What Does PLLC Stand For: Everything You Need to Know
PLLC is an acronym of a legal term that stands for professional limited liability company. 3 min read
2. How a PLLC Works
3. Forming a PLLC
4. Advantages of a PLLC
5. PLLC Ownership
6. Malpractice in PLLCs
7. PLLC Taxation
What Does PLLC Mean in Legal Terms?
PLLC is an acronym of a legal term that stands for professional limited liability company. Professional members who provide professional services own and operate this type of limited liability company (LLC). A PLLC is specifically for services that require professional licensure, including dental, medical, real estate, engineering, nursing, accounting, or law. For example, a law firm owned by lawyers could be structured as a PLLC to offer legal services. Some states require independently practicing lawyers to form a PLLC.
How a PLLC Works
Like an LLC, a PLLC combines the taxation perks of a partnership structure with the limited liability of a corporate structure. In some states, the professionals delineated above are required to form a PLLC instead of an LLC. In other states, professionals can form an LLC if they are not required by the associated licensing board to form a PLLC. The licensing board for the profession in question must approve the formation of a PLLC and verify the licensure of its members.
LLCs and PLLCs share a legal structure. Both protect its members from personal liability for business debts or legal judgments. Owners of a sole proprietorship or general partnership are responsible for these costs and can have their personal assets seized to pay them.
Corporations provided limited liability. This means shareholders can lose no more than the amount they invested. The limited liability of a PLLC does not extend to malpractice claims.
Forming a PLLC
To form a PLLC, you must file Articles of Organization with the secretary of the state where you are located. This document includes the name and address of the business along with a list of its owners. These are submitted to the correct agency with the filing fee, which varies by state. The Articles of Organization must be signed by a person licensed by the profession in question. This person is considered the organizer of the PLLC. Include his or her state license number.
In some states, the PLLC must file an operating agreement delineating:
- The company's financial management
- Allocation of interests
- Member rights and responsibilities.
Some states require submission of a certified copy of the organizer's professional license. Contact the Secretary of State or your licensing agency to confirm state and professional requirements.
Advantages of a PLLC
There are several advantages in forming a PLLC:
- Professionals' personal assets are protected from business liability.
- A PLLC can opt for pass-through taxation status. This means the owners will report profits and losses on their individual tax returns.
- A PLLC can provide their employees with retirement plans that have higher contribution limits than those for partnerships or sole proprietorships.
- PLLCs are subject to few corporate requirements, such as annual meetings and reporting.
- A partnership structure becomes void if one partner leaves the business or dies. In contrast, a PLLC remains a valid legal entity even in those instances, a benefit known as perpetual existence.
The majority ownership of a PLLC must consist of individuals who are licensed in that profession. The required percentage varies by state, but is usually about half. In most states, this counts retired members of the profession who were once licensed.
In some states, unlicensed individuals can be transferred ownership for a period of two years, usually in the case of a member's death. This allows for the sale or transfer of the ownership stake to a person who is licensed while the estate is being settled.
Malpractice in PLLCs
The limited liability afforded to a PLLC member does not extend to personal malpractice. Other PLLC members are also not held responsible for that member's malpractice.
PLLCs can opt to be taxed as a disregarded entity (sole proprietorship) or an S corporation. Both are subject to pass-through taxation. However, you may still need to submit an informational tax return for the PLLC.
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