Key Takeaways

  • A PLLC is a business structure available to licensed professionals in certain states.
  • Unlike an LLC, a PLLC requires members to hold active professional licenses.
  • PLLCs protect members from business debts and malpractice claims against other members, but not from their own malpractice.
  • Naming rules, ownership restrictions, and licensing approvals vary by state.
  • States may require malpractice insurance or financial guarantees as part of forming a PLLC.

What Is a PLLC?

PLLC stands for "professional limited liability company" and is like a limited liability company except run by licensed professionals like doctors and lawyers.

PLLC and LLC have different restrictions and requirements. A company organized into an LLC is a legal entity. The owners of the company contribute to its funding but do not take personal responsibility. This is because the founders of the company are not responsible to pay debts incurred by the company past the amount that they contributed. The members do not need to personally pay the company's taxes because the LLC itself is responsible for what is called partnership pass-through taxation. However, you'll need to learn what your state's laws are because some states don't allow for licensed professionals to start an LLC.

A professional LLC is only available to licensed professionals who are offering services that directly relate to their profession. For those who live in a state where professionals cannot form an LLC, a PLLC might be the only option. The first thing to find out is what your state's requirements are for PLLCs, including what professions are included.

Who Can Form a PLLC

A PLLC is specifically designed for professionals who must be licensed to provide services. This typically includes doctors, lawyers, dentists, accountants, architects, engineers, and other similar occupations. While an LLC is open to almost anyone starting a business, a PLLC restricts ownership to individuals who hold valid state licenses in a regulated profession.

The list of eligible professions varies by state, and some states also require that a majority—or even all—of the members of the PLLC be licensed in the profession. Additionally, some states may allow related professionals to form a PLLC together, while others require that all members provide the same professional service.

The Difference Between an LLC and a PLLC

The main difference between an LLC and a PLLC is in a PLLC you can be sued for malpractice, requiring PLLCs to have malpractice insurance. Each member is personally liable for malpractice, but not for the malpractice of any other member of the PLLC, unlike in a partnership. When a partner is sued in a partnership, all partners are liable. It's in the best interests of all members to have professional liability insurance.

Also, PLLC members are not personally liable for business debts unrelated to malpractice claims, like office rent. The tax benefits of an LLC draw many businesses toward that status, but some states do not allow LLCs to be owned by licensed professionals. In California, a business can't become LLCs or PLLCs. Instead, they have to form registered limited liability partnerships or professional corporations. Some other states do not allow PLLCs. If you live in a state where a PLLC is not possible, you may need to form a professional corporation. When filing as a PLLC, the professional will usually have to include a license number or a certified copy of their professional license. Due to this extra step, the approval process generally takes longer than filing for an LLC.

How to Form a PLLC

If you want to form a PLLC, you must need to find out what your state requires. Typically, you'll start with all the same forms and articles you would need if you were going to start a standard LLC. Next, you need to gather proof showing that all members are licensed professionals. Once you have everything ready to go, you'll provide it all to the state licensing board, who will approve the PLLC. Some states require all members to be licensed professionals while other states only require half of all members to be licensed. In some cases, heirs of deceased members can retain ownership without a professional license.

If approved, you may need to put PLLC at the end of your company name. State licensing board requirements may be different depending on the state and profession for approval. This is why PLLCs take longer to form than LLCs. When approved, the articles of organization and all other necessary paperwork must be filed with your secretary of state or another LLC filing office. Review your secretary of state's website to learn more about the filing process. Most states require you to have a professional license to own a share of the PLLC. In a couple of states, a licensed professional must organize the PLLC and sign organizational documents.

State-Specific Requirements and Restrictions

PLLC formation requirements differ by state. Some key variations include:

  • Naming Requirements: Most states require the PLLC's name to include “Professional Limited Liability Company” or an abbreviation such as “PLLC” or “P.L.L.C.” Some professions may also have additional naming guidelines, such as requiring the inclusion of members’ surnames (e.g., law firms).
  • Licensing Board Approval: Before submitting articles of organization, many states require approval from the appropriate professional licensing board. This ensures that all members are properly licensed.
  • Service Limitations: Certain states may restrict a PLLC to offering only one type of professional service. For example, a PLLC providing chiropractic services may not also dispense pharmaceuticals.
  • Ownership Rules: Some states allow only licensed individuals to own any share of a PLLC, while others may permit non-professional heirs to inherit ownership without being involved in management.

Always check with your state’s Secretary of State and professional licensing board for exact requirements.

What's the Advantage of PLLC?

PLLCs are much easier and cheaper to set up and maintain compared to corporations. Since members aren't liable for the business' debts, you won't need business insurance. Make sure you keep good records. Business expenses and personal expenses should be kept separate so creditors cannot assert that the PLLC is just a ploy. Ensure that the operating agreement clearly states that personal assets are not part of the PLLC.

Liability Considerations and Insurance Requirements

One of the main advantages of a PLLC is limited liability protection. However, there are important exceptions:

  • Own Malpractice: A PLLC does not shield you from malpractice claims related to your own professional actions.
  • Employee Supervision: If you supervise other employees and they commit malpractice, you may still be held liable.
  • Personal Guarantees: If you sign a personal guarantee (such as for a loan), your personal assets may still be at risk.
  • Gross Negligence or Fraud: Intentional misconduct or gross negligence is not protected under PLLC status.

Because of these exceptions, many states require PLLCs to carry professional liability insurance or to provide proof of financial responsibility (e.g., an escrow account). Coverage minimums may range from $100,000 to $1 million depending on the profession and state.

Frequently Asked Questions

1. What does PLLC stand for? PLLC stands for Professional Limited Liability Company. It is a special type of LLC formed by licensed professionals.

2. Who can form a PLLC? Only individuals who hold state-issued professional licenses, such as doctors, lawyers, and architects, can form a PLLC. Rules vary by state.

3. Can a PLLC protect me from malpractice lawsuits? A PLLC can protect you from malpractice claims against other members, but not from your own malpractice. Liability insurance is recommended.

4. What’s the difference between a PLLC and a PC? A Professional Corporation (PC) is taxed as a corporation and follows more rigid corporate formalities. A PLLC offers pass-through taxation and more flexible management.

5. Is a PLLC allowed in every state? No. Some states, like California, do not permit PLLCs. Professionals in those states must form a PC or a registered LLP instead.

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