TABLE OF CONTENTS
- What Is a PLLC?
- How Is a Professional LLC Different From an LLC?
- What Business Types Should Form a Professional Liability Company?
- Advantages and Disadvantages of a PLLC
- What a PLLC Means for Liability Protection
- How Is a PLLC Different From Other Business Types?
- How to Form a PLLC
- Final Thoughts on Professional LLCs
One type of limited liability company (LLC) is a Professional Limited Liability Company or PLLC. This is a business structure designed for professionals operating under a special license. Read on to find out what sorts of occupations qualify, the advantages and disadvantages of running a PLLC, and what you’ll need to start one of your own.
What Is a PLLC?
A professional limited liability company (PLLC) is a type of limited liability company (LLC). Members enjoy all the tax flexibility and the liability protection of an LLC but it is a business type for heavily regulated, licensed professionals.
The advantage of a PLLC is that this type of business separates the assets and ownership of its members so that the actions of one don’t impact the liability of the others. Licensed professionals are those such as doctors, dentists, accountants, and other licensed professionals.
PLLCs usually have more than one owner, with restrictions on who qualifies as an owner. In most states, only licensed professionals with the same license can be eligible as an owner of a PLLC.
How Is a Professional LLC Different From an LLC?
A PLLC is just a subtype of an LLC, however, PLLCs have more restrictions. Such as, you can only offer goods and services related to your professional license. Or the fact that you can only share ownership of your business with similarly-licensed professionals. There are no such restrictions with a regular LLC.
Under an LLC, all owners of a business are held liable if even one member gets sued for malpractice. In a PLLC, only the practitioner responsible for the harm is subject to the lawsuit.
Although you can operate your business as a single-member PLLC, this is effectively run like a sole proprietorship. For those who plan to start an LLC with other professionally licensed partners, or plan to down the road, a PLLC makes sense. Suppose your business is currently an LLC and you’re deciding to change your business to a PLLC. In that case, you may be able to simply amend your articles of organization rather than start over. Deciding between a PLLC and an LLC will depend on who is involved in your business and what kind of liability you think will work best for you.
What Business Types Should Form a Professional Liability Company?
Fully evaluate the licensing requirements in your state, and in your specific industry. Examples of business types that fall under a PLLC are:
- Law offices and attorneys-at-law
- Physicians, dentists, optometrists, podiatrists, etc.
- Other healthcare providers such as nurses, and medical practices
- Clinical social workers
- Marriage and family therapists
- Chiropractors, acupuncturists, and massage therapists
- Physical therapists
- Accountants & tax professionals
- Engineers and architects
Advantages and Disadvantages of a PLLC
- Liability protection against any wrongdoing, debt, or negligence committed by your business partners.
- The ability of each member to be responsible for their own malpractice suits.
- The cache of working within a regulated network of licensed professionals.
- Stricter requirements and some states don’t recognize PLLCs.
- You can only offer services that fall under your professional license.
- Lenders may view PLLCs as higher risk.
What a PLLC Means for Liability Protection
In a PLLC there’s still no liability protection from your own acts of negligence, malpractice, or personal wrongdoing. One hopes to never need such protections, but malpractice insurance helps cover the costs of lawsuits due to negligence and is a requirement for all individual members.
How Is a PLLC Different From Other Business Types?
Determining a business structure is choosing what kind of liability protection you’re looking for. The main difference between a PLLC and another business structure is how it works for professions that come with a lot of high risks. The professional limited liability company is one that separates out individual owners so that each is protected from being sued for a business partner’s harmful mistakes.
PLLC vs LLP
An LLP is another type of business entity for licensed professionals and it too offers limited liability protection to its members. However, which might apply to you will depend on what state you’re in. Only in some states are PLLCs recognized. And in others, LLPs don’t exist. Professional organizations and regulatory boards not operated by the state may be able to accept LLPs. Otherwise, anything that requires licensing that goes through the state will likely need to be a PLLC over an LLP.
PLLC vs Partnership
In a partnership, owners are taxed and held accountable for all the owner’s actions. For example, in a partnership, a client could not only sue the person responsible for negligence with malpractice but also the other owners as well. In a PLLC, if you weren’t involved, you’re not at risk.
Is a PLLC a sole proprietorship?
It is possible to form a single-member PLLC and the reason to do so would be to create a separate entity from your personal assets. However, a sole proprietorship and PLLC are different in that they have different requirements for registration.
Is a PLLC a corporation?
Some states do not recognize PLLCs and only authorize professionals to operate under a Professional Corporation (PC). In a PC, the owner(s) of the business is also a licensed professional. However, a PC is subject to similar tax and compliance rules as a C-corp or an S-corp. In a PC, members are called shareholders, and the business is operated and taxed differently.
How to Form a PLLC
Filing for a PLLC requires a certified copy of your professional license from your state, along with your signed paperwork and articles of organization. This will need to be approved by your state licensing board, all of which you send to your state’s Secretary of State. You’ll need to do the following:
1. Create a name for your PLLC
Not to be taken lightly, naming a business is tricky. Every state has certain naming requirements. When choosing your business name, it must be unique to your state and must end with “professional limited liability company,” “P.L.L.C.” or “PLLC.” Check with your state’s licensing board.
2. Appoint Your PLLC registered agent
A PLLC requires that you designate a registered or statutory agent who, on behalf of your PLLC, accepts official documents and notices for your business. If you’re unsure who to appoint, there are services that can help guide you on outsourcing this service.
3. Get your business licenses
Your state licensing board or regulatory body will grant your business license based on the professional licenses required for every member. But also be aware there could be additional business or zoning licenses you may need before launching. You’ll need to show proof that you and all the other owners hold current professional licenses and that you’re in compliance with all industry-specific regulations.
4. Draft and file your articles of organization
You’ll need to prepare your articles of organization for your business or a formal set of documents and file them. Forms you may use for a PLLC may be different from that of a regular LLC.
5. Create an operating agreement for your PLLC
Some states require LLCs and PLLCs to draft an operating agreement. For businesses with multiple owners, draw up a document that provides a summary of each owner’s contributions and share of profits. You may also want to include a document of the business’s daily operations.
6. Pay PLLC taxes and file an annual report
For both state and federal tax purposes, PLLCs are pass-through entities just like LLCs. Meaning, that each owner pays personal federal and state income taxes on their share of the business’s profits. Some states charge PLLCs an annual franchise tax or a gross receipts tax based on the company’s revenue. For PLLCs with employees, there are also payroll taxes. Several states require PLLCs to file an annual report as well.
7. Continue to comply with state and federal regulations for PLLCs
Each member of your PLLC will need to stay in good standing with the licensing board. This means completing all compliance training, annual licensing requirements, renewals, etc. That’s in addition to other state or federal requirements for a PLLC, such as acquiring an Employee Identification Number (EIN), paying workers’ compensation and federal payroll taxes, and separate business tracking for all financial accounts.
Final Thoughts on Professional LLCs
Since some states consider PLLCs high-risk, stricter regulations are required for this business structure. For licensed professionals looking for the structure, tax flexibility, and protection against being sued for wrong-doing, debt, or negligence of any current or future business partner, a PLLC could very well be the way to go. You get all the benefits of an LLC, but with a business structure specifically for those in licensed fields. Once your PLLC structure is set up, you’ll be ready to start accepting payments for your business.