What is a Single-Member PLLC?
A single-member PLLC is a professional limited liability company with just one member. 3 min read
2. How is a PLLC Formed?
3. How is a Single-Member PLLC Taxed?
4. Forming a PLLC versus a PC
A single-member PLLC is a professional limited liability company with just one member.
What is a PLLC?
A professional limited liability company is similar to an LLC (limited liability company) in that both entities share the same legal and ownership structure. PLLCs and LLCs are not owned by shareholders, rather they are owned by the member or members themselves. Both PLLCs and LLCs have the benefit of limited liability protection to the member of the business which allows for personal assets to be protected from any claims filed by an adverse party to the business.
When determining whether you should form a PLLC rather than an LLC, you will want to consider the type of business you have. Members of a PLLC generally must be members of certain professions that require a license, such as attorneys, chiropractors, or real estate agents.
Whether you will need to form a PLLC versus an LLC will depend on the state you are forming the business in, as state law determines the professions that require a PLLC formation. Most states allow professionals who cannot form regular LLCs to form PLLCs, however, the State of California is an exception to this rule. Under California law, an LLC cannot be formed in order to provide professional services. In California, professionals are allowed to form registered limited liability partnerships (RLLPs) or professional corporations (PCs), but professionals are unable to form LLCs or PLLCs.
How is a PLLC Formed?
A PLLC is formed by filing the articles of organization in the state in which you are forming the PLLC, just like an LLC is formed. The state generally requires that the owners of the PLLC verify their license status before the PLLC filing can be approved. Many states have a requirement that the business name of the PLLC include the term “PLLC” in the business name, which allows for the company to be clearly identified as a PLLC. In addition, the state licensing board specific to the profession has to approve the articles of organization. Additional requirements depend on the state and on the profession.
Obtaining licensing board approval is one extra step needed to form a PLLC (as opposed to an LLC), so it can take longer for a business to form as a PLLC versus an LLC. Once the licensing board approves the formation of the business, the articles of organization and other necessary paperwork will then need to be filed with the Secretary of State.
How is a Single-Member PLLC Taxed?
The IRS classifies a single-member PLLC as a sole proprietorship. A single-member PLLC must file a Schedule C on their personal income tax return. Profits made from a sole proprietorship are subject to both regular income tax and also a self-employment tax at a rate of 13.3%
It is possible, however, for a PLLC to avoid the self-employment tax if it files for Subchapter S Election by filing the IRS Form 2553. This process changes the tax status to an S Corporation from a sole proprietorship. A PLLC that is classified as an S Corporation must file a Form 1120S, which is an annual corporate income tax return. This Form 1120S is used to report profits or losses from the S Corporation, and these then pass through to the member's own income tax return, which allows them to avoid the self-employment tax.
Forming a PLLC versus a PC
A PC is a professional corporation. A PC and a PLLC are similar in that the owners of these entities must be professionals. While specific requirements vary by states, there are similar requirements for forming both PCs and LLCs.
- One of these requirements is that the licenses of the business owners must be verified
- Additionally, there are state limits on the different types of professions that have the ability to form a PLLC or a PC
PLLCs and PCs also differ in the business type and taxes. A PC is formed as a corporation rather than a limited liability company. This affects business taxation in that the PC, as a corporation, is then taxed at the corporate rate. The owners of the PC are also taxed on any dividends they received through the business.
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