Limited Liability Companies (LLCs) are among the most common business structures. LLC requirements vary by state and the type of business. Under Pennsylvania law, certain licensed professionals must form their LLC as a restricted professional company. This is not a special tax strategy or optional designation. It is a legal requirement tied to the type of professional services provided.
What is a restricted professional LLC in Pennsylvania?
A restricted professional company is a Pennsylvania LLC formed to provide specific professional services. It is required under 15 Pa.C.S. §§ 8995–8998.
The restriction applies because of the nature of the professional service, not the business size or structure. The LLC otherwise functions like a standard Pennsylvania LLC, providing liability protection and pass-through taxation by default.
Which professions are required to form a restricted professional company?
Most businesses are not required to form a restricted professional company. Under Pennsylvania law, professions that must form a restricted professional company include:
- Chiropractic
- Dentistry
- Law
- Medicine and surgery
- Optometry
- Osteopathic medicine and surgery
- Podiatric medicine
- Public accounting
- Psychology
- Veterinary medicine
If an LLC provides any one of these services, even if it is only one aspect of the business, it must be a restricted professional company. Other businesses do not use this structure.
If you have an existing LLC that previously conducted a business not involving a restricted professional service, and it starts to provide one or more restricted professional services, it is necessary to amend its certificate of organization. That involves adding a statement that it is a restricted professional company.
How a restricted professional LLC differs from a standard Pennsylvania LLC
A restricted professional LLC differs from a general LLC in Pennsylvania in that it has special compliance requirements. Since it applies to professional services, ownership and management are subject to professional licensing rules. For instance, a person cannot form a restricted professional LLC for a law office without a license to practice law.
The LLC’s Certificate of Organization must state that the LLC is a restricted professional company. It must include a brief description of the professional service(s) provided. The LLC is subject to annual registration requirements.
The benefits for LLC members are similar for both standard and restricted professional types. One of the great advantages of an LLC, liability protection for owners, still applies to both types. The owners’ personal assets are not at risk for the company’s debts or if the LLC is sued. Only the actual LLC assets are at risk in such situations.
The tax treatment for standard and restricted professionals is not automatically different. The LLC itself is not federally taxed. Instead, its profits and losses are “passed-through” to members, who report this information on their own federal income tax returns. Members can also choose to be taxed as a C-corporation or S-corporation.
All LLCs must have a unique name, which can be checked using a business entity search. Compared to corporate structures, there are minimal compliance requirements, but the professional restricted LLC has more compliance requirements due to the professional licensing aspect.
Annual registration requirements for restricted professional companies
Every restricted professional company (domestic or foreign) in existence in the Commonwealth on December 31 of a given year must file a Certificate of Annual Registration (CAR). The annual filing deadline is April 15.
Failing to file a CAR can result in serious consequences, including not just additional fees, penalties, and interest. A Uniform Commercial Code lien is placed against the business until all fees are paid.
How to form a restricted professional LLC in Pennsylvania
Here is how to form a restricted professional LLC in Pennsylvania, as per the official state process:
- Confirm that the professional service requires restricted status. Since such services are limited to medical, veterinary, legal, and public accounting fields, and a professional license is needed, you will fall into the restricted professional LLC category if your business is applicable. Basically, if you have a practice as well as a business, you should file a restricted professional LLC. Such practices are exempt from charging sales tax for their services.
- File a Certificate of Organization, DSCB:15-8821, with the Pennsylvania Department of State, and pay the $125 filing fee. In addition to the name of the LLC, address, commercial registered office, and organizer names, your CO filing must include a statement that the LLC is a restricted professional company. This statement must describe the professional services offered.
- File the required docketing statement, DSCB:15-134A. This also names the party responsible for initial tax reports.
- Maintain the required professional licenses and registrations.
While an attorney is not required to file a restricted professional LLC, consulting a lawyer is recommended. These filings are often complex, especially concerning tax considerations, and you want to ensure that your LLC meets all legal requirements. The DIY method could save money in the short term while subjecting your practice to serious legal consequences in the long run.
Common misconceptions about restricted professional LLCs in Pennsylvania
Those required to comply with restricted professional LLC regulations in Pennsylvania often have misconceptions about what it does or does not mean. For instance, “restricted” does not mean:
- Temporary
- Optional
- Related to anonymity or asset protection strategies
Businesses outside the listed professions should not use a restricted professional LLC designation.
Keep in mind that Pennsylvania’s restricted professional LLC is not the same as Nevada’s Restricted LLC. Nevada’s restricted LLC pertains only to that state and is created for family estate planning purposes.
Getting set up the right way
By getting set up properly from the beginning, your professional restricted LLC formation should go smoothly. Here’s what to do:
- Make sure you choose the correct LLC type for your profession.
- Ensure your business name is available via a PA business entity search
- Gather all licensing, ownership, and relevant business information. Apply for, renew, or check your licensing through the Pennsylvania Licensing System (PALS).
- Obtain an Employer Identification Number (EIN) through the IRS website. Note that you must complete the EIN application in one session. The session expires after 15 minutes of inactivity.
- If you have previously operated the business under a sole proprietorship, make sure to separate all business and personal finances before filing a restricted professional LLC.
It is crucial to understand that forming a restricted professional LLC does not replace any professional licensing or legal requirements. For example, medical professionals not yet licensed in the state must apply for a medical license, and veterinarians, lawyers, and accountants must have similar licensing from their respective state boards.
A platform such as Tailor Brands helps founders get set up and stay organized. Along with LLC formation, we offer business services ranging from taxes and accounting to branding and marketing. Tailor Brands is an all-in-one solution for building businesses.
Conclusion
A restricted professional LLC is a legal requirement for certain professions in Pennsylvania. Most businesses will never need this structure. However, if it applies to your practice, compliance is mandatory and ongoing.
Understanding the rules thoroughly helps avoid penalties and delays, especially the threat of a lien against your business. UCC liens are public records and searchable online. A lien against your business affects not only your reputation but also future financing.
By engaging a business-building platform to form your Pennsylvania restricted professional LLC, you can avoid filing errors that could harm your practice.