The decision to start a new business is an exciting step in your entrepreneurial journey.
One of the biggest questions entrepreneurs face in this part of the process is which type of business to form.
The limited liability company (LLC) is one of the most popular entity types in America today. However, there are some types of businesses that need to form professional LLCs (PLLC) instead of standard LLCs. Adding a complicating factor to this decision is the fact that many states don’t recognize professional LLCs at all.
So, which professions need to form PLLCs? Which states can you form a PLLC in? As you read through this article, we’ll answer these questions and many more as we get to the bottom of what a PLLC is and who should form one.
What Is a Limited Liability Company (LLC)?
To begin, we should probably discuss what an LLC is before we dive into the professional version of this entity type. A limited liability company mixes elements of sole proprietorships, partnerships, and corporations, essentially giving entrepreneurs the best of these three worlds.
LLCs are taxed similarly to sole proprietorships and general partnerships in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes.
There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.
In short, LLCs are so popular because they provide a variety of legal protections for your business, while also enhancing your company’s credibility. Keep in mind as we go through this guide that if anything starts to sound overwhelming, there are plenty of reputable LLC services that can help you through any step of the LLC formation and ongoing compliance processes.
What Is a Professional Limited Liability Company (PLLC)?
A professional LLC is quite similar to a standard LLC, but with one key difference: the PLLC is a special form of LLC for use by licensed professionals.
In most states, PLLCs are treated quite similarly to traditional LLCs in many ways: these entities both require registered agents, operating agreements are strongly recommended for both PLLCs and LLCs, annual report regulations are very similar, etc.
Each state has somewhat different regulations regarding which professions need to form PLLCs instead of LLCs, but usually, this includes professions like certified public accountants (CPAs), attorneys, professional engineers, and medical professionals.
As we mentioned, many states don’t recognize PLLCs, but the states that do include:
- District of Columbia
- New Hampshire
- New York
- North Carolina
- North Dakota
- South Dakota
- West Virginia
Different states also have different regulations regarding who can form a PLLC. In some states, PLLCs are designated for people providing specific services, while other states are vaguer about who should create a PLLC.
Likewise, some states require all members of a PLLC to be certified professionals in the same profession, whereas other states only require half or less of a PLLC’s members to be actively certified.
If you want to know more about the specific guidelines and regulations in your specific state, check out our PLLC guides for each individual state to find the info you need.
How Can You Form a PLLC?
Much like with standard LLCs, PLLCs have different formation processes in each state, and there is no uniform way to form one on a national basis.
Some states allow PLLCs to use the same formation documents as traditional LLCs, while some require separate documentation. In addition, there are states that require proof of each member’s certification before forming the PLLC entity, while others are a bit laxer in this area.
Our state guides have plenty of specific information about the formation process for PLLCs in each state that recognizes them. If you would rather hire someone than form your own PLLC using the DIY method, we have options for that as well.
Our two favorite online business formation services for PLLCs are IncFile and Northwest Registered Agent. Both of these companies can handle all of the heavy lifting on your behalf, and all you’ll have to do is provide them with some basic information about yourself and your business.
From there, they’ll handle the rest and provide you with a copy of your completed documents as soon as the state processes them.
It couldn’t be much simpler, and you’ll have more time to concentrate on actually running your business instead of filling out and filing paperwork. Of course, if you’re operating your PLLC on a tight budget, the DIY option isn’t too terribly complex in most states. If you follow our guides, we think you’ll be able to form your own PLLC without much trouble.
In many ways, the professional limited liability company (PLLC) and the traditional LLC are nearly identical.
They are often formed using the same documents, they have similar operational guidelines, and they operate on similar tax structures and liability thresholds. The major difference between the two entity types is who is allowed to form one, as PLLCs are typically reserved for certified professionals.
We hope this guide helped you understand the ins and outs of professional LLCs. If you’re looking for more information about PLLCs in your state, we invite you to check out our state-specific guides, which include all the info you’ll need to be able to form a compliant PLLC in any state.