PLLC: Everything You Need to Know
Forming a PLLC can be an option for certain business owners who work in very specific industries. 3 min read
Forming a PLLC can be an option for certain business owners who work in very specific industries. Licensed professionals are often required to form a PLLC instead of a regular LLC, if they intend to open their own practice.
What is a PLLC?
A professional LLC, also known as a PLLC, is only available to certain licensed individuals that offer services that are specific to their own profession. Some states will not allow these business owners to form an LLC. Rather, they are required to form a PLLC. Every state has their own requirements for PLLCs, along with a list of those professions that are eligible. This can include attorneys, medical professionals or accountants.
PLLCs are formed and work much in the same way as a general LLC. Members of the LLC have to also work in the specified profession and be properly licensed.
State laws regulate PLLCs and will designate which professionals are eligible. PLLCs are restricted to only the professions designated by the individual states. In California, the law does not allow certain professionals to operate under a general LLC. They can form registered limited liability partnerships or professional corporations instead.
An LLC is considered a hybrid business structure that is a combination of a corporation’s liability protections with the taxation of a partnership. PLLCs are the same in structure as an LLC. They also have perpetual existence.
A PLLC Compared to an LLC
When it comes to actual function, there are few differences between LLCs and PLLCs. The main difference between the two is that although PLLCs provide the liability protection like LLCs, it will not protect the members from any malpractice claims. This is why malpractice insurance is imperative.
With PLLCs, all members are going to be liable for his or her malpractice, but not that of the other members. This is different than a partnership, wherein all partners are liable for everyone’s malpractice.
PLLCs are formed at the state level just like LLCs. The owners are called members and the operating agreement regulates how the members share the work and how profits and losses are handled. The primary difference is that PLLCs are only available to specific licensed professions.
How to Form a PLLC
In order to form a PLLC, you will need to follow the requirements outlined by your state. It will involve filing certain forms and your articles of organization just like an LLC. Additionally, you have to show proof that all members are licensed in the profession you practice. One member has to sign the articles of organization in some states.
The following also has to occur to form a PLLC:
· The state licensing board has to approve your PLLC.
· Most states require you all to be licensed, but some will have exceptions. Some will only need half the members to be licensed professionals. Heirs of deceased members may also be members in some states.
· You will need to add “PLLC” after your company name.
· The licensing board will have to approve your articles of organization. This results in a potentially longer approval time.
· Once approved by your licensing board, all the required paperwork has to be filed with your Secretary of State’s office.
· Some states require that a licensed professional be the organizer of the PLLC and must sign all documents.
· Your state licensing board will have to also verify the licenses of the owners.
· Your state may require that you also create an operating agreement, which spells out how all finances are managed and how the interest of the business is allocated.
No matter if you form an LLC or a PLLC, you need to choose a different entity to deal with your taxes. The IRS will not recognize an LLC or PLLC.
To deal with taxes, you will have to be taxed individually, as a partnership, or as an S corporation. You will need to make this election. It will be chosen for you by the IRS if you do not take this step.
PLLCs have to pay income tax just like an LLC, which is dependent on the number of members. One-member PLLCs pay like a sole proprietorship. Those with more than one member are taxed like a partnership.
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