Professional Limited Liability Company (PLLC): Everything You Need to Know
A PLLC or Professional Limited Liability Company offers protection for licensed professionals such as doctors, lawyers, engineers, accountants, and the like.4 min read
2. Why Are PLLCs Important?
3. Reasons to Consider Not Using a PLLC
4. Reasons to Consider Using a PLLC
7. Common Mistakes
8. Frequently Asked Questions
9. Steps to File
10. Talk to a Lawyer
PLLC: What Is It?
A PLLC is a Professional Limited Liability Company that exists in some state -- it is a limited liability company specifically designed for licensed professionals, such as doctors, lawyers, engineers, accountants and members of other professions. Only licensed professionals generally can form PLLC’s, and the services that constitute professional services vary from state to state. Call your state licensing board to confirm. PLLC’s must be organized to only provide the services of the licensed professionals.
Why Are PLLCs Important?
Some states explicitly forbid licensed professionals from forming an LLC. Instead, they must form a PLLC.
Reasons to Consider Not Using a PLLC
Your state may not have laws in place for the approval of PLLCs. In this case, you likely should file normal LLC paperwork.
Reasons to Consider Using a PLLC
PLLCs, like LLCs, form a legal separation between individuals and companies. If your company is sued, the individuals involved will often be free of legal liability.
Like LLCs, PLLCs often receive a "pass-through" on federal taxation, which means they are not subject to double taxation. In those cases, PLLCs are usually taxed like sole proprietorships or partnerships, so all income and earnings pass through the company, and members claim the income on their personal taxes. PLLCs can also choose to be treated as S corporations by the IRS, allowing members to pay themselves a salary while protecting a portion of the income from self-employment taxes.
Unlike a partnership which can legally dissolve if a partner dies or leaves a business, a PLLC, like other LLCs, has perpetual existence that continues even after members leave the company.
You are expected to have your PLLC paperwork approved before you conduct business.
If you form a PLLC, then, like an LLC, the members will be free from personal liability in many circumstances. If a customer attempts to sue, they would typically sue the LLC and not its members.
However, forming a PLLC usually does not protect individual members from liabilities such as malpractice suits, complaints or investigations brought against an individual's license.
The legal protections for individuals involved in PLLCs does not extend to certain cases, such as professional malpractice suits. Additionally, any supervisors at a company may be held responsible for their negligence. Finally, an individual will typically need to back up any loans issued to a PLLC.
Some states, such as California, do not permit professionals to form LLCs at all. Professionals must form other classifications of businesses.
Frequently Asked Questions
- Must all the PLLC's members practice the same profession?
Usually yes, but this can vary from state to state.
- Does the IRS acknowledge PLLCs?
No, and it does not acknowledge LLCs, either. When you file with the IRS, you will need to classify your business as one of the following:
- A corporation
- A partnership (if your business has multiple members)
- A sole proprietorship (if you are the only proprietor)
- An S corporation
- What if a business accidentally forms as a LLC when they should be a PLLC?
It depends, but generally the business is not afforded the usual protections they would be under an LLC.
Steps to File
You will usually need to file PLLC paperwork with the state's licensing board. You will typically need to prove that every member of the PLLC is professionally licensed, and in some states, you may need to obtain permission from the licensing body before you incorporate. Some states may also require copies of licenses and license numbers which will be verified before formation of the PLLC is approved. You may also be subject to certain professional limitations surrounding your company's name.
This is in addition to the paperwork you need to file with the state's business regulation agency, which is usually the same as normal LLC paperwork and includes articles of incorporation. The signature on the incorporation documents must be that of a licensed professional as the incorporator. You will also need to file Form 8832 - Entity Classification Election with the IRS.
You will need to prepare Articles of Organization, similar to those required for an LLC, and these will need to include the PLLC’s name, the purpose of the PLLC (be specific about the type of profession the PLLC will focus on), the names of the professionals who will practice under the PLLC, authorization for the Secretary of State as the agent for service of process (in case someone sues your company, they can contact the Secretary of State who will forward the lawsuit documentation to your address), and any other information state law may require. The document should be signed and filed along with the appropriate filing fee.
Just like with an LLC, you will need to publish notice of your organization in an approved newspaper (each county will provide this list). The publisher will issue you a certificate/affidavit of publication, which you must send to your state.
As you will not be protected from malpractice suits brought against you, if your profession is one where malpractice insurance is obtainable, you should obtain it.
Talk to a Lawyer
When you're ready to form your PLLC, choose an attorney through UpCounsel. UpCounsel's attorneys help with every step of your company's formation. Only 5 percent of lawyers who apply through UpCounsel meet the platform's stringent approval requirements. They come from top law schools around the country. With their experience working with companies like Google and Menlo Ventures, they're ready to help your company through its filing process.