Setting Up a Private Practice in New York? If You Used LegalZoom, You've Already Made Your First Mistake

If you're a licensed professional who is looking to start a private practice in New York, understanding the legal requirements for professional corporate entities can save you time and most certainly money. Many turn to services like LegalZoom for convenience and to keep costs down, only to find out later that they've made a critical error. More specifically, in New York State, licensed professionals who are seeking liability protection must form either a Professional Service Limited Liability Company (PLLC) or a Professional Service Corporation (P.C.), and unfortunately, LegalZoom doesn't make this distinction directly on their website.

Accordingly, many practitioners are finding themselves in the situation where they have formed a regular LLC or corporation with LegalZoom, and later learn that they cannot operate a regular LLC or corporation as a licensed professional in New York State.

Understanding the Difference: LLC vs. PLLC and P.C.

A common misunderstanding is that a regular LLC or corporation can be used for a private practice. While this may be possible in other states, like New Jersey, this is not the case in New York. A regular LLC may be used for a wide variety of businesses, such as a cake shop, photography business. laundromat, tutoring and more. Whereas licensed professionals—such as doctors, nurse practitioners, occupational therapists, lawyers, architects, and accountants—are required to form either a PLLC or a P.C. In particular, New York State law requires licensed professionals (except lawyers) to obtain approval from the New York State Education (NYSED), i.e., the government agency that issues professional licenses, before they are permitted to file their corporate entity. This process is known as obtaining a Certificate of Authority.

The Certificate of Authority Process with the NYSED

The process of forming a PLLC or P.C. in New York starts with obtaining a Certificate of Authority from the NYSED. This step involves submitting a request for the Certificate to the NYSED, including documentation such as your professional credentials, the proposed name of your entity, draft filing documentation, contact information and affidavits from the proposed owners of the practice. Once the NYSED approves your request, they will issue the Certificate of Authority, which you must then file with your corporate formation documents with the New York State Department of State.

The LegalZoom Pitfall

LegalZoom simplifies the process of forming standard LLCs and corporations, but it does not cater to the specific needs of licensed professionals in New York. While LegalZoom may have blog posts explaining the difference between LLCs and PLLCs, for example, there is no direct, identifiable process for filing a PLLC using their website. As a result, many licensed professionals mistakenly file an LLC using the LegalZoom website, only to discover that they cannot use this newly formed LLC for their private practice.

Here's why this is problematic:

Non-compliance: Forming an LLC or corporation without NYSED approval means your entity is not legally compliant to offer professional services.
Operational Risks: Operating under an incorrect entity structure can lead to severe legal and financial consequences, including fines, penalties and the inability to operate the business.
Time and Money: Correcting this mistake involves dissolving the incorrect entity and starting the process anew, which can be time-consuming and costly.

Conclusion

Setting up a private practice in New York involves specific legal requirements that cannot be overlooked. If you’ve already used LegalZoom to set up an LLC or corporation for your private practice, it's essential to rectify the mistake immediately by consulting a knowledgeable attorney who can guide you through the correct process.

If you are interested in ensuring that your private practice is set up correctly in New York, please do not hesitate to give us a call at (212) 547-8857 or schedule a consultation online and we'd be happy to work with you to help bring your business into compliance with New York laws. Our experienced business attorneys are here to help licensed professionals navigate the complexities of New York's legal requirements, providing you with the peace of mind to focus on your practice.

Disclaimer: This blog post and similar posts are not to be considered as providing legal advice. The discussion here is meant for educational and informational purposes only and shall not create an attorney-client relationship with the readers of this content.