PLLCs in Tennessee: Ownership, Liability, Buyouts, and Licensing-Board Rules for Professional LLCs

A professional limited liability company, or PLLC, is a Tennessee LLC formed to render a licensed professional service. In most respects it works like any other LLC. The difference is Part 11 of the Revised Limited Liability Company Act, which adds rules on ownership, names, buyouts, and the licensing board.

What Tennessee treats as a PLLC

The rest of the Revised LLC Act applies to PLLCs to the extent it is not inconsistent with Part 11 (Tenn. Code Ann. § 48-249-1101). A professional service is one that may lawfully be rendered only by a person licensed or otherwise authorized by a licensing authority in Tennessee, meaning the board, agency, court, or other authority that licenses the service (§ 48-249-1102(4), (6)).

A PLLC is generally limited to a single profession. It may combine professions, or a profession and other business, only if the licensing law of each profession in the combination specifically authorizes it, or within the health care pairings described below (§§ 48-249-1104(a), (b), -1109(e)). It may not go beyond the services and business its articles authorize, though it may invest its funds (§ 48-249-1107). It renders professional services in Tennessee only through individuals licensed or otherwise authorized here, and its unlicensed staff do not need a license for work that does not otherwise require one (§ 48-249-1106).

Forming a PLLC or converting an existing LLC

A PLLC is formed by filing articles of organization with the Secretary of State. In addition to the usual requirements, the articles must state that the company is a PLLC, that its purpose is to render specified professional services, and that it has one or more qualified persons as members and no disqualified persons as members or holders. An existing LLC can elect PLLC status by amending its articles to include those statements (§ 48-249-1103).

The filing fee for the articles is $50 per member, with a $300 minimum and a $3,000 maximum, and the same formula sets each annual report fee (Tenn. Code Ann. § 48-249-1007(d)).

A domestic PLLC may not render professional services in Tennessee until it delivers a certified copy of its articles to each licensing authority with jurisdiction over a service described in the articles (§ 48-249-1127). A PLLC formed in another state needs a Tennessee certificate of authority only if it maintains, or intends to maintain, an office here (§ 48-249-1123(c)).

The name has its own rules

A PLLC's name is exempt from the usual requirement to include 'limited liability company' or 'LLC.' Instead, it must contain 'professional limited company,' 'professional limited liability company,' 'professional LLC,' or 'limited liability professional company,' or the abbreviation P.L.C., P.L.L.C., or L.L.P.C., with or without the punctuation. It may not contain 'corporation' or 'incorporated' or an abbreviation of either, and it may not imply a purpose its articles do not authorize (§ 48-249-1108(a)). The name of a current or former member, or of someone associated with a predecessor firm, may be used even if the general name rules would otherwise block it (§ 48-249-1108(b)).

Who may own a PLLC

Unless the licensing authority specifically authorizes owners who are not licensed, a PLLC's members and holders of financial rights are limited to (§ 48-249-1109(b)):

• Individuals authorized in Tennessee or another state to render a professional service described in the articles.
• General partnerships in which all partners are qualified persons and at least one is authorized in Tennessee.
• Professional corporations, professional associations, and PLLCs, domestic or foreign, authorized in Tennessee to render a service described in the articles.

A licensing authority may restrict these categories by rule to protect the profession's ethical standards (§ 48-249-1109(c)). Any interest held in violation of the section is void (§ 48-249-1109(d)). Members may transfer interests only to qualified persons, though a member may pledge financial rights to a financial institution as loan collateral, and a prohibited transfer is void unless it happens by operation of law or court judgment (§ 48-249-1110).

The statute also lets certain health care professionals own the same PLLC, such as optometrists with ophthalmologists, and physicians (other than radiologists, pathologists, and anesthesiologists) with podiatrists, chiropractors, physician assistants, or advanced practice nurses, without changing anyone's scope of practice (§ 48-249-1109(e)).

What the liability shield does and does not cover

Section 48-249-1119 sets three rules:

1. Each individual who renders professional services for a PLLC is liable for his or her own negligent or wrongful acts or omissions to the same extent as a sole practitioner. That individual is not liable for the conduct of the other members, managers, employees, or agents unless he or she is also at fault.
2. The PLLC itself is liable to the same extent as the people who perform professional services within the scope of their employment or apparent authority.
3. Otherwise, a member's or manager's personal liability is no greater than it would be in an ordinary LLC.

An ordinary LLC works much the same way: members are not liable for one another's acts but may be liable for their own (§ 48-249-114(a)). Where Tennessee law recognizes a privilege for communications between a professional and the person receiving the services, Part 11 does not affect it, and the privilege applies to the PLLC and its people (§ 48-249-1118). In DeLany v. Kriger, No. W2018-01229-COA-R3-CV (Tenn. Ct. App. Mar. 20, 2019), the Court of Appeals held that the sole owner of a veterinary practice was not personally liable for an employed veterinarian's negligence, PLLC or not, without evidence that she was personally negligent or that the employees were improperly trained or hired.

When a member dies, retires, or loses a license

Here a PLLC differs most from a plain LLC. The PLLC must purchase, or cause a qualified person to purchase, a member's interest at fair value as of the date of the event when the member dies, becomes disqualified, has the interest transferred to a disqualified person by operation of law or court judgment, or retires, withdraws, or terminates employment with the PLLC (§ 48-249-1111(a)). A disqualification that lasts no more than five months does not trigger the purchase (§ 48-249-1111(c)).

