What Does PLLC Mean?: Everything You Need to Know
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.3 min read
2. Why Form a PLLC?
3. PLLC Versus LLC
4. How to Form a PLLC
5. Who Can Form a PLLC?
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.
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.
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.
- Prepare Articles of Organization. This is the principal document for forming a PLLC. It includes name and address of the business and its members.
- Submit your Articles of Organization for approval of the state licensing board.
- File the approved Articles of Organization with your state (usually with the secretary of state).
- 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.
- 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.
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.
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