Key Takeaways:

  • California does not allow PLLCs: Unlike many states, California does not permit licensed professionals to form a Professional Limited Liability Company (PLLC). Instead, they must operate under Professional Corporations (PCs) or Limited Liability Partnerships (LLPs) for certain professions.
  • Professional Corporations (PCs) are the primary option: Licensed professionals, such as attorneys, physicians, and accountants, are required to establish a PC rather than an LLC or PLLC.
  • Limited Liability Partnerships (LLPs) for certain professions: Some professions, including law and accountancy, may operate as an LLP, which provides a degree of liability protection while functioning differently from a PLLC.
  • Regulations by California licensing boards: Each profession in California has specific legal requirements for forming a business entity, dictated by state regulatory boards such as the California Board of Accountancy and the California State Bar.
  • Tax and Liability Considerations: PCs are subject to corporate taxation, whereas LLPs and other structures may have different tax treatments.
  • Alternatives for professionals in California: Options include forming a PC, operating as a sole proprietorship, joining a partnership, or creating an LLP if applicable.

A California PLLC is one of several ways that you can set up a new enterprise in the state. PLLC stands for professional limited liability company, and this structure offers the same liability protections and tax benefits as an LLC. Highlighted below are details about forming a PLLC in the state and other requirements for establishing this type of business.

What Type of Entity Should You Form?

Entrepreneurs have many options when setting up a new company. Even among LLCs and corporations, there are several choices, including:

  • A traditional corporation (Inc.)
  • A professional company (P.C.)
  • A limited liability company (LLC)
  • A professional limited liability company (PLLC)
  • A limited partnership (L.P.)
  • A general partnership (G.P.)
  • A limited liability partnership (L.L.P.)
  • A limited liability limited partnership (L.L.L.P.)

In addition to these choices, you'll find several other ways to create a business entity depending on the industry you're in.

You must pick one of these types for your business, but this choice is extremely important. Every business type must comply with a unique set of tax rules and legal obligations. This means that every business structure has its own pros and cons and that thorough research is required to ensure you pick the best entity type for your commercial goals and the size of your enterprise.

An attorney who specializes in setting up a business can help you pick the right structure for your company. Consider consulting with one of these professionals if you need help creating your company.

What Is a California PLLC?

A PLLC is a type of LLC. This business structure offers the same benefits and drawbacks as a general LLC.

Whether you can form a PLLC depends on the requirements in your state. In some places where certain types of companies can't form LLCs, those businesses can establish PLLCs.

LLCs in California can't provide professional services. Instead, these companies must be registered as PLLCs. Certified public accountants, attorneys, and architects, for example, require licenses to run their own businesses and must establish their operations as PLLCs.

California law regulates how PLLCs in the state can be set up and how they must operate. Check these rules to determine whether your business can form an LLC, whether it must form a PLLC, and what other requirements your enterprise must meet to open its doors in California.

Why California Does Not Allow PLLCs

California is one of the few states that prohibits licensed professionals from forming a Professional Limited Liability Company (PLLC). This restriction is outlined in the California Corporations Code § 13401, which mandates that professionals who require state licensure—such as doctors, lawyers, accountants, and architects—must form a Professional Corporation (PC) rather than an LLC or PLLC.

This regulation is enforced by California’s licensing boards, including the State Bar of California, the Medical Board of California, and the California Board of Accountancy. The goal of this restriction is to ensure higher levels of oversight and accountability for professionals providing specialized services to the public.

How Is a PLLC Formed?

File your business's Articles of Organization with the state to form a PLLC in California. After confirming your license status, the state will approve your application if it meets all other requirements. You'll also need to register a name for your company that ends with “PLLC.”

California PLLCs and Liabilities

PLLCs offer the same liability protections as LLCs.

For a PLLC that has several licensed members, each individual specialist is protected from the liability of the other members. This means that if one physician is sued for malpractice, the other physicians in the PLLC are protected. Also, if the company is sued or declares bankruptcy, the individual members' assets are protected.

There are some exceptions, however, when the individual members may be held liable for the business's operations. A consultant or PLLC attorney can answer any questions you have about liability and help you determine whether this business structure is right for you.

Other Similarities Between PLLCs and LLCs

PLLCs and LLCs share the liability protections mentioned above. These business structures in California have some other qualities in common as well.

For instance, the individual members must draft and agree to an operating agreement. This document clarifies the responsibilities of each member and how the company will proceed in certain circumstances, such as dissolution, adding more members, or converting to another business type.

LLCs and PLLCs also share some tax perks. For both entity types, only the individual members need to file an annual report based on their adjusted gross income. Unlike a corporation, the business itself isn't taxed based on its total profits and expenses.

PLLCs Versus PCs

Only licensed professionals who want to offer services in California can establish a PLLC or PC. However, a PC is taxed as a corporation, whereas a PLLC is taxed like an LLC.

Professional Corporations (PCs) in California

Since California does not permit PLLCs, licensed professionals typically form a Professional Corporation (PC). PCs operate similarly to traditional corporations but are specifically designed for professionals.

Key Features of a PC in California:

  • Regulated by professional boards: PCs must comply with the rules of the applicable state licensing board.
  • Corporate taxation: PCs are taxed at both the corporate and personal income levels unless they elect S-corporation status.
  • Liability protections: A PC limits liability for business debts and contractual obligations, but individuals remain personally responsible for professional malpractice.

Professionals considering forming a PC should consult with an attorney to ensure compliance with California's strict corporate governance laws.

PLLCs and S Corporations in California

Entrepreneurs can take advantage of some of the perks of a corporation while still enjoying the liability protections of a PLLC by forming an S corporation. Only certain states allow a business to form an S corporation. This offers excellent protections and more options for attracting investors. Unfortunately, PLLCs in California can't form an S corporation.

Limited Liability Partnerships (LLPs) for Certain Professions

While California does not allow PLLCs, certain professionals—lawyers, accountants, and architects—may operate under a Limited Liability Partnership (LLP).

Benefits of an LLP:

  • Liability protection: LLPs shield partners from being personally liable for the malpractice of other partners.
  • Tax advantages: LLPs offer pass-through taxation, meaning profits and losses are reported on individual tax returns rather than being taxed at the corporate level.
  • Less regulatory complexity: Compared to a PC, LLPs require fewer formalities, making them a more flexible option.

However, LLPs are not available to all professions in California, so professionals should check with their licensing board before forming one.

Frequently Asked Questions 

1. Can I form a PLLC in California? No, California does not permit the formation of PLLCs. Licensed professionals must form a Professional Corporation (PC) or, in some cases, a Limited Liability Partnership (LLP).

2. Why doesn’t California allow PLLCs? California law prohibits professionals from forming LLCs or PLLCs to ensure regulatory oversight and accountability through state licensing boards.

3. What is the best alternative to a PLLC in California? The most common alternative is a Professional Corporation (PC). Certain professions, such as law and accounting, may also qualify to form a Limited Liability Partnership (LLP).

4. How is a PC different from an LLC?A PC is subject to corporate taxation and state licensing board oversight, whereas an LLC has fewer formalities and different tax treatment. However, professionals in California cannot form LLCs or PLLCs.

5. Do I need a lawyer to set up a PC or LLP in California? It is highly recommended. Since California has strict regulatory and compliance requirements, consulting a business attorney ensures proper entity formation and compliance with state licensing laws.

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