Are you in the process of forming a business for licensed professionals?
There’s a specialized form of the limited liability company (LLC) known as the professional limited liability company (PLLC) that is specifically meant for entrepreneurs operating in professions that require certifications. But which professions require a PLLC, and how does it differ from a standard LLC?
While the PLLC is an ideal business structure for certain types of licensed professionals, it’s also entirely unnecessary for many industries. Understanding exactly which companies the professional limited liability company is meant to serve will help you decide if this is the right choice for your business, or if a standard LLC or corporation would be a better option.
Over the course of this article, we hope to help you answer this question for your business.
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What Is a Limited Liability Company (LLC)?
Before we get into the details of the professional limited liability company, we should briefly discuss what a standard LLC is.
The limited liability company is a business owned and operated by one or more people, who are often referred to as “members” of the LLC. The LLC is a hybrid business structure that combines the casual flexibility of sole proprietorships and general partnerships with the limited liability protection of a corporation.
The main reason for the LLC’s popularity is because it provides personal asset protection, which means that creditors can only pursue your business assets in a lawsuit against your company, while your car, house, and personal bank accounts remain protected.
In addition, many entrepreneurs save a considerable amount of money on taxes thanks to the LLC’s “pass-through” taxation, which has the LLC owners claim business profits or losses on their personal returns, and there is no corporate-level taxation.
What Is a Professional Limited Liability Company (PLLC)?
The professional limited liability company starts with the LLC as its foundation, then adds some layers that are specifically tailored for licensed professionals. If your business operates in certain industries, you will be required in many states to form a PLLC instead of an LLC.
It should be noted that while the PLLC business structure includes personal asset protection, it does not provide any protection from malpractice suits. This means that if your profession has any risk of malpractice lawsuits, you should absolutely acquire malpractice insurance.
Never rely on your business entity to shield you from malpractice suits or other lawsuits regarding mistakes made while conducting business in a certified profession.
Who Should Form a Professional LLC?
Depending on your state, there may be a few more or less professions that need to seek a PLLC than in other states, but for the most part, the following certified professionals will need to form a PLLC rather than an LLC:
- Accountants
- Architects
- Chiropractors
- Dentists
- Engineers
- Lawyers
- Nurses
- Pharmacists
- Physicians
- Psychologists
- Veterinarians
For an exact list of the professions that require a PLLC in your state, we recommend contacting your Secretary of State’s office. This way, you can be absolutely certain that you’re forming the right business entity for your industry.
To form a professional limited liability company in most states, you need to provide proof that each member of the company is a licensed professional in the industry the PLLC is registered in. So, if you form a PLLC for a law firm, you’ll need to prove that your members are all attorneys.
In some states, only half of the members are required to be certified in the same profession, and in some others, you need approval from a state licensing board in order to form your PLLC.
What Is a Professional Corporation and Who Should Form One?
Another option if you operate a business for certified professionals is the professional corporation. In many ways, the difference between these entities is similar to the differences between a standard LLC and a standard corporation, but there are some important wrinkles as well.
If your owners are wealthy individuals who occupy high tax brackets for individual taxation, it may be preferable to form a professional corporation instead of a PLLC. The professional corporation is subject to what’s known as “double taxation,” which means that the company’s profits and losses are first taxed 21% at the corporate level, and are then taxed again at the individual level.
However, depending on which tax bracket you’re in for your personal taxes, the taxation methods of a corporation could actually be beneficial for you.
While there isn’t much difference between the way taxes affect typical LLCs and corporations compared to their professional counterparts, the issue of asset protection is a bit more complex.
If you operate a professional corporation, a successful lawsuit against your company could give your creditors some control over your business, because the professional corporation allows creditors to pursue an individual debtor’s shares in the company. With a PLLC, creditors are restricted to pursuing only the net income the debtor receives from the business.
Should You Hire Someone to Form Your PLLC?
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If you’d rather not DIY your professional limited liability company’s formation ― which typically includes the preparation and filing of a document called the articles of organization ― you do have alternative options.
For instance, you could hire an attorney to form your PLLC. While we do appreciate how this option gives you the peace of mind that your business was formed correctly and in a compliant manner, hiring a lawyer can be very expensive, especially considering that many startups operate on tight budgets.
If you like the idea of having your PLLC professionally formed, but you don’t want to spend the kind of money it takes to hire an attorney, you should look into a business formation service. These companies can form your PLLC for much less money than a lawyer charges, while still providing the peace of mind you’re looking for.
While not all companies that offer LLC formations also deal with PLLCs, MyCorporation and BizFilings do.
Conclusion
The guidelines for professional limited liability companies vary from state to state, so to make absolutely certain, you should ask your state if the PLLC is the right business structure for you, or if a standard LLC will suffice. In general though, most professionals in the medical field will need to form a PLLC, as will engineers and attorneys.