Key Takeaways

  • A PLLC is designed specifically for licensed professionals and offers liability protection for business-related obligations.
  • A single-member PLLC is taxed as a sole proprietorship by default but can elect S corp status for tax savings.
  • Unlike sole proprietorships, PLLCs limit personal liability and must meet licensing requirements.
  • Formation requirements vary by state and typically include licensing board approval.
  • A PLLC differs from a PC in structure, ownership, and taxation.
  • California does not allow PLLCs—professionals must form PCs or RLLPs instead.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.

Is a PLLC a Sole Proprietorship?

A common question among professionals starting their own practice is, “Is a PLLC a sole proprietorship?” While a single-member PLLC is taxed as a sole proprietorship by default, it is not legally the same thing. A sole proprietorship is an unincorporated business with no formal legal separation between the owner and the business. In contrast, a PLLC—short for professional limited liability company—provides a separate legal entity that protects the owner from certain business liabilities.

Here are key distinctions:

  • Liability Protection: Sole proprietors are personally liable for business debts and lawsuits. A PLLC shields the owner from personal liability for the acts of other PLLC members or employees.
  • Formality: A sole proprietorship requires no formation paperwork with the state. A PLLC must file articles of organization and meet professional licensing requirements.
  • Ownership Restrictions: Only licensed professionals in specific fields can form PLLCs, and all members typically must hold licenses in the same profession.
  • State Regulation: State laws govern who may form a PLLC. Some states, like California, do not permit PLLCs at all.

Therefore, while a single-member PLLC may be taxed like a sole proprietorship, it carries distinct legal and structural advantages for professionals.

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.

State-Specific Rules for PLLC Formation

Each state sets its own rules for forming a PLLC, including which professions qualify. Typically, a PLLC may be formed by professionals such as doctors, dentists, lawyers, architects, accountants, and others who must be licensed by a state regulatory board.

Notable state variations include:

  • California: Does not permit PLLCs. Professionals must form a professional corporation (PC) or registered limited liability partnership (RLLP) instead.
  • Texas and New York: Allow PLLCs, but require specific professional board approvals.
  • Florida: Requires professionals to include “PLLC” in the business name and to submit proof of licensure with their application.

Consult your state’s Secretary of State office or professional licensing board to determine the exact requirements for forming a PLLC in your jurisdiction.

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.

Advantages and Limitations of a PLLC

A PLLC offers several advantages for licensed professionals, but it also has some limitations:

Advantages:

  • Personal Asset Protection: Members are generally not personally liable for business debts or malpractice committed by other members.
  • Pass-Through Taxation: Profits pass directly to the members' personal tax returns unless S corp status is elected.
  • Flexible Management: Like LLCs, PLLCs allow members to manage the business directly or appoint managers.

Limitations:

  • Restricted Ownership: Only licensed individuals in a specific profession may be members.
  • Malpractice Liability: While a PLLC protects against the malpractice of others, it does not shield an individual member from personal malpractice claims.
  • Limited Availability: Not all states allow PLLCs, and licensing board approval can slow the formation process.

These factors make the PLLC a practical choice for licensed professionals seeking liability protection and flexible management while adhering to licensing obligations.

Frequently Asked Questions

1. Is a PLLC the same as a sole proprietorship? No. Although a single-member PLLC is taxed like a sole proprietorship, it is a separate legal entity that provides liability protection not available to sole proprietors.

2. Can any professional form a PLLC? No. Only licensed professionals in specific fields (e.g., attorneys, doctors) can form a PLLC, and some states have additional restrictions.

3. What are the tax benefits of a single-member PLLC? By default, income is reported on the member’s personal return (Schedule C), but electing S corporation status can reduce self-employment taxes.

4. Does a PLLC protect against malpractice? It protects members from liability for other members’ malpractice, but not for their own professional negligence.

5. Can a PLLC have employees? Yes. A PLLC can hire employees, but owners must maintain compliance with state licensing and business operation laws.

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