The Minnesota Professional Firms Act–What is it, and does it apply to you?

January 27, 2020

When you are forming your business, the choice of entity is always an important decision – will you incorporate, or form a limited liability company? Will you operate as a partnership – general or limited? What you may not know is that if you are operating in certain professional service fields (medicine and surgery, physician assistant, chiropractic, registered nursing, psychologists, social work, marriage and family therapy, dentistry and dental hygiene, pediatric medicine, veterinary medicine, architecture, geoscience, certified interior design, accountancy, or law) you will also fall under the definition of a “professional firm.”

Before the Minnesota Professional Firms Act (Chapter 319B) was adopted, persons choosing to operate in any of those areas had no choice but to operate as general partnerships. No type of limited liability entity was available to them. With Chapter 319B, a group of professionals operating an entity which performs one of the defined services and which limits liability in some way (unlike a general partnership) may also elect to be governed by the Professional Firms Act. This is an “opt-in” system – no entity automatically falls under Chapter 319B. However, certain professions may require a 319B election.

It is important for business owners considering the Professional Firms Act to consider the professional rules of conduct and other applicable codes and rules which govern them. Some professions, such as law, chiropractic, veterinary medicine, and psychology, require businesses providing such services to elect to be governed under the Professional Firms Act if they use an entity other than a general partnership. Other professions do not require the election. It is important to fully understand the licensure and ethical rules of your profession, and any other governing codes or statutes, to determine whether you may be required to opt-in to the Professional Firms Act in Minnesota.

When a professional firm opts into the Professional Firms Act, they must comply with two sets of rules – the rules which govern their formal entity, and the rules under the Professional Firms Act. A professional firm may be a corporation (Chapter 302A), a nonprofit corporation (Chapter 317A), a limited liability company (Chapter 322C), or a limited liability partnership (Chapter 323A).

Ownership in a professional firm is also limited to people, or certain types of entities controlled by people, who are licensed and not disqualified in providing at least one category of the pertinent professional services provided by the firm. Transfer and issuance of ownership interest in a professional firm is also restricted by the statute.

If you are considering forming a professional firm, or electing to be governed by the professional firm act, it is best to seek advice on how that election will impact your business operations and ownership.

This information is general in nature and should not be construed as tax or legal advice.