What is a PLLC: Everything You Need to Know
PLLC stands for "professional limited liability company" and is like a limited liability company except run by licensed professionals like doctors and lawyers.3 min read
What Is a PLLC?
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.
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.
In addition, 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 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 states, a licensed professional must organize the PLLC and sign organizational documents.
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.
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