limited Liability Company” or “PLLC.”
• Ensure the name meets New York’s rules and your profession’s guidelines.
2. Reserve the Name (Optional):
• You can hold the name while you get everything ready.
3. Draft and File Articles of Organization:
• State the professional services you’ll offer.
• List names and addresses of all members (owners) and managers.
• Designate the Secretary of State as the agent for legal notices.
4. Get Approval from Licensing Authorities:
• Provide proof that all members and managers are licensed in New York.
5. File with the Department of State:
• Submit your Articles of Organization and pay the required fees.
6. File with Professional Licensing Authorities:
• Within 30 days of filing, send a certified copy to the appropriate New York licensing board.
7. Publish Formation Notice:
• Publish a notice about your PLLC’s formation in two newspapers (one weekly and one daily) designated by the county clerk where your office is located, once a week for six weeks.
8. File Certificate of Publication:
• After publishing, submit proof to the Department of State with the required fees.
9. Get an EIN:
• Apply for an Employer Identification Number from the IRS.
10. Create an Operating Agreement:
• Outline how your PLLC will be managed, roles of members, and other details.
Essential Questions to Consider When Deciding Between a PC and a PLLC for Your Practice
1. What Are Your Long-Term Goals?
Are you planning to grow your practice or add partners in the future?
• If you think about expanding your mental health practice, bringing in other psychologists or therapists, or possibly opening additional locations in New York, it’s important to choose a legal structure that supports growth.
• Professional Corporations (PCs) might be better suited for larger setups due to their structured management system. They have a formal governance model with a board of directors and officers, which can make managing a larger team more straightforward.
• As a lawyer for therapists in New York, I often recommend PCs to those who plan significant expansion because they provide a solid framework for adding shareholders and raising capital.
2. How Important Is Flexibility to You?
Do you prefer a flexible management style for your practice?
• If you’re a solo practitioner or operate within a small group, you might value a less rigid management structure.
• Professional Limited Liability Companies (PLLCs) offer more flexibility in management and operations. They allow you to customize your operating agreement to fit your specific needs, giving you control over how the practice is run without the formalities required of a PC.
• This flexibility can be especially beneficial for those starting out or who want to maintain a simple organizational structure.
3. What Are the Tax Implications?
How will your choice affect your taxes?
• PCs:
• Might face double taxation—once at the corporate level and again on your personal income—unless you choose S-Corporation status.
• Electing S-Corporation status can help you avoid double taxation by allowing income to pass through directly to shareholders’ personal tax returns.
• PLLCs:
• Automatically offer pass-through taxation, meaning the company’s income is taxed only once on your personal tax return.
• This can simplify your tax situation and potentially reduce your overall tax burden.
• Consult a Tax Professional:
• It’s crucial to talk to a tax professional familiar with New York PLLC formation for mental health practices to determine what’s best for your specific situation.
• They can provide personalized advice on the implications of the New York Pass-Through Entity Tax (PTET) and help you maximize your tax benefits.
4. What Are the Costs Involved?
What are the initial and ongoing costs of each structure?
• PCs:
• May have higher setup and ongoing costs due to more regulations and required corporate formalities.
• Costs include filing fees, creating bylaws, holding annual meetings, and maintaining corporate minutes.
• PLLCs:
• You’ll need to budget for the publication requirement, which involves publishing notices in two newspapers for six consecutive weeks. This can be expensive in some areas, especially in New York City.
• Other costs include drafting an operating agreement and possible higher fees if you choose expedited services.
5. How Does Each Structure Affect Liability?
How much personal protection do you need?
• Both PCs and PLLCs offer protection from business debts and the malpractice of other professionals within your practice.
• However, neither structure protects you from your own malpractice. It’s essential to maintain adequate professional liability insurance regardless of the entity you choose.
• As a lawyer for therapists in New York, I can help you understand the nuances of liability in the context of PC vs PLLC for psychologists and ensure you’re adequately protected.
6. Are There Additional Compliance Requirements?
What ongoing obligations come with each structure?
• PLLCs:
• Must meet the publication requirement within 120 days of formation, or risk suspension of the business entity.
• Required to have a written operating agreement, even if you’re the sole member.
• May have fewer corporate formalities but need to stay compliant with state regulations and professional licensing boards.
• PCs:
• Must follow corporate formalities like holding annual meetings, keeping detailed minutes, and maintaining bylaws.
• These requirements can be more time-consuming but help establish credibility and maintain clear operational procedures.
Why Consult a Lawyer for Therapists in New York?
Setting up a PC or PLLC involves navigating complex legal requirements. An experienced attorney can:
• Offer Personalized Advice: Help you choose the structure that fits your goals.
• Ensure Compliance: Make sure you meet all legal and licensing requirements.
• Handle the Paperwork: Take care of filings and documents efficiently.
• Draft Important Documents: Prepare bylaws or operating agreements that protect your interests.
Choosing between a PC and PLLC for your mental health practice in New York is a big decision that can impact your practice’s future. By understanding the differences and thinking about your specific needs, you can make the choice that’s right for you.
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.