Professional Limited Liability Companies (PLLC)

A Professional LLC (PLLC) is a limited liability corporation formed for the sole purpose of delivering professional services.

Single Member LLC | Professional LLC | Series LLC | Member Managed | Manager Managed | Foreign LLC

A Professional LLC (PLLC) is a limited liability corporation formed for the sole purpose of delivering professional services. A state-approved professional service can only be performed by a licensed professional. All members of a PLLC must be licensed in most states. In California, PLLCs are not permitted because of the state’s statutes.

Is a PLLC better than a corporation?

Both a PLLC and an LLC shield their owners from personal liability. PLLCs can only be formed in a limited number of states, whereas LLCs can be incorporated in a wide variety of locations. It is more expensive, has more restrictions, and is subject to greater supervision with PLLCs than with LLCs.

Developing a PPLC:

A PLLC can only be formed by meeting the following requirements.

  • Your state licensing board must adapt your organization’s bylaws or other organizational documents for you to practice your profession. The standards vary from state to state and profession to profession.
  • An additional stage in the LLC formation process is required for PLLCs, and this may take longer than for LLCs, so it may take longer to form an LLC than a PLLC.
  • After the licensing board has authorized the articles of incorporation and all other relevant documents, they must be filed to your Secretary of State or another LLC filing agency.
  • LLCs can only be formed by licensed professionals in most jurisdictions. In a few states, forming a PLLC necessitates the participation of a certified expert (meaning that you cannot form a private company to do it for you).

Check out more information on What does LLC mean?

Limiting Your Liability

Incorporating as a PLLC helps to distinguish between the business and its owners. In most cases, a PLLC’s founder is not personally liable for the firm’s obligations or any litigation filed against it. However, an LLC may not necessarily protect you against lawsuits. For example, a PLLC will not protect you if you commit malpractice of your own. To protect yourself, whether or not you form a limited liability corporation, you need to have liability insurance. A personal guarantee is often required by banks when making a loan to a PLLC. When you sign this agreement, you agree to be personally liable for any debts you guarantee. In addition, while a PLLC normally shields you from the activities of your employees, if you assume managerial responsibilities, you may be held accountable for the actions of the people you supervise.

Who needs a PLLC?

Most states require one of the following professions to form a PLLC:

There is a wide range of professionals in the health care field, from dentist to doctor to engineer to a lawyer to therapist to physical therapist to a veterinarian to an accountant to Acupuncturist to Chiropractor to Clinical Social Worker.

Service Combination Restriction

There are a few exceptions to the rule that PLLC owners cannot provide more than one service under the same business. You can’t, for example, start a dentistry PLLC and simultaneously offer graphic design services. Doing so will make your graphic design services a separate business, which will be regulated by the law. Because it will be taxed separately from your PLLC, you will need to separate it from your PLLC for liability protection. Exceptions to this law are common, particularly in the medical area, in most states. It’s not uncommon for a physician’s medical practice to include a pharmacy under the same Limited Liability Company. Check with your state’s PLLC statutes to see whether you can combine any of the services you provide.

Limited Liability: Not for Your Malpractice

Because of the restricted liability afforded by PLLCs, proprietors of the company are not personally liable if the company issues or owes money. Professional negligence, or malpractice, remains the responsibility of each PLLC member. As an example, if an accountant mishandles a client’s money, this is a case where malpractice has occurred. The PLLC does not give limited liability protection if someone sues you for professional misconduct, and your assets will be at risk to pay a malpractice judgment against you. For this reason, a large number of professionals take out malpractice insurance.

Despite this drawback, PLLCs have several other advantages that make them worth considering. There is no personal liability for any malpractice committed by another professional who is a member of a PLLC with you. However, if you owned a partnership, you may be held accountable for your partner’s negligence. If you have an office lease, a vendor contract, or a slip-and-fall incident at your workplace, you’ll be shielded from liability under the Limited Liability Company (PLLC).

A PLLC’s Tax Advantages

Limited liability companies are exempt from paying corporation tax, hence they are also excluded from paying income tax. Business profits are distributed to the owners, who are responsible for declaring and paying taxes on their respective portions of those profits. Instead, a  Corporation pays corporate taxes, and then the owners of the company pay additional personal taxes on the same income after it has been distributed to the shareholders.

PLLC owners can deduct up to 20% of eligible business revenue on their tax returns as a result of the 20% Pass-Through Deduction. However, many professionals whose annual taxable income exceeds $160,700 are not eligible for the deduction. If you earn more than this amount, you should consult with a tax professional.

How to Create a PLLC?

The process of forming a Limited Liability Company (PLC) varies by state and occupation. The following are the essentials:

State Licensing: The licensing process is regulated by the state. To work as an accountant or an attorney, you must first be admitted to the state bar or receive a CPA license from your professional licensing organization.

Approval from your state Licensing board: Some states demand that you have formal permission from your state Licensing board before you may file PLLC paperwork in that state. Include the written approval with your incorporation documents when necessary.

Business name: Select a business name that complies with state regulations. “Professional Limited Liability Company,” “PLLC,” or another acronym must be used in the name of a company in many states. When registering a business, some jurisdictions require that you include at least one of the members’ names in the business name.

Formation Documents: Your Secretary of State may need you to file articles of incorporation or a certificate of formation, depending on your state. Operating document: Create an operational agreement that outlines the firm’s structure and member distribution.

These are the states that will allow PLLC to be formed:

This will include West Virginia, Washington, Virginia, Vermont, Utah, Texas, Tennessee, South Dakota, Pennsylvania, Oklahoma, North Dakota, North Carolina, New York, New Hampshire, Nevada, and Montana, Mississippi, Minnesota, Michigan, Massachusetts, Maine, Kentucky, Iowa, Idaho, Florida, District of Columbia, Colorado, Arizona, and Arkansas.

The following states do not recognize them:

Wyoming, Wisconsin, South Carolina, Rhode Island, Oregon, Idaho, New Mexico, New Jersey, Nebraska, Missouri, Maryland, Louisiana, Kansas, Indiana, Illinois, Hawaii, Georgia, Delaware, Connecticut, California, Alabama, and Alaska.