Key Takeaway
Analysis of A.B. Med. Servs. v Travelers case on professional service LLC dissolution when medical licenses are suspended and asset recovery rights in New York.
Professional Service LLCs in New York: Navigating Dissolution and Asset Recovery
Healthcare providers across Long Island and New York City face unique challenges when it comes to structuring their practices as professional service limited liability companies (PLLCs). One of the most complex scenarios arises when a medical professional’s license is suspended or revoked, triggering automatic dissolution of their professional service LLC. A recent case from the Appellate Term provides crucial insight into what happens next and how dissolved PLLCs can still pursue outstanding receivables.
The A.B. Medical Services Case: Understanding Professional LLC Dissolution
A.B. Med. Servs., PLLC v Travelers Indem. Co. 2009 NY Slip Op 29510 (App. Term 2d Dept. 2009)
“Plaintiff, as a “professional service limited liability company” (Limited Liability Company Law § 1201 ), could render professional services only through individuals authorized by law to render such professional services (Limited Liability Company Law § 1204 ). Here, plaintiff’s sole member was Dr. Braver. Once his medical license was suspended, he became legally disqualified from practicing medicine within the state and was disqualified from continuing as a member of plaintiff (see Limited Liability Company Law § 1209). Dissolution occurred on the effective date of the suspension of Dr. Braver’s medical license since, at that point, there were no remaining members of the professional service limited liability company (see Limited Liability Company Law § 701 ). We note that although articles of dissolution have now been filed, there is no statutory requirement that articles of dissolution be filed before commencement of the winding up process.
After dissolution, the affairs of the limited liability company are to be wound up (see Limited Liability Company Law § 703 ). Where a professional service limited liability company has other members remaining in the company, and continues to render professional services, a disqualified member must “sever all employment with and financial interests” in such company (Limited Liability Company Law § 1209). However, where, as here, the disqualified member was the sole member of such company, he may wind up the professional service limited liability company’s affairs by, among other things, prosecuting and/or defending an action on behalf of the professional service limited liability company (Limited Liability Company Law § 703 [“the persons winding up the limited liability company’s affairs may, in the name of and for and on behalf of the limited liability company … prosecute and defend suits, whether civil, criminal or administrative, settle and close the limited liability company’s business”]). Since the action was commenced after dissolution, but before the three-year period specified in Limited Liability Company Law § 1006 had expired, the action was timely.”
The Legal Framework: Professional Service LLCs in New York
Professional service limited liability companies occupy a unique position within New York’s business law structure. Unlike general LLCs, professional service LLCs are subject to additional regulations and restrictions designed to ensure that only properly licensed professionals provide services to the public.
Key Requirements for Professional Service LLCs
Under New York Limited Liability Company Law, professional service LLCs must meet specific criteria that distinguish them from standard business entities. These companies can only provide services through individuals who are legally authorized and licensed to perform such services. In the medical context, this means that all members and managers must maintain active, valid medical licenses.
The regulatory framework serves an important public policy function by ensuring that healthcare services are provided only by qualified professionals. However, this same protection creates potential complications when licensing issues arise.
Automatic Dissolution: When Medical Licenses Are Suspended
The A.B. Medical Services case illustrates a critical aspect of professional service LLC law that many healthcare providers may not fully understand. When a medical professional’s license is suspended, the consequences extend far beyond the individual practitioner – they can trigger automatic dissolution of the entire professional service LLC.
The Dissolution Process
According to New York Limited Liability Company Law § 701(a)(4), an LLC dissolves automatically “at any time there are no members.” In the context of professional service LLCs, this means that when the sole licensed member loses their professional authorization, the entity loses its legal foundation and dissolves immediately.
Importantly, as the court noted in A.B. Medical Services, formal filing of dissolution articles is not required before the dissolution takes effect. The dissolution occurs automatically on the effective date of the license suspension, regardless of whether paperwork has been filed with the state.
Winding Up Affairs: Rights and Responsibilities After Dissolution
While dissolution might seem to end all possibilities for the former LLC, New York law provides a structured process for “winding up” the company’s affairs. This process is crucial for healthcare providers who may have significant outstanding receivables at the time of dissolution.
