Key Takeaways

  • A Professional Limited Liability Partnership (PLLP) blends the liability protections of an LLP with the licensing requirements of a PLLC.
  • In many states, licensed professionals (lawyers, doctors, accountants, architects) may be required to form a PLLP or PLLC to practice collectively.
  • PLLPs shield partners from debts or malpractice of other partners but not from their own professional negligence.
  • Taxation of PLLPs is usually pass-through, avoiding corporate-level taxes, but states may impose additional franchise or margin taxes.
  • Formation and regulation of PLLPs vary by state, with some requiring specific naming rules, professional licensure proof, and annual reports.
  • PLLPs are particularly attractive for professional groups that want flexibility in management and clear liability boundaries without corporate formalities.

A professional limited liability partnership functions like a regular limited liability company. The latter is, however, being used more often for tax purposes, as it is being taxed as a single entity. A limited liability company is a type of business owned by one or more people.

Reasons for Starting a Professional Limited Liability Company

In some states, certain professionals are not allowed to form a limited liability company. Instead, they form a professional limited liability company, where all members are required to have a specific set of skills that are recognized by a license. Examples of that are law offices, doctor offices, or architect offices. When a PLLC is formed, its founders file the Articles of Organization with the local secretary of state, and the owners' licenses are verified before the approval is given. Some states even require that the business name contains “PLLC,” so it is more easily identified by the public.

The main reason for starting a professional limited liability company is the owners' desire to separate their individual responsibility and the responsibility of the company as a whole. In other words, if one individual member of the partnership is sued, the other partners will not need to share liability. The opposite situation also applies, with partners not being personally responsible for debt or liability created by the business.

While the main difference between an LLC and a PLLC is the license requirements for the PLLC members, when it comes to paying taxes, the two entities operate identically. The net income or loss is calculated for each individual member, and they each pay their share. While a PLLC is similar in structure to a Professional Corporation (PC), it differs in the way of being taxed. The PC is taxed as a corporation, and its owners pay taxes according to received dividends.

What Is a Professional Limited Liability Partnership (PLLP)?

A Professional Limited Liability Partnership (PLLP) is a type of limited liability partnership formed by licensed professionals such as attorneys, physicians, and accountants. Like a PLLC, it requires all members to hold valid licenses in their field. Unlike general partnerships, a PLLP limits each partner’s liability for debts, obligations, and malpractice committed by other partners. Each professional remains personally liable for their own negligence or misconduct, but they are not responsible for the mistakes of others in the firm.

In most states, creating a PLLP involves registering with the secretary of state, submitting proof of each member’s license, and including “PLLP” or “Professional LLP” in the business name. Some jurisdictions treat PLLPs as a variation of an LLP, while others regulate them under separate professional entity laws.

How an LLP is a Better Option Than a PLLC

A limited liability partnership is a general form of partnership registered with the state. Its main advantage over a public limited liability company is that — in most situations — partners will not be held collectively responsible for the mistakes of other partners. Another significant advantage is that the LLP, unlike the PLLC, is officially recognized in all 50 U.S. states.

There are also advantages when it comes to paying taxes. The LLP is not taxed on its business income, unlike the PLLCs, which are taxed similarly to corporations. LLPs are not required to pay the Texas Margin Tax.

Key Differences Between PLLP, PLLC, and LLP

While all three entities—PLLP, PLLC, and LLP—offer limited liability, their use cases differ:

  • PLLP vs. PLLC: Both are limited liability structures for licensed professionals. A PLLC is treated like an LLC but for regulated professions, while a PLLP is a partnership model with similar liability protections but often more management flexibility.
  • PLLP vs. LLP: An LLP can be formed by any business partners, while a PLLP requires professional licensure. In states that don’t recognize PLLCs, professionals may be required to use a PLLP instead.
  • Taxation: PLLPs and LLPs are generally taxed as pass-through entities, while PLLCs can sometimes elect S corporation or C corporation tax status depending on state law.

This distinction allows professionals to choose the structure that best fits their practice size, management style, and state regulations.

Malpractice Liability Protection for PLLC, PC, and LLP

The Business Organizations Code stipulates that a professional within an LLP is not responsible for the malpractice of one of his or her colleagues, unless they have been directly involved in the activity or have known of the bad practices and did not take any action. It's similar to other forms of professional partnerships, such as PCs and PLLCs, and provides protection against the wrongdoings of someone else within the business.

While any kind of encouragement or allowance of unethical behavior makes other parties within the company share the liability, there is no specific regulation for the prevention of such activities.

State-Specific Rules for PLLPs

The rules governing PLLPs vary by state. For example:

  • New York: Requires members to file certificates of authority from their licensing boards and mandates that PLLPs carry malpractice insurance.
  • Delaware: Treats PLLPs under its general partnership statute, meaning professionals must elect LLP status but comply with professional licensing board rules separately.
  • Texas: PLLPs may avoid certain franchise or margin taxes that apply to other entities, making them financially attractive.

Because requirements differ significantly, professionals should confirm compliance with both state partnership laws and their profession’s regulatory board before forming a PLLP.

Different Types of Business Organizations

  • A sole proprietorship is a form of organization where a single individual operates a business and pays taxes under his or her own name. Liability is entirely that individual's responsibility, and the owner's personal assets may be seized if taxes and credits are not paid in due time.
  • A partnership is the association of two or more people that form a business with the purpose of making a profit. The partnership functions on its own, and any property acquired is owned by the entire partnership, not by individual members. It is crucial for a partnership to clearly specify how the profits and losses are shared by the partners.
  • A limited liability partnership is usually created to clearly separate the obligations and liabilities of an individual partner from the other partners.
  • A professional corporation is a corporation whose owners share a specific skill, such as medicine or law.
  • Finally, the limited liability company is the most popular form of organization for small businesses.

Advantages and Disadvantages of a PLLP

Like other business structures, a PLLP comes with benefits and drawbacks:

Advantages

  • Shields partners from liability for other partners’ malpractice.
  • Maintains pass-through taxation (profits and losses flow to individual partners).
  • Provides management flexibility compared to corporations.
  • May be recognized in states that restrict PLLC formation.

Disadvantages

  • Does not protect a partner from their own malpractice or misconduct.
  • Requires professional licensure verification and, in some states, malpractice insurance.
  • Availability varies, as not all states permit PLLPs.
  • May involve annual fees, state filings, and compliance with both partnership and professional board regulations.

Frequently Asked Questions

  1. What professions can form a PLLP?
    Typically, licensed professions such as lawyers, doctors, accountants, engineers, and architects may form a PLLP, subject to state regulations.
  2. How is a PLLP taxed?
    PLLPs are generally taxed as pass-through entities, meaning profits and losses flow directly to the partners, avoiding double taxation.
  3. Does a PLLP protect against malpractice claims?
    Partners are protected from malpractice committed by other partners but remain personally liable for their own professional negligence.
  4. Is a PLLP recognized in all states?
    No. Some states only allow PLLCs for professionals, while others recognize both PLLPs and PLLCs. State law determines availability.
  5. How does a PLLP differ from an LLP?
    An LLP can be formed by any group of business partners, but a PLLP specifically requires members to hold valid professional licenses.

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