Structuring the professional practice: the menu your board wrote

Every other fact pattern in this collection starts with a free choice. The landlord, the flipper, the agency owner all pick their entity off the full menu, and the structuring hub walks the whole sequence: purpose, entity, election, layering, jurisdiction, ownership.

The licensed professional does not get the full menu. A dentist, a lawyer, an accountant, a therapist, an architect orders off a shorter card, and the licensing board wrote it. Which entities appear on your card is decided by two facts you cannot change: your state and your profession. That single difference reshapes every step of the structure, from the first filing to the day a partner dies, so this page runs the standard sequence and marks exactly where the license bends it.

Step one is not your decision

For everyone else on this site, entity selection is a comparison. For you it is a lookup. Some states require licensed work to run through a professional entity, the PLLC or the professional corporation. Some offer the PLLC as an option beside the standard LLC. Georgia never created a PLLC at all, so its professionals choose between a standard LLC and a professional corporation. The variants page carries the machinery of what a PLLC is and the gatekeeper logic behind every special edition; this page only aims you at it.

Then there is California, which took the menu away entirely. Its LLC act says no domestic or foreign LLC may render professional services in the state, so there is no California PLLC and no using a standard LLC for licensed work either. The required vehicle is the professional corporation. Note the word foreign: a Texas dental PLLC cannot carry its home-state blessing across the border and practice. And note where California draws the line, because it runs between professional licenses and merely occupational ones. A California contractor, licensed under a different code section that expressly allows it, can use an LLC while the dentist next door cannot.

The practical instruction is one sentence. Before any structuring conversation, get the answer to a single question from your state’s statute and your board: which entities may hold this license here. Everything else on this page happens inside that answer. State-by-state specifics will live on this site’s state pages.

What the shield covers, and the sale that was a story

The foundation page’s first hole is the center of this fact pattern. No entity, anywhere, in any state, shields you from your own malpractice. The patient you injured, the client whose deadline you blew, the beam you miscalculated: those claims run against the person who did the work, and the professional entity was never designed to stop them. Anyone who sold a PLLC as malpractice protection sold a story. Malpractice insurance does that job, it is the single most important line item in the whole structure, and for a solo professional it outranks the entity conversation entirely.

What the professional entity actually buys is protection from everyone else’s problems. Your partner’s malpractice. The office lease. The payroll. The equipment loan. The employee who crashes the practice’s car. In a solo practice that list is short and the entity is mostly containing the lease and the staff. In a ten-professional practice the list is the whole reason the firm survives one member’s catastrophe, and the entity earns its keep every year. The value of the professional entity scales with the number of colleagues whose mistakes you did not make.

The shield also only holds if the wall is real, and professional practices commingle as badly as any one-owner business: fees into the personal account, the practice’s card buying groceries. The veil piercing page prices that habit, and the fix is the same boring liturgy it prescribes, from the first month.

The election, with the scrutiny turned up

A PLLC is an LLC to the IRS, so the full choice of entity machinery applies: the S-corp election, the reasonable-compensation requirement, the break-even zone of roughly $60,000 to $80,000 of profit above a defensible salary. Professional practices clear that bar constantly, which makes the election one of the most common and most valuable moves in this fact pattern.

It also puts the practice in the worst seat for the election’s one hard constraint. Reasonable compensation asks what your labor is worth on the market, and in a professional practice nearly all the revenue is your labor. A surgeon paying herself a modest salary while a large profit flows out free of employment tax is making a claim about the market value of surgeons that the IRS has heard before and does not believe. The election still pays in a profitable practice; it just pays on a narrower margin than the seminar version promises, and the salary number needs an accountant’s signature, not a wish. Run the math yearly, as the choice of entity page says, and run it with the scrutiny assumption turned on.

The boxes worth adding, and the one that changed names

The building blocks apply here the way they apply everywhere, with one pleasant wrinkle. When the practice buys its building, the propco and opco split is the move, and the building side is easy: owning real estate requires no professional license, so the building goes in a standard LLC even where the practice itself cannot use one. The practice signs a real lease, the building’s equity sits outside the reach of the practice’s lawsuits, and the structure works identically in every state, California included.

The management company deserves a warier eye. In an ordinary business it is a clean fee-for-services entity. Wrapped around a professional practice it starts to look like something else: a vehicle for moving practice profit to people the board would not allow to own the practice, or for stripping fees ahead of the election math. Boards notice, and so does the IRS when the management fee has no defensible relationship to the services. There is a version of this structure with real teeth, the management services organization that healthcare built precisely because its ownership rules are the strictest in the country, and it belongs to the healthcare practice fact pattern, where the regulatory overlay that justifies it gets full treatment. For an ordinary professional practice, add a management company only when it performs genuine, priceable services, and paper it like the arm’s-length contract it must be.

Ownership that cannot move freely

Here is the constraint that does the most damage to unprepared practices, and it arrives years after formation. In a professional entity, ownership is typically restricted to holders of the license. That rule sounds like a formality at the filing stage. It becomes the whole problem the day a member dies, retires, loses the license, or divorces.

A deceased partner’s estate is not a licensed professional. In most professional entities it cannot simply hold the interest the way an heir holds shares of a family LLC, which means the practice must buy the interest out, which means the price and the funding had to be agreed while everyone was alive and friendly. The same forced transfer fires when a member’s license is suspended or revoked. The exits page explains why leaving an LLC is hard even without this constraint, and the default rules page explains what your legislature wrote for the silence; the license restriction stacks a mandatory buyout on top of both.

So the buy-sell agreement, optional-but-wise in most fact patterns, is close to mandatory in this one, and it needs three things decided in advance: a valuation method the members will hate equally, a funding source (life and disability insurance exist for exactly this), and triggers that include death, disability, license loss, and retirement. The drafting of that clause belongs to this site’s operating agreement manual. The decision to have it belongs to the week you form the practice.

Crossing state lines with a license in your pocket

The jurisdiction page governs the mechanics of operating in a second state. The professional overlay adds two hard facts. Your license does not travel by itself; practicing in the second state means satisfying its board, whatever that takes. And your entity does not travel by itself either: a PLLC registering as a foreign entity in a state that restricts professional practice must satisfy that state’s professional-entity rules, not its home state’s, and in California the foreign professional LLC is barred outright. A multi-state professional practice is really a small federation of state-approved entities, and it should be designed by someone who has built one before. This is a place where the honest boundary from the structuring hub applies with full force.

The bottom line

One entity for the practice, chosen off your state’s card rather than the national menu, with the answer to which entities may hold this license here obtained before anything else is decided. Malpractice insurance sized first and generously, because the entity never covers your own hands and was never going to. The S-corp election taken when the profit earns it, with a salary an auditor would accept for your profession. The building in its own standard LLC the day you buy one. A management company only for genuine services at genuine prices. And a funded buy-sell from the beginning, because the license restriction guarantees a forced transfer someday, and the practices that survive it are the ones that priced it while nobody was sick, suing, or dead.