If you’re a licensed professional aiming to set up your own practice or firm, you may have seen the acronym PLLC. What’s the meaning of PLLC? The initials stand for “professional limited liability company,” which is a type of business entity designed for professionals such as doctors, architects, or lawyers. A PLLC business structure offers liability protection and some tax incentives to those who qualify.
However, the rules governing business entities tend to vary by state. In fact, forming a PLLC may not be an option in your state, even if you’re in a profession that would benefit from one. If you’re considering starting your own PLLC, here’s what you need to know.
Key Points
• PLLCs offer enhanced liability protection and a professional image for licensed professionals.
• Forming a PLLC requires valid professional licenses, an EIN, and state-specific filings.
• Unlike general partnerships, PLLCs shield members from personal liability for business debts and actions of other partners.
• Compared to limited liability partnerships, PLLCs provide more comprehensive protection against malpractice claims.
• Professional corporations have more formal requirements, such as a board of directors and specific insurance, adding complexity and cost.
What Is a Professional Limited Liability Company?
PLLC stands for “professional limited liability company.” It’s one of several types of business entities you may be able to choose as a structure for your enterprise.
You may have heard of an LLC; a PLLC is very similar. So before we go further, here’s a cursory refresh on LLCs.
First, let’s define LLC. The acronym stands for “limited liability company.” This means that LLCs protect business owners from personal liability. If the business is sued or cannot service its debt, the owners’ personal assets are in no danger of being seized by courts or creditors. Debts and obligations typically belong to the LLC, not the business owners.
There are certain tax benefits to an LLC as well. One of the biggest is that the LLC pays no income taxes as a business entity; instead, the money is taxed only once, on the members’ individual tax returns.
At present you can form a PLLC in the following states: Arizona, Arkansas, Colorado, District of Columbia, Florida, Idaho, Iowa, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nevada, New Hampshire, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and West Virginia.
Who Can Form an LLC?
Just about anyone starting a business can form an LLC. Some states, but not all, require that LLC owners be at least 18 years old; one reason is that minors may not be legally bound by contracts.
The process of forming an LLC generally involves selecting the state you’ll be operating in, picking a suitable name and a registered agent, and filing articles of organization with the state government. You also need an employer identification number, a state tax ID, and an operating agreement.
As discussed above, PLLCs are designed specifically for professionals, such as architects, doctors, or lawyers. Depending on your state and your line of work, you may not need to form a PLLC. An LLC may suffice.
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PLLC vs. LLC: Key Differences
PLLCs stack up against LLCs mainly in these ways:
• PLLCs are intended for licensed professionals; LLCs have no such restrictions.
• Some states mandate that professionals whose occupations require licensing may not elect LLC status; they must be PLLCs.
• Some states, such as California, don’t recognize PLLC status.
• A PLLC structure can reinforce compliance with state regulations. LLC owners may not need the additional structure.
• An LLC gives members liability protection against the business’s debts and obligations. PLLCs additionally protect members from others’ malpractice lawsuits.
LLCs do not protect members from malpractice claims filed against their fellow members. But a PLLC does. Note that, with a PLLC, only the member who is sued for malpractice is liable for any penalties. In any event, getting liability and malpractice insurance is usually a wise move.
So which business type wins the PLLC vs LLC debate? It depends on your profession and your needs. Check with your secretary of state or equivalent — state laws may require you to choose one over the other. If you’re unsure which option is best for your situation, speaking with a CPA may be beneficial.
PPLC vs Other Business Entities
A PLLC isn’t your only option as a business owner if you’re a certified or licensed professional. You may also want to consider a general partnership, limited liability partnership (LLP), or professional corporation (PC).
Here’s a brief overview of these business entities:
• General partnership: In a general partnership, every partner shares in all of the responsibilities, assets, profits, and liabilities. At the same time, compared to an LLC or PLLC, a general partnership can be easier to start, maintain, and dissolve. If you’re in a business where you make joint decisions with trustworthy partners and the chances of litigation are low, a general partnership may be suitable for you.
