LLC vs PLC: Everything You Need to Know
Understanding the differences between LLC vs. PLC structures is important when establishing a business. LLC stands for "limited liability company," while PLC refers to a "public limited company."3 min read
Understanding the differences between LLC vs. PLC structures is important when establishing a business. LLC stands for "limited liability company," while PLC refers to a "public limited company."
Differences Between an LLC and a PLC
An LLC is a privately owned business while a PLC is one that is publicly traded on the stock market. Each state has its own rules and restrictions regarding LLCs and PLCs, and not every business entity is available in every state.
An LLC is a common business entity formed under state law. Certain states allow specialized LLCs, such as a professional limited liability company (PLLC). An LLC is unincorporated, so owners (who are referred to as "members") can be:
- Other LLCs.
A public limited company (PLC), by contrast, can sell shares to the public.
Similarities Between an LLC and a PLC
To become a PLC, a company must also be an LLC. Both LLCs and PLCs provide owners with liability protections against business-related debts and lawsuits.
In both cases, taxation is similar because each enjoys "pass-through" taxation. This means the company's profits and losses pass through the company to the owners, who then report the finances on their personal tax returns.
Limited Liability Companies: An Overview
An LLC is considered a hybrid business entity between a partnership and a corporation. LLCs provide members with a flexible management structure similar to a partnership. Unlike a partnership, the members are not personally responsible if:
- The LLC is sued.
- It cannot pay its debts.
- It goes bankrupt.
The only thing members are liable for is the amount they personally contributed to the business. For example, if a member invested $2,000 of his or her own money to help start the business, the member may not get this back if the LLC goes under.
There are no limitations on who can become an LLC member. In fact, it may be owned by:
- A single person.
- Multiple members.
- Other business entities.
To summarize, the main benefits of starting an LLC include:
- Pass-through taxation.
- Corporate-style limited liability protections.
Professional Limited Liability Companies: An Overview
A professional limited liability company (PLLC) — not to be confused with a public limited company (PLC) — is the type of LLC licensed professionals use. A PLLC has a similar Articles of Organization, but extra steps are required to form the PLLC. For starters, the licensed professionals forming the business must sign the filing documents and include certified copies of their professional licenses or license numbers.
You must also submit these documents to the licensing board before filing them with the Secretary of State. As such, approving a PLLC takes longer than a standard LLC. You must also include proof that every member of the PLLC is professionally licensed.
In most states, PLLC members remain liable for malpractice claims. However, you may not be liable for another member's actions.
Forming an LLC Versus Forming a PLC
You can form an LLC by filing your Articles of Organization with your Secretary of State and paying the required fees. Forming a PLC, on the other hand, requires two or more directors or shareholders agreeing to establish the public limited company.
These directors must file an Articles of Association or a Memorandum of Association regarding how the PLC will be governed. They must then register the LLC as a PLC and sell shares to the public.
An LLC is member-managed, meaning the owners manage all business operations and activities. With a PLC, a single director or a board of directors makes the management decisions.
All LLC members are accountable for the company's obligations, but each one enjoys protection against debts and wrongdoings. Similarly, PLC shareholders and directors are not liable for company debts. However, they must be accountable for any personal loans owed to the business.
The IRS doesn't formally recognize LLCs and PLLCs as taxable entities. Instead, the business must file as:
- A single-member LLC.
- A partnership.
- A corporation.
- An S corporation.
- A multi-member LLC.
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