PLLC Operating Agreement Template

In plain language: Restricts ownership to individuals who hold a valid, current professional license in the applicable field and jurisdiction — and requires members to maintain that license as a condition of continued ownership.

Common mistake: Failing to specify which license and which licensing authority governs eligibility. Vague language like 'appropriately licensed' creates disputes when a member holds a license in a different state or specialty.

In plain language: Records the PLLC's legal name, state of formation, registered agent, principal office address, and the indefinite or fixed term of the entity's existence.

Common mistake: Using a trade or DBA name instead of the exact registered legal name. Discrepancies between the operating agreement and state formation documents create filing and enforcement complications.

In plain language: Records each member's initial capital contribution — cash, property, or prior practice goodwill — and their resulting ownership percentage.

Common mistake: Omitting goodwill or existing patient/client list valuations from the contribution schedule. Undocumented contributions create tax and ownership disputes when a founding member later exits.

In plain language: Sets out how net income and losses are allocated among members — typically pro rata to membership interests — and the conditions and timing for cash distributions.

Common mistake: Using a fixed-dollar distribution schedule instead of a formula-based one. Fixed amounts become unworkable as practice revenue fluctuates, requiring constant amendments.

In plain language: Designates whether the PLLC is member-managed or manager-managed, defines each manager's authority, and sets the voting thresholds required for routine versus major decisions.

Common mistake: Granting a single managing member unlimited authority with no consent requirements for major decisions. This creates personal liability exposure and enables unilateral decisions — such as taking on debt or selling assets — that other members never agreed to.

In plain language: Prohibits transfers of membership interests to unlicensed persons and requires the consent of existing members before any new member is admitted — preserving the licensed-only ownership structure.

Common mistake: Including a standard LLC transfer-restriction clause without adding the licensure requirement for incoming transferees. A general right-of-first-refusal clause does nothing to prevent an unlicensed heir or estate from inheriting a membership interest.

In plain language: Triggers a mandatory purchase of a member's interest if their license is suspended, revoked, or not renewed — protecting the PLLC's compliance status and the remaining members.

Common mistake: Setting no timeline for the mandatory buyout after a license event. Without a deadline, the unlicensed former member retains economic rights and the PLLC may violate state licensing statutes for every day the ownership structure is out of compliance.

In plain language: Clarifies that personal liability for a member's own professional malpractice is not shielded by the PLLC structure, defines what the entity will indemnify, and requires members to maintain adequate professional liability insurance.

Common mistake: Treating a PLLC exactly like a standard LLC for liability purposes. A PLLC shields members from each other's malpractice but does not protect the individual practitioner from their own professional negligence — and omitting this distinction creates false expectations.

In plain language: Establishes the conditions that trigger dissolution — voluntary, judicial, or regulatory — and the order in which the PLLC's assets are distributed after paying creditors.

Common mistake: Failing to address what happens when all members lose their licenses simultaneously — leaving the PLLC legally unable to operate with no pre-agreed wind-down procedure.

In plain language: Specifies which state's law governs the agreement and how disputes among members are resolved — binding arbitration, mediation first, or litigation.

Common mistake: Choosing a governing state that differs from where the PLLC is formed and operates. PLLC statutes are state-specific — applying the law of a non-formation state can invalidate key provisions, including the licensed-membership requirement itself.

A PLLC operating agreement is the primary governance document for a Professional Limited Liability Company — an LLC variant available in most US states exclusively to licensed professionals such as doctors, lawyers, accountants, and architects. It defines who may own the entity (licensed members only), how profits are shared, how management decisions are made, and what happens when a member loses their professional license. Without one, the PLLC is governed by default state statutes, which rarely address the profession-specific issues that make PLLCs distinct from standard LLCs.

The key distinction is ownership eligibility. A standard LLC allows any person or entity to hold a membership interest. A PLLC restricts ownership to individuals who hold a valid professional license in the applicable field — typically in the same state where the entity operates. PLLCs also typically do not shield a member from personal liability for their own professional malpractice, though they do protect members from each other's malpractice claims. The specific rules vary by state and profession.

No. Most US states authorize PLLCs, but a handful — including California — do not recognize the structure. In those states, licensed professionals typically use a Professional Corporation (PC) or a general professional partnership instead. The professions eligible to form a PLLC also vary by state: some states limit the structure to healthcare providers; others extend it to attorneys, accountants, engineers, and architects. Confirm your state's PLLC statute before forming the entity.

Most states do not technically require a written operating agreement to form a PLLC, but operating without one is a significant risk. Some state licensing boards require a copy of the governing document as part of the entity registration process for professional practices. Without a written agreement, ownership disputes, profit-sharing disagreements, and license revocation events are resolved by default statutory rules that are rarely appropriate for professional practice structures.

Generally no. Most states expressly prohibit unlicensed persons from holding a membership interest in a PLLC. Some states permit passive investment by unlicensed persons up to a capped percentage (e.g., 49% in certain healthcare PLLCs), but this is the exception rather than the rule. The operating agreement must include explicit transfer restrictions that prevent membership interests from passing to unlicensed individuals through sale, inheritance, or divorce settlement.

A well-drafted operating agreement triggers a mandatory buyout of the revoked member's interest within a defined window — typically 60 to 90 days. During that period, the member's voting rights and distributions are suspended. If no buyout mechanism is specified, the PLLC may be out of statutory compliance for every day the unlicensed person retains an interest, exposing remaining members to regulatory action. Some state statutes require automatic forfeiture of a revoked member's interest regardless of what the agreement says.

A PLLC shields each member from personal liability for the professional malpractice of other members — if your partner is sued for negligence, your personal assets are generally protected. However, it does not protect you from liability for your own professional negligence. You remain personally responsible for your own malpractice, which is why professional liability (malpractice) insurance is typically required by both state licensing boards and a well-drafted PLLC operating agreement.

A partnership agreement governs an unincorporated professional partnership, where each partner typically carries unlimited personal liability for the firm's debts and other partners' professional misconduct. A PLLC operating agreement governs a state-registered entity that provides liability protection from co-members' malpractice and separates the practice's debts from members' personal assets. PLLCs also offer pass-through taxation, whereas professional corporations are subject to entity-level tax in most structures.

For a single-member PLLC with straightforward needs, a well-structured template reviewed by a licensed attorney for state-specific compliance is typically sufficient. For multi-member PLLCs with complex profit-sharing arrangements, significant goodwill contributions, or practices in heavily regulated fields such as medicine or law, engaging an attorney with professional entity formation experience is strongly recommended. PLLC statutes vary materially by state, and an error in the licensure or transfer-restriction provisions can invalidate the entity's authorized status.