• Limited liability partnership (LLP): An LLP is a type of general partnership in which each person is protected from the debts or mistakes of their partners (limited liability), but members are able to be flexible in dividing up responsibilities and control. Compare the requirements for LLPs and PLLCs in your state; they may differ widely.
• Professional corporation (PC): In your state, you may have the option to create a professional corporation. Like a PLLC, a PC (sometimes known as a professional service corporation, or PSC) requires the business owners to meet state requirements for professional licensure.
However, as a corporation, a PC is bound by corporate tax and compliance rules. Owners of PCs are considered shareholders and may be obligated to appoint a board of directors, elect officers, and maintain a certain level of insurance coverage.
Benefits of Forming a PLLC
There are a few reasons why forming a PLLC may be a good idea if you meet your state’s requirements.
• PLLC members are not personally liable for any business debts or lawsuits that may occur as a consequence of practicing their profession. So if the firm takes out a small business loan, your personal assets are not on the line.
• If the PLLC has multiple members, no single member is jeopardized by any malpractice claims against other members. As noted above, each member is responsible only for their own malpractice issues.
• Being a PLLC can boost your company’s professional image. Meanwhile, behind the scenes setting up a PLLC can be fairly simple, and, depending on the state, fees may be minimal.
• A PLLC gives its members flexibility with their tax options. A multi-member PLLC can choose to be taxed as a pass-through entity or as an S corporation. If the PLLC elects to be taxed as a pass-through entity, its income and losses are recorded on each individual’s personal tax return. This means the company effectively avoids corporate taxes.
A PLLC’s members may find that paying taxes as an S corporation provides certain deductions and benefits. It’s a good idea to consult an accountant or other tax pro in making this decision.
Potential Drawbacks of PLLCs
The biggest drawback of pursuing a PLLC status is that your state may not allow this designation. You can find out by visiting the website for your state’s secretary of state or equivalent.
Next, even if PLLCs are allowed in your state, you may not be eligible to create one. Some states only allow certain professions to become PLLCs. A typical list might include certified public accountants, architects, chiropractors, dentists, doctors, engineers, lawyers, optometrists, therapists, and veterinarians.
You can see if you’re eligible to form a PLLC by checking with your state government.
Formation Process for a PLLC
Individual states may have slightly different processes for forming a PLLC, but overall the process is likely to involve the following steps:
1. Gather your credentials. Make sure the PLLC’s members all have valid, up-to-date professional licenses from the state licensing board. You’ll likely need to get a certificate of compliance from the board to submit as part of your application.
2. Name your PLLC. Pick an appropriate and distinctive name for your PLLC. To see if anyone else has laid claim to that name, search your state’s website for a corporate name registration page. By the way, your PLLC’s business name does not have to match the DBA (“doing business as”) name you use to advertise your business.
3. Get an employer identification number (EIN) from the IRS. Your PLLC will need this to do business.
4. Hire a registered agent in your area. This person or company will receive official documents on behalf of the PLLC.
5. File your articles of organization. You’ll need to provide your business’s name, members’ contact information, registered agent’s name and address, and company purpose. Your state may require additional information. Once you’re ready you should be able to file online, in person, or by mail.
6. Pay the filing fee. The amount of the fee varies by state. For example, Virginia’s filing fee is $100; in New York, it’s $200.
7. Submit additional documents if necessary. A certificate from your professional licensing board, mentioned above, will be one of them. Others might include an operating agreement or additional licenses, depending on your profession and state requirements.
The Takeaway
A PLLC, or professional limited liability company, is a type of business entity designed for members of certain licensed professions. Like an LLC, a PLLC provides liability protection in case of litigation. Unlike an LLC, a PLLC must provide proof of licensure or certification. You may want to consult a CPA to see if creating your own PLLC is the best option for your particular situation.
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