The Winding Up Authority
Under Limited Liability Company Law § 703(b), the persons responsible for winding up an LLC’s affairs have broad authority to act on behalf of the dissolved entity. This includes the power to:
• Prosecute and defend lawsuits
• Settle outstanding business matters
• Collect accounts receivable
• Resolve contractual obligations
• Distribute remaining assets
Time Limitations for Action
The A.B. Medical Services case also clarifies important timing issues. The court noted that actions commenced after dissolution but within the three-year period specified in Limited Liability Company Law § 1006 are considered timely. This provides a reasonable window for dissolved professional service LLCs to pursue legitimate claims for unpaid services.
Implications for Healthcare Providers Throughout New York
The principles established in A.B. Medical Services have significant implications for healthcare providers operating throughout Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and the Bronx. Understanding these implications is essential for protecting both business interests and professional obligations.
Risk Management Considerations
Healthcare providers should be aware that professional licensing issues can have immediate and far-reaching consequences for their business entities. Even temporary license suspensions can trigger automatic dissolution, potentially disrupting ongoing operations and creating complications for staff, patients, and business partners.
Professional service LLCs with multiple members have different considerations than single-member entities. When one member loses their license, the remaining licensed members may continue operations, but the disqualified member must “sever all employment with and financial interests” in the company.
Asset Protection and Recovery
The case provides reassurance that dissolution doesn’t necessarily mean total loss of business assets or receivables. The winding-up process allows for orderly collection of outstanding accounts and resolution of business obligations, providing some protection for the investment made in building a medical practice.
No-Fault Insurance Implications
Given that A.B. Medical Services involved a claim against an insurance carrier, the case has particular relevance for healthcare providers who rely heavily on no-fault insurance reimbursement. The decision confirms that dissolved professional service LLCs can continue to pursue legitimate claims for services rendered before dissolution.
This principle is especially important in the no-fault insurance context, where payment disputes are common and resolution can take considerable time. Healthcare providers need assurance that licensing issues won’t automatically forfeit their right to collect for services already provided.
Frequently Asked Questions
What happens to a professional service LLC when the sole member’s medical license is suspended?
The LLC automatically dissolves on the effective date of the license suspension, as there are no remaining qualified members. However, the dissolved entity can still wind up its affairs, including pursuing outstanding receivables through legal action if necessary.
Can a dissolved professional service LLC still collect money owed for past services?
Yes, during the winding-up process, the dissolved LLC retains the right to pursue collection of accounts receivable and other legitimate business claims, provided action is taken within the applicable statutory time limits.
Is formal filing of dissolution paperwork required immediately upon license suspension?
No, dissolution occurs automatically when the professional service LLC no longer has any qualified licensed members. While dissolution articles may eventually be filed, their filing is not required for the dissolution to take effect.
How long does a dissolved professional service LLC have to pursue outstanding claims?
According to Limited Liability Company Law § 1006, actions must generally be commenced within three years after dissolution. However, specific circumstances may affect these time limits, so prompt action is advisable.
What’s the difference between single-member and multi-member professional service LLCs when licensing issues arise?
In multi-member professional service LLCs, if one member loses their license, the remaining licensed members may continue operations while the disqualified member must sever all ties with the company. Single-member PLLCs dissolve automatically when the sole member loses their license.
Best Practices for Professional Service LLCs
Healthcare providers operating through professional service LLCs should consider implementing risk management strategies to address potential licensing issues:
Maintain Current Documentation: Keep detailed records of all services provided and amounts due to facilitate potential collection efforts.
Monitor Licensing Status: Stay informed about any regulatory investigations or proceedings that could affect professional licenses.
Plan for Contingencies: Consider what arrangements might be necessary if licensing issues arise, including how to handle patient care transitions and staff responsibilities.
Legal Consultation: Work with qualified legal counsel to understand the specific implications of professional service LLC dissolution and the winding-up process.
Moving Forward After Dissolution
The A.B. Medical Services case demonstrates that while professional license suspension can create significant challenges for healthcare providers, it doesn’t necessarily mean complete loss of business assets or the ability to collect outstanding receivables.
Understanding the legal framework governing professional service LLCs and the dissolution process can help healthcare providers make informed decisions about business structure and risk management. For providers throughout Long Island and New York City, staying informed about these legal principles is essential for protecting both professional and financial interests.
If you’re a healthcare provider facing challenges with professional licensing issues, business entity dissolution, or collection of outstanding receivables from insurance carriers, experienced legal guidance can help protect your interests and ensure compliance with applicable regulations.
Call 516-750-0595 to discuss your professional service LLC legal needs with attorneys who understand the complex intersection of healthcare law, business entity regulations, and insurance reimbursement issues.
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