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Choosing a business structure may seem daunting, but the right information can make the decision much easier. This is especially true when it comes to LLC vs. PLLC, because the differences between the two are fairly straightforward. 

Keep reading to compare limited liability companies (LLCs) and professional limited liability companies (PLLCs), and determine if either structure is the right one for your new business. 

What is the difference between an LLC and a PLLC?

LLCs and PLLCs both offer protections from personal liability in the case of business judgments, along with a more flexible management structure and fewer regulations than corporations. The main difference between these two structures is that PLLCs are for companies offering professional services for which their state requires a license. 

Both structures require filing Articles of Organization with your state, while PLLCs also require additional steps (such as gaining approval for your Articles of Organization from your state’s licensing board). Note: PLLC requirements vary widely from state to state. Before forming your PLLC, check with your professional licensing board for an order of operations.

PLLCs protect you from malpractice claims made against other members of your company, but not from claims made against you. So if your state requires you to form a PLLC, you’ll also need to get malpractice insurance. 

Finally, taxation for each business structure is handled very similarly. The IRS doesn’t recognize LLCs or PLLCs, so you’ll need to decide whether to file as a sole proprietor, partnership, or corporation and report your profits and losses accordingly. 

What is an LLC?

A limited liability company (LLC) is a popular choice for new business owners. This structure offers many of the same personal liability protections as corporations, but without such strict regulatory requirements. 

For example, a professional corporation is required to elect a board of directors, issue shares, and hold yearly shareholders’/directors’ meetings.

An LLC, however, allows for a much more flexible management structure. Owners of an LLC are referred to as “members,” and the company can be managed by members or non-member managers. To form an LLC, you’ll generally need to follow these five steps:

  1. Name your LLC.
  2. Choose a Registered Agent.
  3. File your Certificate of Formation/Articles of Organization.
  4. Get an Operating Agreement.
  5. Apply for an EIN and review tax requirements.

Learn more about the process for forming an LLC and discover how we can help. 

What is a PLLC?

Similar to an LLC, a professional limited liability company (PLLC) offers protection from personal liability in the case of judgment or debt with fewer regulatory requirements than a professional corporation. 

Where a PLLC differs from an LLC, however, is that this structure is meant for certain types of professional services businesses.

Many states require individuals to obtain licensing from a state regulatory board in order to provide various professional services, such as medical care, legal services, taxes and accounting, engineering, etc. In these cases, licensed professionals must form a PLLC rather than an LLC. 

Do PLLCs offer personal liability protection?

As we’ve already stated, protection from personal liability in the case of business judgments is a major reason new business owners choose the LLC structure. The same protections exist for professionals who need to form a PLLC, but there are a few distinctions you need to consider. 

First of all, while a PLLC protects members from liability in other member’s malpractice suits, it does not protect you from any malpractice claim made against you. That’s why, if you’re a professional services provider with a PLLC, you’ll want to get your own malpractice insurance. 

Secondly, banks often ask PLLC owners for a personal guarantee before lending any money. That means you will be personally liable for any debts you’ve guaranteed.

How do I form an LLC and a PLLC?

While the process varies by state, forming an LLC generally just requires following the five steps mentioned above.

If you’re a licensed professional who needs to form a PLLC, however, the formation rules involve additional steps. While PLLC requirements vary widely from state to state, many states require you to obtain approval for your Articles of Organization from your state’s licensing board. Before forming your PLLC, you’ll need to check with your professional licensing board for a comprehensive and accurate order of operations.

After your PLLC is formed, your state may also require you to add “PLLC” or a similar designator (they can vary by state) to the end of your official business name for legal purposes. 

Again, the rules for PLLCs vary by state. Some states require all members to have professional licensure in the service(s) provided, while other states allow PLLC formation when as little as 50% of the members are licensed. Furthermore, many states don’t even offer the option of forming an LLC or PLLC (you may, instead, need to form a professional corporation or something similar). It’s best to check with your own Secretary of State to learn about the choices and requirements in your area.

How do LLCs and PLLCs differ when it comes to ownership?

An LLC is considered a separate legal entity from its members (business owners). That means the company can typically continue to exist even after the owner retires, leaves, passes away, or sells the business. 

A PLLC may face more difficulties in these scenarios, though. For example, if you run your business in a state that requires all owners to hold professional licensure, transferring ownership may be restricted. And if the licensed professional who owns the business leaves or dies, you may need to either dissolve or reform the PLLC. 

How are LLCs and PLLCs taxed?

Finally, filing your taxes as an LLC or PLLC requires deciding how you want your business to be taxed. The IRS does not recognize LLCs or PLLCs, so you’ll need to decide whether to file as a sole proprietor, partnership, S corporation, or C corporation. 

If you go with sole proprietorship or partnership, your business will typically be treated as a “pass-through” entity. That means each individual member will report their share of company profits and losses on their own individual tax return. 

The same is true for PLLCs that elect to be taxed as sole proprietorships or partnerships. Like with an LLC, PLLC members can have as little or as much say in running the business as they choose (as long as this is specified in the company’s operating agreement). At tax time, they will simply report their share of the business’s profits and losses on their individual tax return. 

Do Corporations pay more taxes than LLCs?

If they meet certain qualifications, LLCs and PLLCs can also opt to be taxed as s corporations or c corporations by filing the appropriate forms (Form 2553 for example, to file as an s corporation). Again, there are specific qualifications that must be met in order to file this way, and those rules vary by state. 

Generally speaking, C corporations (the most common kind of corporation) pay more taxes than LLCs. This is usually because of double taxation. A C corporation may be able to avoid double taxation by filing as an S corporation.

In most cases, yes, though the method and complexity will depend on your state’s laws and your specific circumstances. At the very minimum, the members of the LLC will have to be in agreement and also follow the terms that were set out in the operating agreement.

Can you switch from an LLC to a Corporation?

In most cases, yes, though the method and complexity will depend on your state’s laws and your specific circumstances. At the very minimum, the members of the LLC will have to be in agreement and also follow the terms that were set out in the operating agreement.

What is the best form of business organization?

Which entity type you choose will depend on your specific circumstances. You’ll need to weigh factors such as how much personal liability you’re willing to assume, how you want to be taxed, how you want the business to be managed, and how much government red tape you can handle.

Can you incorporate a business by yourself?

You can form a corporation by yourself, just as you can have a single-member LLC. Depending on your state, you may have to wear multiple hats as the sole owner of the corporation.

How does an LLC compare to a C Corporation?

LLCs share similarities and differences with C corps. You can review the specifics in our LLCs vs. C Corps piece.

Form Your Company

Ready to start your company? From forming your company to keeping compliant, we’re here to walk you through every step of the way.

Still not sure which is right for you, or wondering if yet another structure might be the best choice? Reach out to our experts today! 

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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