OTLA Trial Lawyer Winter 2021

35 Trial Lawyer • Winter 2021 PC v. LLC There is significant overlap between PCs and LLCs. With some distinctions, PCs and LLCs can elect either form of taxation and both provide limited liabil- ity corporation. Both have owners, re- quire filings with the secretary of state, have administrative formalities, must be renewed on an annual basis and gener- ally have a written agreement between the owners. The main differences involve control within the firm and the distribu- tion of economic benefits. A professional corporation is more formal than any other entity referenced in this article. A law firm PC must be comprised of legal professionals and is subject to Oregon formation and gover- nance laws. See ORS Chapters 58 and 60. A PC is owned by its shareholders who in turn elect a board of directors that exercise “all corporate powers” of the firm. For a small firm with one or more partners with equal ownership, this firm may not be as well-suited for you. However, this entity selection could be suitable for firms that have junior and senior partners or for those partnerships in which one or more of the partners do not wish to engage in the management of the firm. As with any corporation, you must hold shareholder and director meetings, keep records and minute books. In select- ing a taxation scenario, as opposed to an LLC, a PC must make the S-corp elec- tion at the outset of incorporation if it does not which to have the double-taxa- tion C-corp status. My law partner, Michael Wise, started our firm as a PC because at the time, LLCs didn’t really exist. When we partnered, I inherited the entity selection. While there are admin- istrative obligations, it works for us. An LLC is formed by several indi- viduals or entities (members) coming together to “organize” a business. I in- clude entities in the law firm context because I have seen law firm arrange- ments in which each partner or owner tity to see if later making an S-corp election is right for your business. See ORSChapters 63 and 67. Depending upon the type of entity you form, there are a variety of docu- ments that need to be drafted and sub- mitted to the secretary of state. I recom- mend hiring a lawyer to undertake the formation on your behalf but I under- stand many of you will choose to do this yourself. Blair Townsend specializes in plaintiff ’s personal injury, wrong ful death and medical malpractice litigation as well as strategic business planning and litigation. She contributes to the OTLA Guardians at the Sustaining Member level. She is a partner at Wise & Townsend PC, 385 1st St., Ste. 221, Lake Oswego, OR 97034. She can be reached at 503-224-8422 or [email protected]. 1 Calculating this limit can be dependent on a number of factors. See ORS 58.185; 58.187. enters into the LLC under their own separately formed LLC. An LLC is es- sentially a hybrid between a corporation and a partnership and, I believe, is the most common entity selected by OTLA law firms. It can either be managed by its members like a partnership model or the members can have a managing mem- ber, a structure more similar to the PC model. An LLC is usually governed by an operating agreement that details manage- ment of the business, allocation of profits and losses and assignability of interests. In my practice, the majority of the local businesses I work with opt for an LLC as it still retains liability protec- tion but allows more flexibility in man- agement than a PC. For example, if you have started an LLC with C-corp taxa- tion and wish to change it to S-corp (pure or modified), do not fret. You may make the election by March 15 to make S-corp ef- fective for the fiscal year. In this scenario, you may test the profitability of your taxation en-