Introduction

There are special rules for certain businesses that provide professional services. These are usually services that require a state license, certificate, or registration. This article summarizes who is covered and what that means for your business.

Professional Business Entities

If you own a business that provides services in any of these 16 categories, you may be subject to special rules:

  1. medicine and surgery
  2. physician assistant
  3. chiropractic
  4. registered nursing
  5. optometry
  6. psychology
  7. social work
  8. marriage and family therapy
  9. professional counseling
  10. dentistry and dental hygiene
  11. pharmacy
  12. podiatric medicine
  13. veterinary medicine
  14. architecture, engineering, surveying, landscape architecture, geoscience, and certified interior design
  15. accountancy
  16. law

Businesses providing these professional services are governed by The Minnesota Professional Firms Act.

The Minnesota Professional Firms Act

The Minnesota Professional Firms Act, Minnesota Statutes, Chapter 319B, was enacted in 1997 and authorizes practitioners of certain licensed professions to elect to be professional firms under any one of three different forms of organization: corporations (either for-profit or nonprofit); limited liability companies; and limited liability partnerships. In the absence of the Minnesota Professional Firms Act and its predecessors, members of such professions would not be able to practice under these forms of organization because the ethics rules of their respective licensing boards prohibit organizing in a way that limits the professional practitioner’s professional liability towards clients.

The Minnesota Professional Firms Act does not affect a practitioner’s liability for her or his own malpractice or other wrongful conduct directly arising from the rendering of professional services, but permits the professional to have limited liability for debts or obligations of the business itself to the extent that the generally applicable governing law for the chosen form of organization permits.

Professional firms are subject to the law under which the entity has been formed as well as the Professional Firms Act which contains additional restrictions; where the two conflict, the Professional Firms Act will control. Members of the professional firm are also subject to the laws, regulations and licensing requirements of their respective licensing boards.

In order to practice a profession in any form other than sole proprietorship or general partnership, professionals must comply with the Professional Firms Act (unless the rules of the respective licensing board provides otherwise).

Members of the following professions may elect to be professional firms: medicine and surgery; chiropractic; registered nursing; optometry; psychology; social work; marriage and family therapy; dentistry and dental hygiene; pharmacy; podiatric medicine; veterinary medicine; physician’s assistants; architecture; engineering; surveying; landscape architecture; geoscience; certified interior design; accountancy; and law.

In order to operate as a professional firm, a Minnesota entity must first 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 Limited Liability Company Act (Minnesota Statutes Chapter 322B); or the Minnesota Limited Liability Partnership Act (Minnesota Statutes Chapter 323A). An existing non-Minnesota entity wishing to practice a profession in Minnesota should register under the Minnesota Foreign Corporation Act (Minnesota Statutes Chapter 303) or the foreign registration provisions of the Limited Liability Company or Limited Liability Partnership Acts.

Then, either as an addendum to the original documents of formation for the entity or as a later amendment or update to those documents, the firm must file with the Secretary of State language stating:

  • that the firm elects to be covered by the Minnesota Professional Firms Act (Minnesota Statutes, sections 319B.01 to 319B.012);
  • that the firm acknowledges that it is subject to those sections; and
  • specifying from the list of professions set forth above the profession or professions to be practiced by the firm.

A non-Minnesota firm must state in addition to the above that to the extent that its generally applicable governing law differs from or conflicts with Minnesota Statutes, sections 319B.01 to 319B.12, that it has made the necessary changes to the agreements and other documents controlling its structure, governance, operations and internal affairs so as to comply with those sections.

Such a filing constitutes an election to be a professional firm. These entities may rescind such elections, may again elect professional status, and may change the designated practiced profession freely, subject to the regulations of the appropriate governing board(s).

Health professionals (including medicine and surgery; chiropractic; registered nursing; optometry; psychology; dentistry and dental hygiene; pharmacy and podiatric medicine) are specifically authorized to practice in the same professional firm; others should consult their licensing boards for further information on whether joint practices are permitted. Where they are not, a professional firm can provide only those professional services listed in the election described above.

The name a corporation providing professional services will generally use 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. For a complete list for a corporation, see the “Professional Corporation” heading at What’s at the End of Your Business Name Besides INC or LLC?

The name an LLC providing professional services will generally use one of the following designations or abbreviations: Professional Limited Liability Company, Limited Liability Company, P.L.L.C., P.L.C., or L.L.C. For a complete list for an LLC, see the “Professional Limited Liability Company” heading at What’s at the End of Your Business Name Besides INC or LLC?

The name an LLP providing professional services will generally use one of the following designations or abbreviations: Professional Limited Liability Partnership, Limited Liability Partnership, P.L.L.P. or L.L.P.

The internal governance of professional firms is governed by the same statutes that apply to nonprofessional firms. For example, a professional LLP and a non-professional LLP are bound in virtually all respects by the same statutes. The only difference is that the professional LLP may provide professional services as listed above and the non-professional LLP may not.

Frequently Asked Questions

What if I don’t want to be governed under the Professional Firms Act?

