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What is a PLLC?
PLLC stands for professional limited liability company. Before deciding which entity is the best for your needs, it’s important to understand the benefits and criteria of a PLLC and how it’s distinguished from a limited liability company (LLC).
PLLCs have the same benefits of an LLC, including the availability of pass-through taxation and limited liability for owners. However, PLLCs are only available to professionals, such as doctors, lawyers, engineers, accountants, and more. Some states require that professionals form PLLCs, while others allow professionals to elect to form either an LLC or PLLC.
What is the Difference Between a PLLC and LLC?
There are not many differences between LLCs and PLLCs. They essentially function the same way with one exception.
LLCs are most known for the protection from personal liability provided to their members. This means that the debts and liabilities of the company are considered separate from the members’ personally in most circumstances. LLCs enjoy great flexibility in taxation. They can be taxed in a variety of ways including as a sole proprietorship or partnership, or elect to be treated as a C Corp or S Corp for tax purposes.
The main difference between PLLCs and LLCs is that while PLLCs have the same liability protection, they do not shield the entity members from professional malpractice claims. Each member of a PLLC may still be held personally liable for any acts of malpractice.
Who Should Form a PLLC?
As mentioned above, a PLLC is an LLC available to only certain professionals who will offer their services through the business. Each state has it’s own requirements for PLLCs and professions that qualify. Some states do not even have PLLCs as an option for filing. If you believe you are a professional for the purposes of establishing a PLLC, you will need to evaluate the individual rules of your state to make sure you comply with any prerequisites to filing the formation documents.
Some states only permit professions that require a license to form a PLLC, while other states may have a broader definition.
Like LLCs, PLLCs are easier to form and maintain than corporations. There are fewer formalities than those required of corporations, but PLLCs still enjoy the separation between individual owners and the business entity. PLLCs are a good fit for a company that wants to provide professional services, have limited liability protection, and avoid the overwhelming compliance required of corporations.
Another important consideration before starting a PLLC is the future continuity issues if you were to retire, die, or sell the company. If you are in a state that requires that all members of a PLLC are license-holding professionals for each service provided, your ability to transfer ownership down the road will be limited.
How is a PLLC Taxed?
Forming either an LLC or a PLLC provides you with multiple tax options. By default, both LLCs and PLLCs are taxed as either a sole proprietorship or partnership. As pass-through entities, any company profit or loss is not taxed at the entity level, but passed onto the individual members and taxed at their personal tax rate.
However, a PLLC can also choose to be taxed as a corporation by filing an election with the IRS.
How to Form a PLLC
To form a PLLC, you must first research the particular prerequisites and compliance mandates for doing so in your state. All states will require the filing of articles of organization (or “certificate of formation”), but there may be additional documentation necessary in your state to prove your professional affiliation.
Sometimes the state licensing board for your profession will need to approve the formation of your PLLC prior to acceptance by the state. Once your filing is accepted and you receive your certificate of filing from your state agency, your business is officially a PLLC. You can then add “PLLC” after the official name of your company.
As a licensed professional, it’s important to understand which type of company you need to form and the applicable state laws. Generally, forming a PLLC, if allowed in your state, can provide you with the necessary protection you need to smoothly run your business.