It can be confusing to know which business structure to choose when you’re getting ready to start your company.
And if you’re a licensed professional, this can be even more challenging.
In this guide, we’ll take a quick look at the difference between LLCs and PLLCs, and provide an overview of when a PLLC is likely to be necessary.
Both LLCs and PLLCs are limited liability companies. As we’ve covered extensively on our blog, limited liability companies are business entities that are separate from the person or people that own them.
Limited liability companies are easy to form, and are flexible when it comes to business structure, and have the benefit of pass-through taxation. Most importantly, they provide the owners with liability protection in cases of lawsuits or debts.
As such, certain professionals may be inclined to file as a limited liability company rather than remain a sole proprietor (you can read about the difference in our guide here).
PLLCs, or Professional LLCs, are nearly identical to regular LLCs.
Some states, however, require PLLCs if the professional works in a particular sort of industry.
The types of jobs that most commonly require one to have a PPLC are typically those which require some higher degree of training, knowledge or technical expertise.
This includes attorneys, CPAs, architects, engineers, and even health care professionals — in short, jobs that require some type of professional license.
While anyone can be a member of an LLC, state laws usually state that only licensed professionals can become members of a PLLC.
When it comes to policy on LLCs vs. PLLCs, states vary wildly.
New York, for example, is one of the strictest states in the country in this regard. Here, PLLCs are technically called professional service limited liability companies, and one must be licensed in the occupation in order to file.
The state does not provide a full list of professions that require a PLLC, so it’s important to check with a local attorney to be sure.
Elsewhere, the process of forming an LLC is much more straightforward.
Several states don’t recognize PLLCs. These include Delaware, the most popular state for filing an LLC, and Wyoming, where fees are low and taxes are generally seen as business-friendly, as well as many more.
Forming a PLLC looks a lot like forming an LLC, with one key difference.
Typically, a state licensing board will first have to approve a PLLC’s articles of organization. Again, the exact requirements vary from state to state, so be sure to consult an expert in the state in which you’re filing.
From there, filing should be straightforward. Just like an LLC, you’ll need to appoint a registered agent, obtain an Employee Identification Number, and set up a business bank account.
Remember to make sure all PLLC members keep their professional licenses up to date in order to remain in compliance.
It’s important to note that while PLLCs offer many of the same legal protections as LLCs, members are still vulnerable to individual malpractice suits. As a result, individual members may need to carry their own malpractice insurance.
It can be a pain to set up a PLLC, especially if you're eager to get your business up and running right away. But with just a little bit of diligence, you’ll be on your way in no time.
As always, be sure to contact a filing expert if you’re unsure of the rules and requirements in your state.