There is an exception in Minnesota Statutes section 319B.03 for companies that do not want to be governed under the Minnesota Professional Firms Act:

A Minnesota firm may furnish professional services within Minnesota without making an election under subdivision 2 only if:

(1) no Minnesota statute, Minnesota rule, or tenet of Minnesota common law requires the Minnesota firm to make that election in order to furnish professional services within Minnesota; and

(2) no Minnesota statute, Minnesota rule, or tenet of Minnesota common law precludes the Minnesota firm from furnishing professional services within Minnesota in the absence of that election.

Thus, the question is whether a company qualifies under this exception. This exception essentially asks whether any other law (e.g. ethics rules, codes of conduct, etc.) requires the election.

For example, other ethics rules for attorneys (Minnesota Statutes § 481.02, subdiv. 2) require business entities providing these services (i.e. law firms) to elect to operate under the Professional Firms Act. However, at the time this article was written, there was no such requirement for accounting, architecture, engineering, surveying, landscape architecture, geoscience, and interior design firms. Of course, there are still licensing requirements for the individuals doing such work.

Election Required:

  • attorneys (law firm)
  • chiropractors (chiropractic clinic)
  • veterinarians (veterinary clinic)
  • psychologists (psychology clinic)

Election Not Required:

  • accounting (accounting firm)
  • architecture (architectural firm)
  • engineering (engineering firm)
  • surveying (surveying company)
  • landscape architecture (architectural firm)
  • geoscience (geoscience firm)
  • interior design (interior design agency)

Even if the election is not required, other law may require a firm to be owned or controlled by those holding a license. For example, a majority of those with voting rights in accounting firms must hold an accounting license.

Where can I find the list of all professional services in Minnesota Statutes?

The entire list is provided in the definition of “professional services” in Minnesota Statutes section 319B.02 subdiv. 19.

Under that section, “professional services” means services of the type required or permitted to be furnished by a professional under a license, registration, or certificate issued by the state of Minnesota to practice medicine and surgery under sections 147.01 to 147.22, as a physician assistant pursuant to sections 147A.01 to 147A.27, chiropractic under sections 148.01 to 148.105, registered nursing under sections 148.171 to 148.285, optometry under sections 148.52 to 148.62, psychology under sections 148.88 to 148.98, social work under chapter 148E, marriage and family therapy under sections 148B.29 to 148B.39, professional counseling under sections 148B.50 to 148B.593, dentistry and dental hygiene under sections 150A.01 to 150A.12, pharmacy under sections 151.01 to 151.40, podiatric medicine under sections 153.01 to 153.25, veterinary medicine under sections 156.001 to 156.14, architecture, engineering, surveying, landscape architecture, geoscience, and certified interior design under sections 326.02 to 326.15, accountancy under chapter 326A, or law under sections 481.01 to 481.17, or under a license or certificate issued by another state under similar laws. Professional services includes services of the type required to be furnished by a professional pursuant to a license or other authority to practice law under the laws of a foreign nation.

Video Transcript

What is the Professional Firms Act in Minnesota? That’s the question I’m going to answer today. I’m Aaron Hall, an attorney representing business owners in Minneapolis, Minnesota.

The Minnesota Professional Firms Act is a statute enacted by the Minnesota Legislature to add special regulations on certain types of professional organizations. So what we’re talking about here are things like law firms, medical clinics, chiropractic clinics. In fact, let me read for you the list of the types of services that we’re talking about.

Whenever you have a license holder in one of the following categories, we need to look at are they governed under the Professional Firms Act when they set up an LLC or a corporation? Here are the categories. Medicine and surgery, physician assistant, chiropractic, registered nurse, optometry, psychology, social work, marriage and family therapy, professional counseling, dentistry and dental hygiene, pharmacy, pediatric medicine, veterinary medicine, architecture, engineering, surveying, land architecture, geoscience, certified interior design accountancy like a CPA, and law, like a law firm. If you are a licensed professional and you are providing those services through an entity like an LLC or a corporation, you then need to look to whether you must elect to be governed by the Professional Firms Act, and follow all the requirements of that statute. Certain professions require that, a psychologist, for example, a law firm.

But then there are professions that don’t require it, engineer, surveying, architecture. There are ones that kind of cover it. For example, accountancy. In other words, you can have a CPA firm that isn’t owned by CPAs, but there are some catches. The voting authority must at least have a majority of CPA or licensed accountants as voters.

So as you can see, if you have one of these professional licensed entities, you need to look at, are you governed by the Professional Firms Act. And if so, what does that mean? At a minimum, it typically means annual reporting to the board or agency that oversees your licensure. Typically, business attorneys who just set up regular businesses don’t have a lot of experience working in this area of specific licenses. Setting up a hospital, a medical clinic, a law firm, a veterinary clinic. But there are law firms in the twin cities who work in these areas. Typically, you’ll want to see, does an attorney have experience in electing an entity under a Professional Firms Act?

For more information on the Minnesota Professional Firms Act, you can see my website at aaronhall.com. I’m Aaron Hall, an attorney representing business owners in Minneapolis, Minnesota. Thanks for joining us today, and if you want other videos of this type, you can subscribe on YouTube with our YouTube channel and see other information in the description below.

Next Steps

To learn more visit my website at aaronhall.com