Starting a PLLC: Everything You Need to Know
Starting a PLLC occurs when you've filed Articles of Organization or Articles of Incorporation with the Secretary of State to register your company.3 min read
Starting a PLLC occurs when you've filed Articles of Organization or Articles of Incorporation with the Secretary of State, or the equivalent agency, in the state where your company will be registered.
A professional limited liability company, or PLLC, consists of licensed professionals. It offers tax advantages and shields owners from the actions of other owners within the corporation. "Professionals," in this scenario, include those who require state licenses, registration, or certification to complete their services. These requirements are deemed necessary because the professions carry an increased risk of financial or personal harm to the public.
Advantages and Disadvantages of a PLLC
PLLCs offer advantages and disadvantages to its members. Advantages include:
- A PLLC has the same protections as a limited liability company, as well as the pass-through taxation of a partnership or sole proprietorship.
- Greater flexibility in terms of organization management.
- Several tax classifications depending on the company's number of members and state laws where it's registered.
Conversely, PLLCs also have limitations. Disadvantages include:
- Members are not protected from malpractice claims.
- Malpractice insurance is required by many licensing agencies.
- They have no protection from personal liability in relation to damages caused by members' own negligence.
- The professionals are held to a higher standard due to increased financial or safety risks.
Forming a PLLC
Approximately 30 states have provisions that allow for the formation of a PLLC, while another nine states allow licensed professionals to form regular LLCs. When starting a PLLC, create a written operating agreement to cover how the corporation will be organized and run. The agreement includes the rights of the members, how profits and losses will be distributed and allocated, and rules related to member transfers.
In addition, follow these steps to create a PLLC:
- Verify the requirements online of your specific state laws. Certain states will require you to belong to certain professions such as medicine, engineering, or architecture.
- Provide proof of professional licensing from the state board where the PLLC will be formed.
- Name your company something distinct and related to your business.
- Confirm the name is available and isn't registered to another entity. You can check this on the Secretary of State's website.
- Gather and provide proof of licensing for all owners, or members, of the PLLC.
- If required, obtain approval from the professional licensing board of the related industry.
- Submit all paperwork to the state, and retain copies for your own records.
- Select a registered agent who will represent you in case of legal action.
- If possible, file online through your Secretary of State's website or submit the paperwork in person.
- Pay any required fees at the time of filing.
After you've properly submitted the forms, you will receive a certificate of formation. Some states require this certificate to be filed with the state's professional licensing board. You can check with the board to see if this is required. When the board receives the Articles of Incorporation or Articles of Organization, it will issue a Certificate of Registration to the applicant.
Once the PLLC Is Formed
In some states, like New York, you must publish your Articles of Incorporation or Articles of Organization in a newspaper. For New York, the articles must be published in two newspapers in the county where you are registered for six consecutive weeks. This must be completed within 120 days of filing the PLLC. Other states also have this requirement, so confirm the laws of your specific state.
Next, you will need all relevant tax numbers. Acquire a tax ID to facilitate paying state and federal taxes. If you plan to hire employees or have more than one PLLC member, you will also need an Employer Identification Number (EIN) from the IRS. To open a business bank account, bring the EIN, certificate of formation, or articles of organization. If you have employees or sell goods or services to the public, you will also need a state tax ID from your state's Department of Revenue. At this time, check to confirm what unemployment and workers compensation taxes are required.
Last, check with your state and county governments to determine if you need any additional licenses or permits before you begin doing business.
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