Key Takeaways

  • A PLLC is designed for licensed professionals and offers liability protection for business debts but not malpractice.
  • Professionals forming a PLLC must meet specific state licensing and approval requirements.
  • Steps to form a PLLC include verifying eligibility, choosing a name, getting licensing board approval, filing formation documents, and securing an EIN.
  • Some states have unique requirements, like publishing formation notices or limiting ownership to licensed individuals.
  • You may need additional local permits and ongoing compliance with your profession’s regulations.

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.

Who Can Form a PLLC?

A PLLC is only available to licensed professionals who are required by law to hold state certifications or licenses in order to provide services. These include—but are not limited to—fields such as:

  • Law
  • Medicine
  • Dentistry
  • Accounting
  • Architecture
  • Engineering
  • Psychology
  • Chiropractic care
  • Veterinary services

Each state maintains its own list of qualifying professions. It's crucial to check with your state’s licensing board or Secretary of State to ensure your profession qualifies.

In most cases, all members (owners) of a PLLC must be licensed in the profession the PLLC will operate in. Some states also prohibit non-licensed individuals from having any ownership interest in a PLLC, including silent partners or investors.

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:

  1. 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.
  2. Provide proof of professional licensing from the state board where the PLLC will be formed.
  3. Name your company something distinct and related to your business.
  4. Confirm the name is available and isn't registered to another entity. You can check this on the Secretary of State's website.
  5. Gather and provide proof of licensing for all owners, or members, of the PLLC.
  6. If required, obtain approval from the professional licensing board of the related industry.
  7. Submit all paperwork to the state, and retain copies for your own records.
  8. Select a registered agent who will represent you in case of legal action.
  9. If possible, file online through your Secretary of State's website or submit the paperwork in person.
  10. 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.

State-Specific Requirements for Forming a PLLC

While the general process of forming a PLLC is similar to forming a regular LLC, many states impose additional conditions:

  • Professional Approval: Before filing with the Secretary of State, you may need to submit your formation documents to your profession’s regulatory board for approval.
  • Name Restrictions: The name of the PLLC usually must include “PLLC” or “Professional Limited Liability Company” and may also need to reflect the professional service offered.
  • Ownership Restrictions: Some states allow only licensed professionals to be members. In others, at least 50% of the ownership must be held by licensed individuals.
  • Registered Agent Requirement: Every PLLC must designate a registered agent with a physical address in the state of formation.

You should also verify whether your state allows PLLCs at all. For example, California does not allow the formation of PLLCs. Instead, professionals there must form a Professional Corporation (PC).

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.

How to Get a PLLC: Step-by-Step Overview

If you're wondering how to get a PLLC, here are the typical steps involved:

  1. Confirm Eligibility: Ensure your profession qualifies and that you and any co-owners are properly licensed.
  2. Choose a Compliant Name: Include the required designation (like “PLLC”) and confirm availability with your state.
  3. Get Board Approval (if required): Submit your Articles of Organization to the applicable licensing board for pre-approval.
  4. File Formation Documents: Submit Articles of Organization (or Incorporation) to the Secretary of State, including proof of licensing.
  5. Designate a Registered Agent: Choose a responsible party to accept legal documents on behalf of the business.
  6. Create an Operating Agreement: Outline the business’s structure, profit distribution, management responsibilities, and transfer of ownership terms.
  7. Obtain an EIN: This federal tax number is required for hiring employees or opening a business bank account.
  8. Fulfill Additional Licensing: Apply for any local or state permits required to legally operate.
  9. Maintain Compliance: Keep licenses current and comply with ongoing reporting and renewal requirements.

Additional Considerations and Ongoing Obligations

After forming your PLLC, consider the following responsibilities to ensure legal and operational compliance:

  • Annual Reports: Many states require PLLCs to file annual or biennial reports to maintain good standing.
  • Professional Malpractice Insurance: While a PLLC protects you from the actions of other members, it does not shield you from personal malpractice claims. Insurance is often required by law or industry standard.
  • Separate Finances: Keep business and personal finances strictly separate. Open dedicated bank accounts and credit cards for the PLLC.
  • Tax Classification: A PLLC can be taxed as a sole proprietorship, partnership, or S or C corporation. Consult with a tax professional to determine the best structure for your situation.
  • Changes in Membership or Licensing: If a member loses their license, they may need to withdraw from the PLLC depending on state law. Likewise, adding new members often requires state approval and updated documentation.

If you need legal assistance to ensure proper formation and compliance, you can find a qualified attorney on UpCounsel’s platform.

Frequently Asked Questions

  1. What is a PLLC, and how does it differ from an LLC?
    A PLLC is a type of LLC designed for licensed professionals. Unlike a standard LLC, it often requires professional licensing board approval and limits ownership to licensed individuals.
  2. How do I know if I need a PLLC instead of a regular LLC?
    If your profession requires a state license (e.g., law, medicine, accounting), your state may require you to form a PLLC rather than a standard LLC.
  3. Can a PLLC have non-licensed members?
    In many states, no. Ownership is often restricted to licensed professionals, though some states allow partial ownership by non-licensed individuals under strict conditions.
  4. Is malpractice covered under a PLLC?
    No. A PLLC protects against liability for business debts and the actions of other members, but it does not protect individuals from their own malpractice. Malpractice insurance is typically required.
  5. Can I form a PLLC in any state?
    Not all states permit PLLCs. Some, like California, require professionals to form a Professional Corporation instead. Always check with your state’s regulations.

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