Question: Arizona pllc vs llc: What are the differences between an Arizona professional limited liability company and an Arizona limited liability company and when would somebody form a PLLC instead of an LLC?
Answer: Only three percent of Arizona LLCs are PLLCs. Few people are required to form an Arizona PLLC.
Arizona Revised Statutes Section 29-841.4 states: “‘Professional limited liability company’ means a limited liability company organized under this chapter for purposes that include rendering one or more categories of professional services.” Arizona Revised Statutes Section 10-2201.6 states: “‘Professional service’ means a service that may be lawfully rendered only by a person licensed or otherwise authorized by a licensing authority in this state to render the service.”
This means that an Arizona PLLC is an LLC that provides professional services that may be performed only by a person who is licensed by a limited number of professions in Arizona such as medical doctors, certified public accountants, attorneys and real estate agents. As of October 5, 2018, there were 746,683 LLCs (96%) and 28,145 professional LLCs (4%) in existence in Arizona.
The following provisions apply only to AZ PLLCs:
1. The Articles of Organization must state that the company is a professional limited liability company.
2. The Articles of Organization must state the professional service or services that the company is organized to provide.
3. The name of the PLLC shall contain the words “professional limited liability company” or the abbreviations “P.L.L.C.”, “P.L.C.”, “PLLC” or “PLC”, in uppercase or lowercase letters.
4. A professional limited liability company may issue membership interests only to:
a. Individuals who are licensed by law in Arizona or another state to render a professional service described in the articles of organization of the professional limited liability company. The following are not violations of this restriction: i) Any community interest of an unlicensed spouse in the membership interest issued to a licensed spouse in which the unlicensed spouse with a community interest in the membership interest does not have the right to vote the membership interest, or (ii) Issuance of a membership interest to a trust established for the benefit of a licensed individual or members of the licensed individual’s immediate family in which the licensed individual has the right to vote the membership interest and the trust and the members of the licensed individual’s immediate family do not have the right to vote the membership interest.
b. General partnerships, registered limited liability partnerships, other partnerships and joint ventures, domestic or foreign, in which all of the partners are licensed persons with respect to the profession to be conducted by the professional limited liability company and in which at least one partner is authorized by law in this state to render a professional service described in the articles of organization of the professional limited liability company.
c. Professional corporations, professional limited liability companies and other persons, domestic or foreign, authorized by law in Arizona to render a professional service described by the articles of organization of the professional limited liability company.
d. Other persons, if after the issuance of voting membership interests, the other persons in the aggregate do not hold more than forty-nine per cent of the membership interests entitled to vote for the election of officers and managers of the professional limited liability company, unless a greater or lesser percentage is prescribed by the board.
Membership interests and rights or options to purchase membership interests of a professional limited liability company that are held by persons described in 4, a, b & c may be transferred or pledged, whether voluntarily, involuntarily, by operation of law, by court judgment or otherwise, only to persons qualified under subsection B to be issued voting membership interests and to the professional limited liability company. Voting membership interests and rights or options to purchase voting membership interests of a professional limited liability company that are held by persons described in subsection B, paragraph 4 may be transferred or pledged, whether voluntarily, involuntarily, by operation of law, by court judgment or otherwise, only to persons who are qualified under subsection B, to be issued voting membership interests and to the professional limited liability company.
Arizona Revised Statutes Section 29-842.A states: “Those persons may render those professional services in any other business form or entity, including a limited liability company formed under a general law of this state other than this chapter, unless the use of the form or entity is expressly prohibited by the licensing law of this state that is applicable to the profession or by the board that has jurisdiction over the profession.” This statute says that a person who is licensed by a profession in Arizona is not required to form a PLLC and provide the professional services through the Arizona professional limited liability company unless the Arizona licensing authority requires the use of a PLLC.
To my knowledge, the only profession that requires its licensed professionals to form an Arizona PLLC is the real estate sales agent profession (not real estate brokers). Arizona realtors do not have to form a professional corporation or a professional LLC unless they want their real estate commission paid by their broker broker to an entity rather than directly to them. Doctors, lawyers and accountants in the past were required to form Arizona professional corporations or Arizona PLLCs, but not currently.
The Arizona Department of Real Estate requires the following of real estate agent’s PLLCs:
- The name of the PLLC or PC be the name of the professional as it appears on the real estate agent’s license, and
- The Professional Corporation or Professional Limited Liability Company Name, through and on behalf of which a salesperson or broker acts, shall consist of only the full or last name(s) of its shareholder(s) or member(s), and contain the words “Professional Corporation,” “Professional Limited Liability Company”, as applicable, or the abbreviations authorized under A.R.S. § 10-2215 or 29-845, as applicable, to reflect that it is a Professional Corporation or Professional Limited Liability Company, and shall reflect whether it comprises one or more licensees (single or plural as in John Smith, P.C. or Smith & Smith, P.C.).
- For a designated broker, PC/PLLC name shall only consist of the broker’s full or last name, and words or abbreviation to indicate it is a PC or PLLC.
- A PC or PLLC shall not have a fictitious name.
- The Articles of Organization of a PLLC formed for a real estate agent contain the following statement: “The sole purpose of the Professional Corporation (or Professional Limited Liability Company) is to render professional real estate services.”