Professional LLC Definition

Learn more about what a Professional LLC is in business.

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professional llc definition

The definition of a professional limited liability company (LLC) is an LLC with members who are licensed to provide specific professional services. A professional LLC enjoys all of the benefits of the regular LLC, such as personal asset protection and the ability to select tax treatment. However, a professional LLC’s definition is an LLC that can only be made up of licensed professionals, like lawyers, doctors, or accountants. Plus, the professional LLC can only provide services in one field: the field where their members are licensed.

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Professional LLC Benefits

Professional LLC advantages are similar to those of a regular LLC. Lawyers, doctors, and other professionals can set up a professional LLC to protect their personal assets. This means that if someone sues the business, only business assets could be at risk rather than the individual assets of the professional. The same goes for the business’s other creditors. If the professional LLC owes a creditor, the creditor can only go after the business’s assets and not the individual assets of any member of the company. 

Another benefit is the professional LLC’s business definition concerning taxation. A professional LLC chooses its tax status. The Internal Revenue Service automatically treats it as a partnership for tax purposes. But if the owners of a professional LLC prefer, they can choose to be treated as a corporation for tax purposes. If taxed as a partnership, the professional LLC won’t owe any taxes to the Internal Revenue Service (IRS). Instead, members pay taxes on their individual income tax returns.

Professional LLC Considerations

One of the main professional LLC disadvantages is that only certain states provide the ability to form a professional LLC. Some states only allow professionals to have limited liability partnerships (LLPs) rather than professional LLCs. You should check with your state’s rules to see if you can form a professional LLC.

Another consideration is in the professional LLC’s meaning: you can only be a licensed professional to set up a professional LLC. Each state that allows this type of business entity will have a listing of which licensed professionals are eligible to form professional LLCs. Professionals who are allowed this entity type usually include doctors, lawyers, accountants, and sometimes more. However, you should check your state’s rules for a complete list.

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Other Names for a Professional LLC

Another name for a professional LLC is a PLLC or professional limited liability company. It’s important not to confuse a professional LLC or PLLC with a limited liability partnership (LLP) or a professional services corporation (PC). These other entities may have different formation and taxation rules.  

Professional LLC Examples

What is a professional LLC? Here are professional LLC examples. 

Three lawyers who are all licensed to practice law in the state would like to start working together. If they form a professional LLC, they’ll go through a similar formation process to a regular LLC. They’ll also need to provide the state with their law licenses. The professional LLC will protect the personal assets of each of the three lawyers if a client or creditor sues the company. The client or creditor can only go after the professional LLC.

However, two lawyers and one non-lawyer can’t form a professional LLC to provide legal services. Each member of the professional LLC must hold a license for their respective profession.

Summary

The definition of a professional LLC is a group of professionals in the same industry who come together to provide services under the umbrella of one professional company. These professionals are limited to only offering specific services in the field within which they’re licensed.

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A licensed professional starting a new business needs to understand a professional LLC’s definition, advantages, and disadvantages. We’re also here to help you understand business terms and start your new enterprise. We offer a Business Formation service where we can help you with a corporation or LLC. We also have a Worry-Free Compliance service that helps keep your business compliant throughout the year.

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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