Licensed professionals in the Hawkeye State can form an Iowa professional limited liability company (PLLC). There are plenty of benefits to PLLCs, such as personal liability protection and favorable tax treatment. Let’s walk you through the process.
What is a professional limited liability company in Iowa?
An Iowa PLLC is a business entity type that provides professional services. These companies can be made up of one specific profession or a combination of professions that can lawfully practice together.
What professions can form a PLLC in Iowa?
Iowa limits the formation of PLLCs to the following professions:
- Certified public accountancy
- Physical therapy
- Practice as a physician assistant
- Professional engineering
- Land surveying
- Landscape architecture
- Medicine and surgery
- Osteopathic medicine and surgery
- Accounting practitioner
- Real estate brokerage
- Speech pathology
- Veterinary medicine
Social work and marital and family therapy or mental health counseling are also qualifying professions, but these professions must have proper licenses.
Should you form a professional corporation or a PLLC?
Although professional corporations (PCs) and PLLCs both provide professional services, they significantly differ.
PLLCs are pass-through entities, meaning the income made by the PLLC passes through to the members, who then pay income tax on it. PCs are subject to double taxation unless they qualify and elect S corporation status, which treats them as a pass-through entity. With double taxation, the income is taxed once at the corporate level and again at the personal level when distributed to shareholders.
The members of a PLLC have personal liability protection against creditors and claims against the PLLC but are liable for their own malpractice and negligence. PC owners have the same personal liability protection as regular Iowa corporations, which includes insulation from the company’s debts.
There are few state-mandated management requirements for PLLCs. In fact, the only limitation is that a person who isn’t licensed cannot have management duties or control over the PLLC. PCs have stricter requirements, including rules regarding appointing a board of directors, approving and amending bylaws, and purchasing shares.
Whether you choose a PLLC or a PC depends on a variety of factors, such as your goals, finances, and management style.
Choose a name for your Iowa PLLC
Your PLLC’s name says everything about your business. While it’s important to choose a name that is sensible and appealing, your PLLC’s name must also meet Iowa’s requirements.
An Iowa PLLC’s name must contain one of the following:
- Professional Limited Company
- Professional Limited Liability Company
Your PLLC’s name must also legally comply with any naming requirements imposed by your, or your group’s, specific profession(s).
To see if your preferred name is available, ZenBusiness can check for you. As part of our name reservation service, we will do a search to check that you can use the name.
Iowa also allows businesses to reserve a name for future use for a small fee. If you need to get your paperwork in order but want to secure your business name, we can do that for you with our name reservation service.
If you think your PLLC will benefit from a domain name, ZenBusiness also offers a domain name reservation service so your business has a true presence online. By registering your domain name, you can help protect it and use your name to advertise online.
Select an Iowa registered agent
A registered agent is a person or business organization that a company designates to accept legal documents and correspondence from the Iowa Secretary of State on behalf of the company. Your registered agent’s role is to receive this paperwork and forward it to you or any other designated person..
In Iowa, your registered agent can be any of the following:
- Iowa resident
- Iowa profit or nonprofit corporation
- Foreign profit or non profit corporation permitted to do business in Iowa
Your registered agent must have a physical location in Iowa and be available during regular business hours to accept legal documents. ZenBusiness provides registered agent services. We meet all Iowa’s requirements for a registered agent.
Complete and file Iowa Articles of Organization
Your Articles of Organization is a document filed with the state that formally establishes the PLLC. These documents include information like your business name, purpose, address, and registered agent. Only licensed professionals in Iowa who have a qualifying profession listed above can file to form a PLLC.
In terms of management, it’s important to decide if your PLLC will be member-managed or manager-managed. Member-managed PLLCs are managed by their members. Manager-managed PLLCs are run by one or more persons with or without any stake in the PLLC ownership.
Create an Iowa operating agreement for the PLLC
An operating agreement specifies the duties, roles, responsibilities, and structure of your PLLC. While this document isn’t legally required by the state, it’s a good idea to have because it lays out the foundation for your business. Operating agreements typically cover the following:
- Management structure and responsibilities
- Allocation of profits and losses
- Member’s ownership percentages
- Voting rights
- Meeting requirements
You can create your own operating agreement or use one of our templates to get started.
Handle Iowa tax obligations
After establishing your PLLC, the next step is to apply for an employer identification number (EIN) with the IRS. An EIN acts similar to a social security number for your PLLC and is necessary to open a business bank account and hire employees. ZenBusiness can help you obtain your EIN with our EIN services.
For state tax filing purposes, Iowa does assign its own state tax ID number, but your federal EIN is typically used as part of that number. Iowa has certain requirements for businesses to meet their state tax obligations. For example, Iowa requires you to register your business to get a permit number for withholding tax.
In terms of local tax requirements, consult your local tax authority for specific information.
Obtain Iowa business licenses and permits
To operate an Iowa PLLC, you may need certain business licenses and permits. Since licensing can be on the federal, state, and/or local level, it’s your responsibility to know and obtain all the licenses and permits your business must-have. There is no central place to check all of the licensing requirements.
There may also be industry-specific licenses and permits, so check with the regulatory authority of your profession. Visit the Iowa Professional Licensing Bureau for more information.
At ZenBusiness, we’ve partnered with Business Licenses, LLC, which can do the research for you and report any licensing and permit requirements there may be at all government levels.
Acquire insurance for your Iowa PLLC
Iowa only requires workers’ compensation insurance for businesses. However, the state does not recognize LLC members as employees, meaning they aren’t covered by Iowa’s workers’ compensation law. Your business can choose to purchase workers’ compensation insurance to cover members.
Although not required, you may consider getting general business insurance and professional malpractice insurance to help protect your business if something goes wrong.
Open a business bank account
The IRS recommends a business bank account for all small businesses, even if not required by law. This helps to keep your personal and business finances separate and makes tax time much easier.
To open a bank account for your PLLC, you need to have an EIN.
Get started on your PLLC today
A PLLC may be a great business entity option if you offer professional services. At ZenBusiness, we’re here to help make that dream business a reality. We provide a range of services all geared toward building a successful business for you.
Iowa Professional Limited Liability Company FAQs
Does Iowa have a PC entity?
Yes, Iowa recognizes a professional corporation as a business entity.
Can professionals from different fields form an Iowa PLLC together?
If different professions legally allow joint practice, they may be combined into a PLLC. For example, Iowa permits social workers, marital and family therapy professionals, mental health counselors, and psychologists to practice together.
How will I be taxed as an Iowa PLLC?
Iowa PLLCs are taxed as regular LLCs, which is pass-through taxation. The PLLC’s income passes through to each individual member, and they will report the income on their personal tax returns.