March 2002

Life as a PLLC: Are You My Member?

by Brian P. McLean

A growing number of law firms in Washington are forming as or converting to limited liability entities. Have you ever wondered why some law firms adopt as part of their name the abbreviation "LLC" while others adopt "PLLC"?1  Neither have I.

Nevertheless, my future member and I took formation and naming issues seriously when we formed our own professional firm. First, we investigated whether we should form as a C corporation, a professional services (PS) corporation, a limited liability entity, or as a traditional partnership. Our accountant said that a limited liability company (LLC) or limited liability partnership (LLP) would offer us the most flexibility, and that LLCs and LLPs were "virtually" identical corporate forms. Engaging in due diligence, we took a cursory survey of Washington law firms. Within the subgroup of limited liability entities, there are more C suffixes than P suffixes. Suffice to say, we did the conservative, lawyerly thing and went with the majority C suffix.

We noticed that some law firms use the prefix P; others do not. "What the hey," we said. Uncharacteristically, my future member suggested we look up the law on the naming issue. So I did. State law provides that a professional limited liability must use the word "professional" or its abbreviation P.2  Faced with the risk of professional censure or, even worse, having to amend our certificate of formation, we went with the law.

You've Got Meal!3 

Four months into our PLLC, I discovered that my member was apparently accepting personal favors, goods and services in exchange for providing legal services. Let me explain.

It was probably a Tuesday. I asked my member, whom I will refer to as Richard, what he was doing for lunch.

He advised that his client Tony was bringing him lunch in exchange for legal advice. I was flabbergasted.

Our membership agreement provides that "(a) Net Profits shall be allocated to the Members in accordance with their Sharing Ratios." The term "Net Profits" suggests the possibility that our firm will have profits. Profits derive from income. Our sharing ratio, at least on paper, at least when we executed our sacred membership agreement, was 50/50 with some year-end flexibility anticipated.

Apparently, that flexible anticipation encompasses consideration of the number of free lunches Richard does not share with me, his member. The "meal" was income diverted from the law firm. No firm income, no firm profits. No firm profits, no equitable division of profits. No equitable division of profits, no firm.

Anger supplanted my flabbergast. I left and ate alone.

When I returned, the office smelled bad. Richard looked sheepish.

"How was lunch?" I interrogated. Tony had brought, stored in sturdy styrofoam, All-You-Can-Eat-Buffet leftovers that had turned rancid. I am still struggling to place a value on it, despite the clear symbolic threat the meal poses to our PLLC.

As with any serious dispute involving philosophical differences between members or, as here, the clear breach of a fiduciary duty by one member to the other, I was left with the question — what to do? The easiest thing, of course, was to ignore the transgression. But if Richard was left unadmonished, what would happen next? Would some client undisclosed to the firm install a hot tub at Richard's home? Maybe a new client would give Richard a manicure or a Mercedes in exchange for legal services unreported to the firm? I came to the inexorable conclusion that writing an article for Bar News, thereby sending Richard a clear message about the limits of my tolerance as well as my capacity for forgiveness, was the right thing to do.

Epilogically, it is simple for Richard and attorneys like him to rationalize away the steep grade of this slippery slope. But even now, as I metaphorically rappel into a deep, dark, dank and smelly eddy of despair —facing ugly disputes, potentially inequitable division of profits and losses, and the stink of unshared free lunches, the only question that really nags me is this: why didn't our accountant recommend an LLP so I could forgive my partner instead of my member?

1. PLLC stands for "Professional Limited Liability Company." LLC stands for…well, it's now obvious, isn't it?

2. "The name of a professional limited liability company must contain either the words 'Professional Limited Liability Company,' or the words 'Professional Limited Liability,' and the abbreviation 'Co.' or the abbreviation 'P.L.L.C.' or 'PLLC'…" RCW 25.15.045(4). Uncharacteristically, my future member suggested we look up the law on when the state Legislature uses the word "must" to mean "can," "could" or "should." I did not.

3. Fair Use. See Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994); 17 U.S.C. § 107.