Let’s talk about bikes for a second. You can purchase a good old fashioned cruiser and it will get you efficiently from point A to point B. But if you have specialized interests or terrain, you need a specialized bike, like mountain bike or road bike.
In the same way, the limited liability company (LLC) is a versatile, popular business structure, but if you have a specialized professional license, you may need a more specific structure: the professional limited liability company (PLLC).
The PLLC business entity is reserved for licensed professionals who provide products and services that align with specific certified professions, like physicians, lawyers, accountants, and much more.
How do you know whether your line of business requires a professional LLC? How does the process of forming and maintaining a PLLC differ compared to an LLC? This guide contains everything you need to know about both business types and by the end, you’ll have everything you need to get started!
What Is an LLC?
The limited liability company (LLC) strikes a happy medium between the formality of a corporation and the flexibility of a sole proprietorship or general partnership. Its ease of startup and maintenance, along with its personal asset protection, make the LLC an incredibly popular business structure.
Limited liability protection, or the “corporate veil,” means that your personal possessions are shielded from the potentially catastrophic financial effects of a lawsuit. In other words, if your LLC is sued and the court rules against you, creditors cannot come after your house, car, savings, and other assets. They will be confined to pursuing specific business assets.
Contributing to the LLC’s flexibility is its variable tax structure. By default, LLCs are taxed like sole proprietorships – they don’t pay separate income taxes, but owners will report income and losses on their personal tax returns. However, if it suits your financial goals, you can elect to have your LLC pay taxes like a corporation instead.
What Is a Professional LLC?
Now for the professional limited liability company (PLLC). This is like a subcategory of the LLC, one that operates based on specialized regulations due to the company’s nature of business. PLLCs are necessary for a fairly wide variety of professions, and these professions vary by state. But in general, the professions that must form a PLLC include:
- Medical doctors
- Psychologists and therapists
See your occupation on that list? In many states, you will have the option of forming either a professional LLC or a professional corporation. These two structures have plenty in common but differ in two significant areas: taxation and asset protection.
Professional corporations have to pay taxes at the corporate rate, currently 21%, but can mitigate this expense through deductions for life and health insurance. As mentioned earlier, PLLC income passes through to the owners’ personal tax returns, so they don’t often pay separate income taxes.
Asset protection, on the other hand, is a bit more complicated than it is for regular LLCs and corporations. Any creditor that sues a professional corporation can pursue and take control of shares in the company. PLLCs don’t have shareholders, so creditors can only pursue the debtor’s net income from the company, not any personal assets.
Keep in mind, though, that neither business type can protect you from malpractice or similar issues pertaining specifically to your occupation.
How Are the PLLC and LLC Similar?
You’re a keen reader and businessperson, so you’ve likely gathered that LLCs and PLLCs have a lot in common. They’re less like apples vs. oranges and more like red delicious vs. granny smith. Despite your business purpose or occupation, with either an LLC or PLLC, you’ll get the following similarities.
- Personal Asset Protection: We previously discussed this, so we won’t harp on it. We’ll simply mention that both the LLC and the PLLC enjoy limited liability protections.
- Taxation: We mentioned earlier that owners can choose how their LLC is taxed, and this flexibility extends to PLLCs as well. Both are pass-through entities so they won’t pay corporate income taxes unless you choose to have your company taxed like a C corporation or S corporation. These options, however, tend to cost more money, so most owners avoid them.
- Management: Want to maintain control of your company’s management? Or would you rather outsource those responsibilities? Either option is available with LLCs and PLLCs. You can choose to let owners/members handle day-to-day managerial duties, or you can bring in outside managers instead. You’ll have to designate your chosen management type on your formation document.
- Flexible Contributions and Distributions: If different owners contribute different amounts of time and money to the company, you probably don’t want to distribute profits equally to everyone. Both business structures allow you to define how you split up distributions, so your profit allocation can reflect varying levels of owner participation.
In short, both business types allow for extensive customization and operational flexibility, and both provide similar protections. With either option, you get a highly versatile and stable business structure.
How Are the PLLC and LLC Different?
But before you go thinking that it doesn’t matter which option you choose, we should take note of their most prominent distinctions. The obvious one is the PLLC’s licensed professional status, but these items are also well worth keeping an eye on:
- Formation: Because it’s a professional organization, each member of a PLLC must be a licensed professional in the same industry. Certain states only require half of the members to carry professional licenses, so you’ll need to check your specific state’s rules. For example, if you’re a physician opening a private practice with three other physicians, all four of your will need to provide proof of your professional licensure, and your business will need approval from the state licensing board to get started. Regular LLC members don’t need to provide proof of any specific personal licenses.
- Limited Liability: Both LLCs and PLLCs provide the same personal asset protection, but a PLLC’s protections aren’t all-inclusive. Individual PLLC members aren’t exempt from malpractice claims and therefore should consider malpractice insurance to round out their asset protections.
The differences are few, but they’re significant. Still, they can be easily confused, so be sure you designate the correct type when you go to start your business!
How Do I Form a PLLC or LLC?
When it comes time to form your business, you have multiple routes to the same goal. Whether you’re forming an LLC or PLLC, you can DIY the process by completing and submitting your own Articles of Organization. This is a relatively basic document that explains the operational plans of your business and indicates your company’s name and registered agent. Each state also has a formation fee which varies from around $50 all the way up to several hundred dollars.
But if your to-do list is long and overwhelming, you can let a lawyer or business formation service handle it instead. A lawyer gives you unrivaled legal expertise, but comes with higher costs, while a formation service starts your PLLC or LLC efficiently and correctly for a much lower price. Either option will give you peace of mind and save you plenty of time, so you can spend it planning, making deals, and growing your business instead.
LLCs and PLLCs overlap in a lot of places, but there are a couple of crucial differences, and these differences determine which will be the right choice for you. In general, if your company will operate in a line of business that requires you to be a certified professional, the PLLC is probably the way to go. Otherwise, go with a regular LLC!
Either business structure gives you tons of flexibility to customize your company’s operations, taxation, management, and more. And either one provides the asset protection necessary to operate without looking over your shoulder. No matter what, after your form your PLLC or LLC, the path will be paved to your long-term business success.