One of the primary motivators for operating a business through a separate entity is to insulate the owners of the entity from the liabilities of the business. Typically, a corporation shareholder (or a member of a limited liability or a partner of a limited liability partnership) is not personally liable for the debts of the business. In many instances, the most that a shareholder (or LLC member or LLP partner) will lose in an unsuccessful business venture is their initial capital contribution and time.
Practitioners of some professions, however, are prohibited by the ethics rules of their respective licensing boards from organizing their businesses in such a way to limit their professional liability towards clients. A chiropractor, for example, cannot simply organize his or her practice as a limited liability company as a means of preventing patients from recovering damages for malpractice claims.
Are practitioners able to organize their practices in such a way, however, to limit liability for other potential claims against their business unrelated to the actual providing of services to clients? Fortunately for practitioners in Minnesota, the answer to this question is yes. Under the Minnesota Professional Firms Act, Minnesota Statutes, Chapter 319B, practitioners of certain licensed professions may elect to be professional firms under any one of three different forms of organization: corporations, limited liability companies, and limited liability partnerships. Organizing an entity under the Professional Firms Act does not lessen or eliminate a practitioner’s liability for their own malpractice or other wrongful conduct directly arising from the provision of professional services, but it does permit the professional to limit their liability for other debts or obligations of the business itself to the extent permitted by the law governing the chosen form of organization.
The Professional Firms Act provides that members of the following professions may elect to be professional firms: medicine and surgery, physician assistant, chiropractic, registered nursing, optometry, psychology, social work, marriage and family therapy, professional counseling, dentistry and dental hygiene, pharmacy, podiatric medicine, veterinary medicine, architecture, engineering, surveying, landscape architecture, geoscience, certified interior design, accountancy, and law. The licensing boards of certain professions, such as veterinary medicine, law, chiropractic, and psychology, require filing under the Professional Firms Act.
To operate as a professional firm, a Minnesota entity must be formed under the chosen statute: the Minnesota Business Corporation Act (Minnesota Statutes Chapter 302A), the Minnesota Nonprofit Corporation Act (Minnesota Statutes Chapter 317A), the Minnesota Revised Uniform Limited Liability Company Act (Minnesota Statutes Chapter 322C), or the Minnesota Limited Liability Partnership Act (Minnesota Statutes Chapter 323A). Then, either as part of the original formation documents or as an amendment to those documents, the firm must include language stating that it (1) elects to be covered by the Minnesota Professional Firms Act, and (2) acknowledges that it is subject to the provisions of the Act. The documentation must also specify the profession(s) to be practiced by the firm.
Finally, the Professional Firms Act requires that the professional firm’s name reflect the nature of its limited liability structure. If it is a corporation, the firm’s name must include one of the following designations or abbreviations: Professional Corporation, Professional Service Corporation, Service Corporation, Professional Association, Chartered, Limited, P.C., P.S.C., S.C., P.A., or Ltd. If the firm is a limited liability company, the name must include one of the following: Professional Limited Liability Company, Limited Liability Company, P.L.L.C., P.L.C., or L.L.C. If it is a limited liability partnership, the name must include one of the following: Professional Limited Liability Partnership, Limited Liability Partnership, P.L.L.P., or L.L.P.