Key Takeaways

  • A PLLC is a type of LLC designed for licensed professionals, while an LLP is a partnership structure offering liability protection for partners.
  • Not all states recognize PLLCs, and they often require additional licensing documentation before formation.
  • In Texas, PLLCs are taxed as corporations, while LLPs maintain pass-through taxation benefits.
  • PLLCs restrict ownership to licensed professionals in specific fields, whereas LLPs can be owned by any partners, though often used in professional practices.
  • LLPs generally have fewer formation requirements and can be recognized in all 50 states.
  • Both PLLCs and LLPs protect owners from being personally liable for most business debts, but malpractice protection may differ.

PLLC vs LLP

PLLC vs LLP are options for business owners who want to form their business in the state of Texas. Such options are important to consider when establishing your business. The state of Texas allows business owners to form a variety of different business structures, including an LLP (limited liability partnership) and PLLC (professional limited liability company). Both the Texas PLLC and LLP offer unique advantages to business owners, which should be considered before choosing the type of business structure to form.

Keep in mind that not every state in the U.S. recognizes a PLLC. Notably, a Texas PLLC might be prevented from doing business in another state that doesn’t allow the PLLC business structure. Most states that do recognize LLP and PLLC structures treat them as pass-through tax entities, meaning all profits pass through the owners who report it on their personal tax returns. However, the state of Texas treats PLLCs as corporations, meaning the PLLC loses the pass-through taxation benefit awarded to other business structures. Texas LLPs, however, still benefit from pass-through taxation.

When to Choose a PLLC vs LLP

Choosing between a PLLC and LLP depends largely on the nature of your business, the state in which you operate, and your professional licensing requirements.

You might choose a PLLC if:

  • You are a licensed professional (e.g., doctor, lawyer, accountant) in a state that allows PLLCs.
  • You need a structure that meets your state licensing board’s requirements.
  • You want to combine limited liability with the formal protections of a professional entity.

You might choose an LLP if:

  • You operate in a profession that allows partnerships but want liability protection for each partner.
  • You are in a state that does not recognize PLLCs.
  • You prefer a flexible management structure without corporate formalities.
  • You want to avoid double taxation by keeping pass-through tax treatment.

LLP: An Overview

An LLP is a general partnership. The biggest advantage of an LLP is that individuals owning it cannot be held personally liable for the debts and obligations of the business. This is similar to LLCs and corporations. Traditionally, Texas law prohibited businesses from operating as limited liability companies (LLCs). For this reason, most businesses operated as LLPs instead. Unlike the PLLC, all 50 states in the United States recognize the LLP structure. Furthermore, unlike the PLLC, an LLP might not have to pay state taxes on its business income.

With regard to the forming and ownership structure of an LLP, there must be at least two people involved in the business, as is the case with any partnership. An LLP doesn’t have a maximum cap on how many partners can operate in the LLP.

Since the LLP operates as a pass-through tax entity, the business doesn’t pay corporate income taxes. All profits are passed through to the members (owners) who will report a portion of the business profits on their personal income tax return.

Another benefit of the LLP is the minimal paperwork required when forming. Similar to an LLC, the LLP doesn’t have to fill out much paperwork when registering.

LLP Liability Protections and Limitations

An LLP shields partners from personal liability for most business debts and the actions of other partners. However, partners remain personally liable for their own professional negligence or malpractice.

Some states impose annual reporting and insurance requirements on LLPs, especially for professional services firms. Additionally:

  • In certain jurisdictions, LLPs must maintain a minimum amount of liability insurance.
  • The extent of liability protection may vary depending on whether the claim arises from a partner’s direct actions or general business obligations.

PLLC: An Overview

A PLLC is a special type of LLC that provides similar benefits as ordinary LLCs. The key difference between the LLC and PLLC is the fact that only professionals (those with a profession that requires a license) can own and operate a PLLC. Such persons must form some type of professional service that only those with that license can provide. Some examples of such professionals include the following:

  • Lawyers
  • Doctors
  • Architects
  • Psychologists or Psychiatrists
  • Plumbers

The Articles of Organization for a PLLC is similar to that of an LLC with some additional steps. In addition to filling out the articles, the professional(s) creating the PLLC must include their license number or provide an actual certified copy of the license along with this document.

In addition to submitting the Articles of Organization, those creating a PLLC must submit documents to the state licensing board prior to filing it with the Secretary of State’s Office. Because of this, it might take a bit longer to form a PLLC as opposed to a typical LLC.

Licensing and Ownership Rules for PLLCs

PLLCs require proof that all owners hold the necessary professional licenses. Most states also mandate that a PLLC’s purpose be limited to the profession for which it was formed.

Other considerations:

  • Some states require that all members be licensed in the same profession, while others allow a mix of licensed and unlicensed members.
  • PLLCs must usually obtain approval from the relevant licensing board before registration with the Secretary of State.
  • Many states impose stricter naming rules for PLLCs, requiring inclusion of the full professional title or “PLLC” designation.

PLLC and LLP Taxes

The Internal Revenue Service (IRS) doesn’t recognize the PLLC or LLP for tax purposes. Instead, your business will need to elect how to be taxed. If you operate a multi-member LLC, you can choose to be taxed as a C Corporation, S Corporation, or partnership. If you operate a single-member LLC, then you can choose to be taxed as a corporation or sole proprietorship. You must submit the form to the IRS when choosing tax status election. If you fail to make this election, then the IRS might put your business in a category that might not be best suited for you and your business. For example, if you operate a multi-member PLLC and fail to elect tax status as a corporation (which is how you want to be taxed), the IRS might automatically tax your business as a partnership.

State-by-State Tax and Compliance Differences

Tax treatment for PLLCs and LLPs varies significantly by state:

  • In Texas, PLLCs are taxed as corporations, potentially subjecting them to state franchise taxes.
  • LLPs in Texas typically retain pass-through taxation, avoiding entity-level state income tax.
  • In states recognizing PLLCs as pass-through entities, owners may avoid double taxation.
  • Some states impose annual report fees or professional privilege taxes on PLLCs and LLPs.

Owners should evaluate both federal tax elections and state-specific rules before choosing a structure, as these can impact overall profitability and compliance costs.

Frequently Asked Questions

  1. Can an LLP be converted into a PLLC?
    Yes, in states that allow PLLCs, an LLP can often be converted, but you must meet licensing requirements and file conversion documents.
  2. Do PLLCs provide malpractice protection?
    A PLLC shields owners from liability for other members’ malpractice, but each member remains personally liable for their own professional negligence.
  3. Which is better for taxes, PLLC or LLP?
    It depends on your state. In Texas, LLPs typically benefit from pass-through taxation, while PLLCs are taxed as corporations.
  4. Are PLLCs recognized in all states?
    No. Only certain states allow PLLCs, and requirements vary. Some states may only offer a Professional Corporation (PC) alternative.
  5. Do both PLLCs and LLPs require professional licenses?
    PLLCs require that owners be licensed professionals in a regulated field. LLPs do not always require licenses, though they are often used by professionals.

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