What Is a PLLC and How Does It Benefit Professionals?
As a solo professional in the workforce, it helps to touch base with others in your field. This is why there are so many conferences, after-work meetups, speed networking events, and business brunches out there.
It makes good sense, too. After all, the more you connect with others, the more relationships you’ll have. And the more relationships you have, the greater your network, support, and opportunities will be.
But there are other substantial ways to connect as well. If you enjoy being part of a more permanent community and the camaraderie of working alongside colleagues, you may want to consider forming a professional limited liability company (PLLC).
PLLCs are a type of company specifically for professionals such as doctors, lawyers, accountants, chiropractors, and the like. It allows an entity to form between individuals who typically operate on their own, and provides them more protection and opens doors as the company grows.
This article breaks down the basics of PLLCs — who can form them, how to form them, and the advantages they offer to professionals.
What Is a PLLC?
PLLC stands for professional limited liability company. It’s essentially the same as a limited liability company (LLC), except that it is owned and operated by licensed professionals in the same industry. These owners are called “members” and an operating agreement governs how these members work together.
Similar to an LLC, a PLLC is a hybrid business structure that blends the personal liability protection of a corporation with the tax benefits of a partnership.
Limited liability companies are like a corporation, in that they are a separate legal entity in which the owners are not personally liable for the company’s debts. And they’re like a partnership, in that they’re more affordable and more flexible than a corporation.
PLLCs have all these features, but are designed for professionals. Plus, as some states don’t allow people with professional licenses to form an LLC, a PLLC is oftentimes the most beneficial option.
PLLCs vs. LLCs
The key difference between a PLLC and an LLC is that the former must be owned and operated by members of the same profession, and can only offer services related to this profession. A state licensing board must also verify the licenses of all the owners before a PLLC can be formed.
For example, a group of architects can form a design firm that’s registered as a PLLC and only offers architectural design services.
Given its specific nature, PLLCs generally have more requirements and restrictions than regular LLCs, and may take longer to process. This varies from state to state, so it’s best to read through the PLLC rules for your particular area.
The exception to this is California. The state allows professionals to form professional corporations (PCs), but not LLCs or PLLCs.
PLLCs vs. PCs
PLLCs and PCs are similar in that they may only be owned by professionals. They also have almost the same requirements, namely that all the owners must be of the same profession, hold licenses that are verified by the state, and only offer services related to their profession.
A PC has distinct advantages and disadvantages. As a corporate entity, it helps limit an owner’s personal liability similar to a PLLC. If a professional decides to retire or leave the business, their ownership is easily transferred to others. This is beneficial for many fields, such as legal and accounting, where professionals often change law firms or accounting firms, as it allows the company to operate uninterrupted.
However, PCs pay corporate taxes. Not only can the corporate tax rate limit growth, the owners will also likely get hit with double taxation — their income will be taxed first at the corporate level, and then again as personal income. For this reason, PCs aren’t as popular as they once were.
Advantages of a PLLC
A PLLC offers many advantages for the lone professional — a major one being that it separates the owners from the entity, and protects them from most forms of personal liability. This means in many cases of company debt, negligence, and the like, only the PLLC is held accountable, not the individual owners.
Creditors can go after the company’s bank accounts and assets, but they can’t touch any personal assets or property. And since owners aren’t liable for business debts, a PLLC mostly won’t need business insurance. Just be sure to maintain good records clearly separating business expenses from personal ones.
(A point of note, however, is that any personal agreement made — i.e. personally guaranteeing a bank loan — even if related to the PLLC, is still a personal agreement, and one that the owner is individually liable for.)
Another financial benefit of PLLCs is that it can elect for pass-through tax status, which basically allows any business tax to “pass through” straight to its owners. This prevents any double taxation common in regular corporations, and taxes all income at a personal rate rather than a corporate rate.
Compared to traditional corporations, PLLCs are much cheaper, easier, and more flexible to set up and maintain. And unlike partnerships or sole proprietorships, they can also offer better retirement plans for employees with higher contribution limits.
Professional Liabilities of a PLLC
Many professionals start a PLLC to separate their individual liability from their liability as part of a partnership or company. For instance, when one professional is sued, the others don’t want to be sued as well.
A professional LLC does this. It protects owners from the possible malpractice of the company and other owners, as well as general business debts and liabilities.
However, a PLLC — or LLC, for that matter — doesn’t protect owners from any liabilities incurred by their own personal negligence or wrongdoing. A professional can still be sued for their own malpractice. In some cases, they may even be responsible for the actions of employees under their supervision. For this reason, it’s also a good idea for PLLC owners to carry malpractice insurance.
How to Form a PLLC
Forming a PLLC is generally a two-step process, which varies depending on state law. It’s best to review your secretary of state’s website for where you plan to incorporate and find the exact requirements.
After you know what to do, start by filling out the proper paperwork, also referred to as the articles of organization.
These are like the company’s birth certificate, and usually ask for the business name (most states require using the letters PLLC in the name), address, members, and a registered agent who is responsible for handing the official paperwork. You’ll also need to include proof showing that all the necessary members are licensed professionals (some states require all, while others may only require half).
All completed documents must be submitted to the specific state licensing board — for example, CPAs must submit to the accounting licensing board, attorneys must submit to the state bar.
Upon approval, the next step is to submit all the paperwork to your secretary of state or another LLC filing office. The review process usually takes a few weeks, but once all the articles have been approved and filed, the PLLC becomes an official legal business entity.
Keeping It Professional
There are many reasons a professional may benefit from forming a PLLC, from matters of company to camaraderie. PLLCs band professionals together into a legal entity, protect individuals from certain liabilities, and offer many other benefits. Now that you know more about this particular type of structure designed just for professionals, you can take the next step toward growing your business.