Learn more about PLLCs and how they work.
What Is a PLLC?
A PLLC is a type of limited liability company, a business that works like a partnership but has the liability protection of a corporation. Some states do not allow certain types of professionals to form an LLC but instead require them to form a PLLC. Usually, the members of a PLLC must belong to a profession that requires a license—CPAs, attorneys, chiropractors, or architects, for example. In addition, they must only offer services only within their specific profession.
How a PLLC Works
The owners of a PLLC are called members, and they have an operating agreement that governs how they work together and divide profits and losses. Many professionals start a PLLC because they want to separate their individual liability from their liability as a member of the business or practice. For example, if one physician is sued for malpractice, the other physicians don’t also want to be sued. Forming a PLLC will protect owners from the malpractice liability of other owners. For general business liabilities and debts of the business, the owners are typically protected from liability because the LLC is a separate entity. But this is not always the case, and you should consult your attorney if you are concerned about professional liability. When it comes to taxes, PLLCs pay them in the same way that LLCs do, depending on the number of members. A PLLC with one member pays taxes as a sole proprietorship, while a PLLC with multiple members pays taxes as a partnership. LLCs pay income taxes by passing on the net income or loss of the LLC to its members. The members then pay the tax on their share of the profits or losses (called a distributive share) as part of their personal tax return.
Forming a PLLC
Forming a PLLC is similar to forming an LLC, but with a few more steps. Like with an LLC, if you wish to form a PLLC you must file Articles of Organization with your state. But before you can do this, you must submit them, along with a certified copy of your license, to your state’s professional licensing board for approval. For example, a CPA firm wanting to become a PLLC must submit its Articles of Organization to the accounting licensing board for review. Once all of your documents are approved by the licensing board, then you can file them with your state’s secretary.
PLLC vs. PC
PLLCs and professional corporations (PCs) are similar in the respect that only professionals may be owners. States have similar requirements for both types of business entities, including verification of the licenses of the business owners and state limits on what types of professionals may form a PLLC or PC. The PLLC and PC differ in business type and taxes. A PC is formed as a corporation. The corporation is taxed at the corporate rate, and the owners are taxed on dividends received.
