Is a PLLC a Corporation or an LLC?

Key Takeaways

• A PLLC (Professional Limited Liability Company) is a type of LLC tailored to licensed professionals like doctors, lawyers, and accountants.
• Despite the name similarity, a PLLC is not a corporation but a hybrid entity with pass-through taxation unless it elects corporate treatment.
• A PLLC can choose to be taxed as an S Corporation or C Corporation, offering more flexibility in managing taxes and compensation.
• Compared to a Professional Corporation (PC), PLLCs offer simpler compliance requirements and greater management flexibility.
• Some states mandate or prohibit PLLCs depending on the profession and local law, making state-specific legal advice essential.

PLLC S Corp

Starting a combination PLLC S corp (Professional Limited Liability Company S corp) can provide many advantages for a business owner, particularly when it comes to taxes. Utilizing both business structures may be an ideal option for your company.

What is a PLLC?

A PLLC is a professional limited liability company. This is a form of business structure that is ideal for professionals in the medical field, attorneys, accountants and others that provide similar services. A PLLC protects the personal assets belonging to the owners of the business from any legal issues brought against the business, though not from any liability for personal, yet professional actions.

Forming a PLLC is simple and may have as many members as the owners would like. It provides the owners with a variety of options when it comes to taxes.

All PLLCs are regulated by the state, and all states have different regulations. It is a structure that is specially designed for licensed professionals. Currently, 30 states have the legislation that recognizes and allows these professionals to form a PLLC as a business entity. Only three of these states require it.

California does not allow licensed professionals to form any sort of LLC. However, you must have some form of professional corporation if you want to be personally protected from the liability of your business. For licensed professionals that are in states that do require a PLLC, you will need to speak to a business attorney in your area or your licensing board to see if your services are included in the PLLC umbrella.

Key Differences Between a PLLC and a Corporation

Although a PLLC may seem similar to a corporation due to its formal structure and liability protections, it is not classified as a corporation. The primary distinctions lie in ownership, management, and tax treatment:

• Ownership: PLLCs are owned by members (licensed professionals), while corporations are owned by shareholders.
• Management Structure: PLLCs typically have flexible management structures that can be member-managed or manager-managed. Corporations follow a rigid structure with directors and officers.
• Taxation: PLLCs enjoy pass-through taxation by default, meaning profits are reported on members' individual tax returns. Corporations, particularly C corporations, are subject to double taxation unless they elect S corp status.
• Compliance: Corporations often face more complex reporting and operational formalities, such as holding annual meetings and recording corporate minutes. PLLCs face fewer ongoing requirements.
• State Limitations: Some states restrict the types of professionals that can form PLLCs and may require a PC instead.

This distinction is crucial when clients ask, "Is a PLLC a corporation?" The answer is no — it’s a limited liability company specifically designed for licensed professionals, offering a unique blend of protection and simplicity.

Considered Partnership

PLLCs with more than one member are considered a partnership when it comes to the IRS. The profit from the business is not taxed at the LLC level. Instead, it is passed through to the individual members. They will then report them on their own personal income tax returns. However, the PLLC is required to pay employment taxes.

Individual Reports

Partnership PLLCs have to file Form 1065, a Return of Partnership Income, that displays the business’s income, any deductions, profits made, as well as losses. This form is simply an informational form and does not assess taxes. The Schedule K-1 will show the share of each partner that is reported on personal tax returns. All PLLC members have to file a Schedule SE to pay self-employment taxes on their profit shares.

S Corporation Election

A PLLC can opt to be treated like an S corp in the eyes of the IRS. It is important to note the following:

·      You will have to file a Form 2553 to make changes to your tax status.

·      Any S class PLLC will file a Form 1120S tax return for corporations to report earned income, costs, and other important business information.

·      The earnings of all members are reported as dividends or wages. This is based on the work done and the owner’s ownership percentage. It is then taxed like personal income.

·      You can pay yourself a salary with an S corporation. This will help protect you from a portion of self-employment taxes. This can lead to thousands of dollars in savings. The rest of your income will be received as dividends.

C Corporation Election

You can also opt to elect to be treated as a C corporation. This functions the same for a PLLC as it would for any incorporated company. The PLLC will file a Form 1120, Corporate Income Tax Return. It will pay all taxes at the standard corporate tax rate.

It will retain the earnings as a corporation. A C corporation will not distribute them to shareholders for the purposes of personal tax reporting. Members are instead taxed on the amount they receive as a corporate employee or on the dividends received as shareholders.

PLLC Benefits

Setting up your services as a PLLC will provide protection from any creditors that seek unpaid debts owed by the PLLC. It also provides you with legal liability protection from legal problems faced by the business. In addition, it will also provide you with asset protection. Keep in mind, however, that it will not provide you with malpractice protection.

When to Choose a PLLC vs a Professional Corporation (PC)

Deciding between a PLLC and a Professional Corporation depends on your profession, your state’s regulations, and your business goals. Here’s a breakdown to help:

If reducing administrative burdens is a priority and your state allows it, a PLLC may be more advantageous. However, if your profession mandates a PC, that’s the route you’ll need to take.

State-Specific Considerations for PLLCs

PLLC regulations vary significantly from state to state. Professionals should be aware of the following considerations:

• State Authorization: Not all states permit the formation of PLLCs. Some, like California, prohibit them entirely and require professionals to form a Professional Corporation (PC) instead.
• Licensing Board Requirements: In many jurisdictions, each member of a PLLC must hold a valid license in the profession for which the PLLC is formed.
• Naming Requirements: Most states require the inclusion of "PLLC" or "Professional Limited Liability Company" in the business name to distinguish it from other entity types.
• Formation Approval: Before filing formation documents, you may need approval from your professional licensing board.

Because of these differences, it’s important to consult with your state’s Secretary of State or a legal professional to ensure compliance.

Frequently Asked Questions

1. Is a PLLC a corporation?
   No, a PLLC is not a corporation. It is a type of limited liability company designed for licensed professionals, offering personal asset protection and tax flexibility.
2. What professions qualify for a PLLC?
   Common eligible professions include doctors, dentists, attorneys, accountants, architects, and engineers — depending on state law.
3. Can a PLLC be taxed as an S Corp?
   Yes. A PLLC can elect to be taxed as an S Corporation by filing IRS Form 2553, potentially reducing self-employment taxes.
4. What’s the difference between a PLLC and a Professional Corporation?
   The main differences are in management structure, taxation, and regulatory requirements. PCs follow a stricter corporate model, while PLLCs are more flexible.
5. Do all states recognize PLLCs?
   No. Not all states authorize PLLCs. In some, professionals must form a PC instead. Always check state-specific requirements before forming your entity.

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