A Primer on Professional Service Corporations

What is a Professional Service Corporation and when can it be used?

A professional service corporation organized under the Illinois Professional Service Corporation Act (“the Act”), 805 ILCS 10/ et. seq. , is organized solely for the purpose of rendering one category of professional services or related professional services. Under the Act, a “professional service” is one which requires a license from a State agency, the United States Patent Office or the Internal Revenue Service as a prerequisite to providing that service. Examples of professional services are the practice of law, accounting, engineering, architecture, medicine, and various kinds of physical and psychological therapy. Related professional services include the practice of more than one professional service such as a firm that renders architecture and engineering services.

Each Professional Service Corporation’s name must end with the word "chartered" or "Limited" or the abbreviation "Ltd.", or with the words "Professional Corporation" or the abbreviation "Prof. Corp." or the initials "P. C.".

Not only do Professional Service Corporations have to file Articles of Incorporation with the Illinois Secretary of State, a Professional Service Corporation must also be approved by a separate regulatory state agency. For example: a Professional Service Corporation that provides legal services must be approved by the Illinois Supreme Court; a corporation that provides public accounting services must be approved by the Illinois Department of Financial and Professional Regulation, Division of Professional Regulation; and a Professional Service Corporation that provides barbering, cosmetology, esthetics, or nail technology services must also be approved by the Illinois Department of Financial and Professional Regulation, Division of Professional Regulation.

How is a Professional Service Corporation different from a Standard Corporation?

The difference between a standard business corporation and a professional service corporation is that all shareholders, directors, officers, agents, and employees (other than ancillary personnel or the corporate secretary) must be licensed to render the professional service for which the corporation was organized.

Ancillary personnel are those employees who are not licensed to engage in the category of professional service for which the professional corporation was formed, who work at the direction or under the supervision of those who are licensed, who do not hold themselves out to the public as being licensed in that profession, and are not prohibited by a regulatory authority from being employed in the professional corporation.

Just as a regular corporation does, a professional service corporation offers its shareholders limited liability for the company’s debts and obligations, as well as the debts and negligent acts of the other shareholders. However, each shareholder of a Professional Service Corporation is personally liable for his or her own negligence or criminal acts even if they are providing services through a Professional Service Corporation. This is in contrast to a regular business corporation where a shareholder is only liable up to the amount of investment that he or she made in the corporation.

Professional Limited Liability Companies

Under the Professional Limited Liability Company Act, 805 ILCS 185/ et. seq. , a business may organize as a professional limited liability company in order to render a professional service or related professional services to the public. The entity’s name must contain the terms “professional limited liability company”, “P.L.L.C.”, or “PLLC” and all the members of the LLC must be licensed to perform the particular service that the LLC was organized to perform.

Recommendation

The Illinois General Assembly’s intent in enacting the Professional Service Corporation Act and the Professional Limited Liability Company Act was to preserve the established professional aspects of the personal relationship between professionals and those they serve. Because Illinois and many other states provide the opportunity for a group of professionals to be incorporated or organized as a Professional Service Corporation or a Professional Limited Liability Company, it may be in the company’s best interest to organize as a professional entity to reinforce the professional nature of its services while maintaining the limited liability shield.

For more information about Professional Service Corporations, contact Steven Migala at 847-705-7555 or smigala@lavellelalw.com.