What Makes an LLC Different from a PLLC?

What Makes an LLC Different from a PLLC?

by Edward A. Haman, Esq., June 2020

A professional limited liability company, or PLLC, is a specialized type of LLC used by certain licensed professionals in many states. A limited liability company, or LLC, is a particular way of organizing the structure of a business. In general, the LLC combines some of the best features of a partnership with those of a corporation. 

Learn more about what a PLLC is and how it differs from an LLC.

 

Limited Liability Companies

Operating a business as a sole proprietorship or partnership exposes a business owner to personal liability for the debts of the business. Forming a corporation limits an owner's personal liability, but imposes certain formalities on management, as well as reporting and record-keeping requirements. The LLC was created to maintain the personal liability protection of a corporation while allowing for more flexible business management. A person with an ownership interest in an LLC is called a member.

An LLC also permits the business to choose how it will be taxed. An LLC with only one member can be taxed as either a sole proprietorship or a corporation. Similarly, an LLC with two or more members can be taxed as either a partnership or a corporation.

Limited liability companies are governed by state law. Some states do not allow certain licensed professionals to form LLCs. Some of those states have created the PLLC for those professionals. Some states only allow professionals to form corporations, which may be referred to as a professional corporation or professional service corporation.

Professional Limited Liability Companies

Regarding the management flexibility and taxation, a PLLC has the same advantages of an LLC. The difference between the two is that the PLLC has some restrictions on who may be a member of the PLLC and the limitation of liability of the members.

With an LLC, anyone can be a member, or owner, of the business. State PLLC laws often provide that only licensed professionals can be members, or that a certain number of members must be licensed professionals.

A PLLC cannot be used to shield the members from claims for malpractice. However, the malpractice of one member cannot create liability for the other members.

Forming a PLLC

Your state law will determine whether you can form a PLLC, and set forth the requirements for formation. These requirements are found in the statutes that allow for a PLLC, but in some states the particular profession's licensing agency also has rules governing PLLCs.

Some states list the professions that may form a PLLC. The list varies from state to state, but typically includes professionals such as physicians, dentists, attorneys, accountants, architects, engineers, veterinarians, real estate agents, and psychologists. The law in other states simply refers to "licensed professionals," without naming specific professions. Therefore, you will need to determine whether your state has PLLC laws that apply to your profession. The licensing agency for your profession may be able to help you make this determination.

A common requirement is that the name of the PLLC must clearly indicate it is a PLLC, but including the words "Professional Limited Liability Company," or the initials "PLLC" or "P.L.L.C."

Forming a PLLC will require that certain documents, such as Articles of Organization, be filed with the appropriate state agency. These documents will be tailored to a PLLC, but will be similar to those filed for an LLC, setting forth the name of the PLLC, the names of the members, etc. In addition, other documents may also be required to verify the members' licensing status. You may also need to file documents with your licensing agency.

If you are a licensed professional and plan to open your own office, either alone or with other professionals, you need to find out whether your state limits how you can structure your business. You may discover that you need to form a PLLC rather than a standard LLC.