PLLC: The Complete Guide to a Professional Limited Liability Company
A PLLC is usually the right choice for licensed professionals who want LLC-style benefits in a state that requires or prefers a professional entity.
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Key takeaways
- A professional limited liability company (PLLC) is a business structure that offers personal asset protection for people in licensed professions, like doctors, lawyers, accountants and architects.
- A PLLC can protect you from the business’s debts and from malpractice claims tied to other members of your business, but it won’t protect you from liability from your own malpractice.
- Not all states recognize PLLCs. For those that do, approval from a state licensing board is necessary and eligibility may be limited to certain professions.
In several states, licensed professionals can form a professional limited liability company (PLLC), which is a type of a limited liability company specifically designed for licensed professionals.
What is a professional limited liability company (PLLC)?
A professional limited liability company is a business structure offering personal asset protection for business owners in licensed occupations, such as medicine, law, accounting and architecture.
PLLCs are only recognized in some states. To establish a PLLC in a state where it is allowed, the state licensing board must verify each owner’s professional license and approve the PLLC’s articles of organization.
States that recognize PLLCs
Several states recognize PLLCs as a special type of LLC for licensed professionals — such as lawyers, accountants, doctors and architects. Specific regulations vary by state. For example, Louisiana only recognizes PLLCs for dentists. Your state’s secretary of state or business filing agency will be able to tell you more about the rules for professional entities in your state.
List of states with PLLCS:
- Alabama.
- Arizona.
- Arkansas.
- Colorado.
- Connecticut.
- District of Columbia.
- Florida.
- Idaho.
- Illinois.
- Iowa.
- Kentucky.
- Louisiana.
- 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.
- West Virginia.
What’s the difference between a PLLC vs. an LLC?
Many business owners choose an LLC because it offers limited personal liability. That means a creditor can’t come after the owner’s personal assets. If one owner in an LLC makes a mistake or acts negligently, the other owners also can’t be held personally liable. Other benefits of LLCs include tax flexibility and relatively low setup costs.
In states that recognize PLLCs, much of the same rules that apply to LLCs also apply to PLLCs. They have the same management structure and are taxed in the same way.
The key difference between LLCs and PLLCs is with malpractice claims. PLLC owners are shielded from personal liability for business debts and lawsuits, and they are not liable for malpractice committed by their business partners. However, they are personally liable for any claims brought against them for their own malpractice.
If a doctor commits malpractice, then the patient can sue the doctor and lay claim to the doctor’s personal assets. For this reason, it’s important for members of a PLLC to carry professional liability insurance, more commonly known as malpractice insurance.
What types of businesses can start a PLLC?
An individual who requires a license, registration or certification from the state to practice a profession is eligible to form a PLLC. Keep in mind that all owners in the business must be licensed. While eligibility varies from state-to-state, common professions include:
- Attorneys.
- Doctors.
- Dentists.
- Engineers.
- Accountants.
- Veterinarians.
In many states, such as Colorado, you’ll find a list of specific professions that are eligible to form PLLCs.
Pros and cons of PLLCs
While professionals have a few business entities to choose from, here are the pros and cons of PLLCs to consider:
Pros
Members of a PLLC aren’t personally liable for the malpractice of any other member. This is a big advantage over a general partnership or sole proprietorship.
PLLC members are not personally liable for business debts and lawsuits, such as unpaid office rent.
The PLLC can choose to be taxed as a pass-through entity or as a corporation.
PLLCs are easy to set up, inexpensive and have fewer compliance requirements than a corporation.
Cons
PLLCs aren’t recognized in all states.
Even in states that do allow PLLCs, eligibility might be limited to certain licensed professions.
All PLLC earnings are subject to self-employment taxes.
PLLCs vs. other business types for professionals
In most states, professionals have the option to form other types of businesses besides a PLLC. Here’s how PLLCs compare to other business entities:
| Professional Limited Liability Company | Limited Liability Partnership | Professional Corporation | ||
|---|---|---|---|---|
| Ownership | Typically two or more people but single-member PLLC is possible. Owners must have a professional license. | Two or more people. | Two or more people. | Two or more people. Owners must have professional license. |
| Liability | Owners are only personally liable for their own actions. | Unlimited personal liability for all partners. | Members are personally liable only for their own actions. | Owners are only personally liable for their own actions. |
| Taxes | Pass through, but can elect to be taxed as a corporation. May be subject to self-employment tax. | Pass through. | Pass through. | Pays corporate income tax. |
| Set up | Articles of incorporation, operating agreement, liability insurance and licenses. | Typically no paperwork needed. | State specific business formation documents. | Articles of incorporation and bylaws. |
How to form a professional limited liability company
Forming a PLLC is similar to setting up an LLC, although the forms may be slightly different. The state’s licensing board also needs to verify each owner’s professional license, which means it could take longer compared with an LLC.
These are the steps needed to form a PLLC:
1. Choose a name for your PLLC
The name of your PLLC must be different from the name of other business entities in most states. In addition, the name of your business must end with “Professional limited liability company,” “P.L.L.C.” or “PLLC.” Your secretary of state can provide details on name requirements, including how to reserve a business name.
2. Designate a registered agent for your PLLC
In every state, business entities must designate a registered agent, which is a person or company that accepts service of process and official documents for your business. If you’re unsure who to appoint as your registered agent, many online legal services companies provide registered agent services.
3. Get business licenses for your PLLC
The most important license for PLLCs is the professional license, which the state licensing board for your profession will grant. Every owner in the PLLC must be licensed to practice the specific profession that the business will be providing. However, there might be additional business or zoning licenses you need to apply for before operating. Cities and counties typically issue business licenses.
4. File your articles of organization
Next, you must file articles of organization with your state’s secretary of state. You can usually file your articles online for fast processing. The articles of organization form for PLLCs might be slightly different from the LLC form. The licensing board for your profession reviews and approves the articles, after which the state will send you a copy of the filed articles of organization to store with other business documents.
5. Draft an operating agreement
A handful of states, including California and New York, require LLCs and PLLCs to draft an operating agreement. Even if your state doesn’t require one, it’s wise to have one, especially if your PLLC has multiple owners. This document provides a blueprint for daily operations, plus summarizes each owner’s contributions and share of profits.
6. Pay PLLC taxes and file annual report
PLLCs, like LLCs, are pass-through entities for tax purposes at the federal and state levels. This means that each owner will pay personal federal and state income taxes on their share of the business profits. The LLC itself won’t pay a federal income tax.
Alternatively, the LLC can elect to be taxed as a corporation and pay a corporate tax on profits. Some states charge PLLCs an annual franchise tax or a gross receipts tax based on the company’s revenue. There are also payroll tax obligations for PLLCs with employees. Finally, several states require PLLCs to file an annual report with current address and registered agent information.
7. Comply with additional state and federal regulations for PLLCs
PLLCs might have to comply with additional state and federal regulations. For instance, PLLCs with employees, with multiple owners or taxed as corporations need to apply for an employer identification number (EIN). Every state except Texas requires businesses with employees to buy workers compensation insurance. PLLCs with employees also have to withhold taxes from their employees’ wages and pay federal payroll taxes.
After creating a PLLC, it’s important to preserve limited liability for owners by treating the business as a separate legal entity. That means getting a separate business bank account, credit card exclusively for business purposes and tracking business finances separately from any owner’s personal finances.
A version of this article was first published on Fundera, a subsidiary of NerdWallet
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