Structured as separate legal entities from their owners, limited liability companies (LLCs) benefit from limited liability protection. They’re a good option when starting a business or running a small business for liability and tax reasons.
Differences Between an LLC and a PLLC
A professional LLC (PLLC) is a type of LLC for licensed professionals — such as lawyers, architects, or medical care practitioners — who offer services in their profession only. Nearly everything else about a PLLC is similar to an LLC, except PLLCs have a few extra steps in the Articles of Organization filing process.
To form a PLLC, a licensed professional must sign all filing documents as well as include their professional license number and a certified copy of their license. Importantly, they must submit these documents for approval with their state licensing board before filing them with their state’s secretary of state. Some states require licensed professionals to form PLLCs while others let them choose between an LLC or PLLC business structure. Notably, some states don’t offer PLLCs at all.
While PLLCs offer limited liability protection, they don’t protect professionals from malpractice.
State Requirements for PLLCs
While each state offering PLLCs has its own set of requirements, here are some general requirements for most, if not all, states:
- Qualifying Professions: Licensed professionals in the following professions may form a PLLC in states allowing PLLCs: lawyers, engineers, doctors, dentists, accountants, architects, clinical social workers, psychologists, acupuncturists, chiropractors, marriage and family therapists, nurses, optometrists, physical therapists, and veterinarians. Some states may allow PLLCs for other professions, so be sure to check with your state.
- Proof of Licensing: Typically, you’ll need to prove that you and the other members of your PLLC have a current professional license.
- Industry-Specific Regulations: Your PLLC may also need to comply with industry-specific regulations. For example, doctors and dentists should check with their state licensing board.
- Company Name: If your state allows PLLCs, the name of your company typically must include “PLLC”, “P.L.L.C.”, “PLC”, or “P.L.C.” Different states may have different acceptable abbreviations so be sure to check with your state.
- Articles of Organization: The state licensing board of your profession must approve your Articles of Organization before you can form a PLLC. Once the licensing board approves your Articles of Organization, you may file the documents with your state’s secretary of state.
- Members: Not all states require all members of a PLLC to hold a professional license. Some only require the PLLC’s organizing member to be a licensed professional.
To form your PLLC, first, check your state’s requirements — including which professions may form a PLLC in your state and whether or not your state requires a PLLC structure for businesses in your profession. Next, you’ll need to secure and complete all the required forms to file your Articles of Organization with your state’s secretary of state. Before filing those documents with the secretary of state, you must gather information proving that you and the other members of your PLLC are certified, professionals.
As noted above, not all states require all members to be professionals so check with your state. Next, you must have your state licensing board approve your Articles of Organization. Once approved by the state licensing board, you can file all the documents with the secretary of state.
Separation of Liability From Your Company and Coworkers
Like LLCs, PLLCs benefit from limited liability protection as well as protection from the company’s debts. However, while PLLCs do not protect members from their own malpractice, they do protect them from the malpractice of other members and coworkers.
What’s the Difference Between a Partnership and a PLLC?
Partnerships and PLLCs are similar in many ways with multi-member PLLCs even taxed the same way as partnerships. However, here are some key differences:
- Liability: The biggest difference between a partnership and a PLLC is liability protection. While PLLC owners benefit from limited liability protection, partners in a partnership are not only personally liable for the debts of the partnership but also liable for the actions of other partners.
- Limited Liability Partnership: Some states allow partners to form Limited Liability Partnerships. This business structure means all partners are liable for the debts of the business, but not necessarily the actions of other partners.
- Formation Process: You may form a partnership or PLLC by filing Articles of Organization with your state’s secretary of state. You also can form a partnership through less formal means, such as with a verbal agreement.
- Record-Keeping: Because not all partnerships are formed with the state, there are fewer formalities and regulations around record-keeping for partnerships not formed with the state.
Like an LLC, PLLCs benefit from pass-through taxation. This means any income or loss is not taxed at the business level, but “passes through” to the individual members and taxed at their personal tax rate.
If your company operates in an industry that requires a professional license, check with your state to see if it requires a PLLC structure for your business. If not, there’s very little difference between forming a PLLC and an LLC — except for the extra step PLLCs must take in securing approval from the profession’s state licensing board. In states that allow PLLCs, there are also advantages to forming one instead of a simple partnership.