If the LLC documents or a private agreement fix the price and payment terms, those govern, and they are specifically enforceable (§ 48-249-1111(b), (e)). If not, the statute supplies a default process:

1. The PLLC sends a written offer at the price it believes is fair value, with a balance sheet, income statement, and statement of changes in equity for a fiscal year ending no more than 16 months before the notice, plus any later interim statements (§ 48-249-1112(a)).
2. The departing member or the estate has 30 days to accept or to demand a court proceeding to determine fair value. An accepted offer is paid within 60 days unless a later date is agreed (§ 48-249-1112(b)).
3. If the offer is not accepted, a court in the county of the PLLC's principal executive office (or its registered office, if the principal office is outside Tennessee) determines fair value, may appoint appraisers, and may order payment in installments (§ 48-249-1113). Costs are assessed against the PLLC, though the court may shift them to the departing side if it refused the offer arbitrarily, vexatiously, or not in good faith, and counsel and expert fees can shift depending on how the offer compares with fair value (§ 48-249-1114).

If the interest is not purchased within ten months after a death, or five months after any other triggering event, the PLLC must terminate it on its books, leaving only the right to payment (§ 48-249-1115). A member who becomes disqualified is deemed to have resigned and withdrawn, and anyone rendering professional services for the PLLC who becomes legally disqualified in Tennessee must immediately sever professional and financial ties with it. A PLLC's failure to require that gives the Secretary of State a ground to dissolve it (§ 48-249-1116).

Because the statutory process can end in court, the buyout terms in the operating agreement carry real weight. When an operating agreement no longer matches how the business actually runs, the buyout clause is often the part that matters most.

Licensing boards have their own rules

A board may adopt rules expressly authorized by Part 11 (§ 48-249-1129), and Part 11 does not restrict a board's jurisdiction over the individuals it licenses (§ 48-249-1130). If a board's rule requires it, a PLLC must file an annual statement of qualification with the board between January 1 and April 1, listing its members, managers, and officers and any information the rule requires. A board may not require extra information in the articles themselves (§ 48-249-1128). If the Secretary of State or a board serves written notice of a violation and the PLLC does not correct it within 60 days, the Attorney General may seek dissolution (§ 48-249-1122).

Two examples:

• Accountancy. A firm needs a Board of Accountancy permit for each location to provide attest services or use the titles 'CPAs' or 'CPA firm.' A CPA firm may have owners who are not licensees, but CPAs licensed in some state must hold a simple majority of the ownership and voting rights (Tenn. Code Ann. § 62-1-108(a), (c)(1), (d)). The statute does not say how that allowance fits with § 48-249-1109(b) for a firm organized as a PLLC. The Board's firm page lists an active Secretary of State registration for an LLP, LLC, corporation, PC, or PLLC, and says that firm names not made up of the names or initials of current or former owners may need Board approval.
• Architecture and engineering. A corporation, partnership, or firm offering these services to the public must have a registered principal or officer in responsible charge, must file a Board form listing its principals and officers, and must report changes within 60 days (Tenn. Code Ann. § 62-2-601). Each Tennessee place of business needs a resident registrant in responsible charge (§ 62-2-602).

I have not reviewed every board's rules, and lawyers, physicians, and other professionals answer to their own licensing authorities.

PLLC, plain LLC, or professional corporation

Part 11 overrides other laws to the extent they are inconsistent with a PLLC as a form of organization, but it does not affect any existing or future right to practice through any other form of entity (§ 48-249-1131). A plain LLC may engage in a business regulated by another statute only to the extent that statute does not prohibit it (§ 48-249-104(b)). So whether a profession may use a plain LLC is a question for that profession's own law, not a blanket rule. Medicine shows why. In Plastic Surgery Associates of Kingsport, Inc. v. Pastrick, No. E2014-01203-COA-R3-CV (Tenn. Ct. App. May 19, 2015), the court, citing the corporate practice of medicine doctrine, said a general corporation, as opposed to a professional corporation, lacks the legal capacity to practice medicine in Tennessee. That case involved a corporation, not an LLC.

Tennessee also has the professional corporation, under the Tennessee Professional Corporation Act (Tenn. Code Ann. § 48-101-601). Its structure is similar. The charter must say it is a professional corporation and state its professional purpose, its name must include 'professional corporation,' 'professional association,' 'service corporation,' or P.C., P.A., or S.C., and each employee is liable for his or her own professional negligence but not for others' unless also at fault (§§ 48-101-604, -609, -621). The choice usually turns on governance and tax; see corporation formation and ask your CPA.

Tax

A PLLC is among the entities defined as taxpayers for Tennessee franchise and excise tax (Tenn. Code Ann. § 67-4-2004(36)). The minimum franchise tax is $100 a year (§ 67-4-2119). An entity disregarded for federal income tax is not disregarded for franchise and excise tax unless it is an LLC whose single member is a corporation (§§ 67-4-2007(d), -2106(c); Tenn. Comp. R. & Regs. 1320-06-01-.40).

For federal tax, the entity classification regulation treats a domestic eligible entity that makes no election as a partnership if it has two or more members, or as disregarded if it has a single owner, and lets it elect to be taxed as a corporation (26 C.F.R. § 301.7701-3(a), (b)(1)). Whether to elect corporate or S corporation treatment is a question for your CPA.

If the practice changes

A PLLC that stops rendering professional services must amend its articles to delete those references and conform its name to the ordinary LLC rules, and it then continues as an LLC (§ 48-249-1121). Closing the practice entirely follows the ordinary process for dissolving a Tennessee LLC.

Whether a PLLC, a plain LLC, or a professional corporation fits depends on the profession, the owners, and the board's rules. If you are setting up or reorganizing a professional practice in Tennessee, my office can review the structure, the articles, and the operating agreement.

Educational disclaimer: This article provides general Tennessee educational information only and is not legal or tax advice for any specific practice or profession.