Key Takeaways

  • A PLLC, or Professional Limited Liability Company, is designed specifically for licensed professionals like doctors, lawyers, and accountants.
  • PLLCs combine liability protection with simplified tax benefits, but do not shield members from personal malpractice claims.
  • The formation process for a PLLC includes licensing board approval in addition to typical LLC registration.
  • Some states require professionals to form PLLCs instead of LLCs, depending on industry regulations.
  • Compared to LLCs, PLLCs are restricted to certain licensed professions and have unique state-specific rules.
  • PLLCs can enhance a firm’s credibility and help with compliance in highly regulated industries.

What does PLLC mean? Know the features and benefits of a professional limited liability company and the formation process involved.

What Does PLLC Mean?

PLLC is a professional limited liability company, which is a type of LLC. It is formed by licensed professionals engaged in the same type of services. A PLLC can only offer services related to the profession of its members. For example, lawyers can set up a PLLC for offering legal services, or a group of doctors can establish a PLLC for conducting the business of medical services.

Why Form a PLLC?

An LLC offers the liability protection of a corporation, while retaining the tax benefits of a partnership firm. However, professionals like lawyers, doctors, and engineers, are not allowed to form an LLC for offering their services as a business. They must form a PLLC.

A PLLC is similar to an LLC. However, its formation requires approval of the state licensing board, which ensures that all the owners of a PLLC hold professional licenses.

Benefits and Limitations of a PLLC

A PLLC offers numerous advantages tailored to licensed professionals:

Benefits:

  • Liability Protection: Members aren’t personally liable for business debts or obligations.
  • Tax Flexibility: PLLCs offer pass-through taxation, meaning profits are reported on the members’ personal tax returns, avoiding double taxation.
  • Professional Credibility: Forming a PLLC signals a formal and compliant business structure, which may build client trust.
  • Ownership Structure: PLLCs can be managed by members or managers, offering flexibility in internal operations.

Limitations:

  • No Protection from Personal Malpractice: Members are still personally liable for their own professional misconduct or negligence.
  • Licensing Requirements: All members must typically be licensed in the profession the PLLC is engaged in.
  • State Restrictions: Not all states allow PLLCs, and requirements vary significantly across jurisdictions.

PLLC Versus LLC

A limited liability company (LLC) is a state-registered entity, separate from its owners. The owners, also know as members, can't be held personally responsible for debts and obligations of the company. So, the risk involved is only to the extent of their capital contribution in the LLC.

LLCs also offer the pass-through taxation benefit of partnership firms. Members include their shares of company profits and losses in their personal tax returns. There is no double taxation, unlike in the case of a corporation.

An LLC can have one or more members, including individuals and companies, except for certain restricted entities like banking and insurance companies. Some states prohibit licensed professionals from setting up an LLC to offer their services.

A PLLC or a professional LLC is a special type of limited liability company that can be formed only by certain categories of licensed professionals. It can offer only those services which its members are licensed to engage in.

The eligibility criteria for forming a PLLC can vary from state to state. Usually the list of professions permitted to form a PLLC includes lawyers, doctors, accountants, and engineers.

A PLLC functions in the same manner as an LLC. Its members also enjoy the benefit of limited liability. However, a PLLC does not protect its members against the claims of malpractice. Although PLLC members are personally responsible for their own malpractice, no member can be held liable for the malpractice of other members.

Some states do not allow the forming of PLLCs. Instead, they offer the alternative of professional corporations.

State-by-State Differences for PLLCs

Because business entity laws are governed at the state level, the requirements for forming and operating a PLLC can vary significantly:

  • Naming Requirements: Most states require the use of “PLLC” or “Professional Limited Liability Company” in the business name.
  • Professional Licensing Board Approval: States like Texas and Florida require verification from licensing boards before formation.
  • Allowed Professions: Commonly eligible professions include:
    • Physicians
    • Attorneys
    • Dentists
    • Engineers
    • Psychologists
    • Architects
    • Veterinarians
  • Alternative Structures: Some states, such as California, do not recognize PLLCs and instead require professionals to form professional corporations.

It's essential to check with the state’s Secretary of State office and relevant professional licensing board for specific guidelines.

How to Form a PLLC

The procedure for forming a PLLC is the same as that for forming an LLC, except that you need to tick the “professional” check box on your filing form.

  1. Prepare Articles of Organization. This is the principal document for forming a PLLC. It includes name and address of the business and its members.
  2. Submit your Articles of Organization for approval of the state licensing board.
  3. File the approved Articles of Organization with your state (usually with the secretary of state).
  4. In some states, you must also prepare an operating agreement for internal functioning of the organization. This document specifies rights and responsibilities of members and sets out procedures for operating the business.
  5. Obtain business permits and licenses required by your state.

Note that you must be licensed by your professional body to form a PLLC. For example, if you are a lawyer looking to form a PLLC to offer legal services along with some other lawyers, all the lawyers involved must have a valid license issued by their state bar.

Depending upon the state of formation, you may have to add PLLC at the end of your business name.

Costs and Timeframe to Form a PLLC

The formation cost and timeframe for a PLLC depend on the state of registration and the profession involved. Here’s a general breakdown:

  • Filing Fees: Typically range from $50 to $500.
  • Licensing Verification: Some states may charge an additional fee for reviewing professional licenses.
  • Processing Time: May take anywhere from 1 to 4 weeks, depending on the state and how quickly the licensing board processes approvals.
  • Annual Reports and Fees: Most states require annual filings and associated fees to keep the PLLC in good standing.

Professionals should also factor in legal and administrative costs if they hire an attorney or formation service.

Who Can Form a PLLC?

Usually, only those professionals whose profession requires state licensing are allowed to form a PLLC. This is the reason why most of the law firms operate as PLLCs. You can also find doctors, certified public accountants, architects, and engineers offering their services as a PLLC in several states.

If you are a professional and your state does not allow you to form a regular LLC, then you should qualify for forming a PLLC.

In some states, like Arizona, professionals can form regular LLCs instead of PLCCs unless their licensing board specifically prohibits them. Thus, in Arizona, lawyers and most other professionals can operate as an LLC, while real estate agents must form a PLLC because of their licensing board's requirements.

PLLC Naming Rules and Branding Tips

When choosing a name for your PLLC, follow these general rules:

  • Must Include "PLLC" or "Professional Limited Liability Company": Most states require this designation in the official name.
  • Cannot Mislead the Public: The name must not imply services beyond what the members are licensed to provide.
  • Must Be Approved by the Licensing Board: In many cases, the board must review the business name for appropriateness.
  • Domain Availability and Branding: Choose a name that is brandable and aligns with your professional image. Check for available domain names and trademarks to avoid future legal conflicts.

Professional branding helps establish trust and attract clients, so take care when naming your PLLC.

Frequently Asked Questions

1. What does PLLC stand for?PLLC stands for Professional Limited Liability Company. It is a type of business entity designed for licensed professionals like doctors or attorneys.

2. Who is eligible to form a PLLC?Typically, only licensed professionals in fields such as law, medicine, accounting, and engineering can form a PLLC, and all members must hold valid licenses.

3. How is a PLLC different from an LLC?A PLLC is reserved for licensed professionals and may require board approval, while an LLC is open to a broader range of business owners. Both offer limited liability.

4. Does a PLLC protect members from malpractice claims?No, PLLC members are personally liable for their own malpractice, though they are generally protected from the malpractice of other members.

5. Can I form a PLLC in any state?No, not all states recognize PLLCs. Some states, like California, require professionals to form a professional corporation instead.

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