Professionals starting a Corporation or Limited Liability Company in New York

A professional cannot form a regular corporation or limited liability company to sell his or her professional services.  This is well known about lawyers and doctors, but it is also true for nurses, psychologists, and any other profession designated in Title 8 of the education law.

These professions have to form a special kind of corporation or LLC, a so called professional corporation or a professional limited liability company.

A professional LLC or corporation is not that different from a regular LLC or corporation when it comes to the structure and tax treatment.    There are just some special rules with respect to the formation, the purpose and the shareholders of a professional LLC:  Look here for professional LLCs and here for professional corporations.

When a professional forms a professional corporation to sell his or her services, the sole purpose of that corporation must be the rendering of professional services.  All his or her fellow shareholders must be authorized to practice in the same profession. 

Now, many people think that when they form a professional entity, they are protected from their own malpractice.  Wrong.  The New York limited liability company law specifically states in Section 1205:

"Each member,manager, employee or agent of a professional service  limited  liability company  shall  be  personally  and fully liable and accountable for any negligent or wrongful act or misconduct committed by him or  her  or  by any  person  under  his  or  her  direct  supervision  and control while rendering professional services on  behalf  of  such  limited  liability company."

What's the point of forming an entity then in the first place?  Well, you can still shield yourself from liability of the other members of the professional LLC or anybody who was not under your direct supervision.  Plus, your house and car won't be on the line, if something happens that is unrelated to your professional liability, such as a visitor falling on the shiny floor in your lobby.

**This post is for informational purposes only and does not constitute legal advice**