LLCs vs. PLLCs: What's the difference?
As a business owner, you've probably heard of LLCs (limited liability companies). But are you familiar with PLLCs?
PLLC stands for professional limited liability company. While PLLCs share many similarities with conventional LLCs, there are also some critical differences that founders should be aware of.
In this guide, we’ll take a look at the difference between LLCs and PLLCs and help you determine which option makes more sense for your business.
What is an LLC?
Both LLCs and PLLCs are both limited liability companies. As the name implies, one of the main benefits of creating an LLC is avoiding liability.
Without an LLC, there is essentially no difference between your personal and business activities. Just as you would be responsible for hitting someone with your car, you'll also be responsible for any injury or damage caused by your business.
LLCs create a clear division between personal and business assets and actions. While your business could still be sued, you generally won't be responsible on a personal level. This is a vital layer of protection for any business owner. Click here to learn more about the differences between an LLC and sole proprietorship (unincorporated business).
While you could also incorporate a C Corp, this comes with additional costs and requirements that could be too much for some small businesses. For example, C Corps are required to pay corporate taxes on profits, and they're also more expensive to set up.
We generally recommend C Corps for founders that plan to seek outside investment. If you're not sure which one is right for you, take our LLC vs. C Corp quiz for a personalized recommendation.
What about PLLCs?
PLLCs, or Professional LLCs, are identical to regular LLCs in terms of taxes and flexibility in management. With that in mind, they are a subset of LLCs rather than a completely different kind of business.
The key difference between the two is that PLLCs are intended for industries which require a higher degree of training, knowledge or expertise. These could include attorneys, CPAs, architects, engineers, and even health care professionals — usually jobs that require some type of professional license. PLLCs are intended to ensure professionalism and credibility in these vital industries.
Differences between states
PLLCs are regulated at the state rather than the federal level, so you'll need to check into the regulations in your state. Unfortunately, the rules are wildly different in different states, so you'll need to look into the specific regulations in the state where you want to incorporate.
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.
Some states don’t recognize PLLCs at all. 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.
How to form a PLLC
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.
The PLLC structure comes with critical liability protections, but it doesn't remove liability entirely. Note that individual members of a PLLC are still vulnerable to individual malpractice suits. As a result, individual members may need to carry their own malpractice insurance.
Creating a PLLC involves some extra steps compared to a conventional LLC, but it's not as complicated as you might think. We can help you complete the incorporation process and assist with compliance and other common issues. Hit the link below to start your incorporation now.