For many new businesses, a limited liability company (also called an LLC) is a popular entity type.
And it’s no surprise, because the LLC offers the flexibility of a partnership with the limited liability protection of a corporation ― truly the best of both worlds for many entrepreneurs.
If you’ve done any research on LLCs, then you’ve probably encountered the term “professional limited liability company.” The PLLC isn’t just another name for an LLC, though ― it’s a completely different entity type.
In this guide, we’ll give you the scoop on what a professional LLC is and how you can form one yourself.
What Is a Professional LLC (PLLC)?
Simply put, a professional LLC is a specialized type of limited liability company, which is specifically designed to meet the business needs of certain licensed professions. These professions vary from one state to another, but they usually include attorneys, doctors, engineers, chiropractors, accountants, and other licensed professionals.
The PLLC shares a great deal in common with the regular LLC, including the pass-through taxation model. Most PLLCs (except for those that elect to be taxed as corporations) pay partnership-style taxes in which there is no tax paid on the corporate level, and instead all profits “pass through” the business itself to be claimed on the members’ tax returns.
Not all states allow for the formation of professional LLCs, as some states like California require you to form a professional corporation instead. That’s why it’s important to check your state’s regulations before you file any forms to create a PLLC.
How Does Liability Work in a Professional LLC?
On the surface, the professional LLC and a standard LLC look the same, and when things are going well, the two types are nearly identical. But there’s a key difference in the way these two business entities are treated on a legal basis. In other words, when something goes wrong, that’s when the distinction kicks in.
A standard LLC offers complete personal asset protection. Basically, this means that the individual members of the LLC cannot be sued for something the business did. So, if the business caused an injury or the LLC defaults on a debt, the owners of the business can’t be expected to pay.
Only the business itself can be sued, unless the LLC members committed fraud or failed to maintain the business according to state guidelines.
A professional LLC works a little differently. The members still have some personal liability protection, but a PLLC does not protect its members from malpractice lawsuits.
For example, if a doctor in an urgent care clinic structured as a PLLC gives a misdiagnosis, that doctor can be sued accordingly. Thankfully, each member can only be sued for malpractice they cause, while the other members are shielded from having to share in the responsibility.
This makes a professional LLC very different from a partnership ― in a partnership, all partners are liable for the mistakes of other partners.
That said, if an issue occurs that isn’t related to malpractice — like a debt or a missed rent payment — the professional LLC acts like any other LLC. In these situations, the members’ personal liability is protected by the PLLC’s corporate veil.
Forming a Professional LLC
Forming a standard LLC is a relatively straightforward process, and forming a professional LLC is nearly as simple, because the process for doing so is almost identical. To close out this article, we want to cover the basics of how to form a professional LLC.
First, you’ll want to learn about your state’s requirements. As we mentioned earlier, not all states allow for professional LLCs. Even if your state does, you’ll also need to ask a few other important questions. For instance, what professions are allowed to form a PLLC in your state?
Then, there’s the matter of the licenses you need to obtain. In some states, every member needs to obtain a license, whereas in other states, it’s acceptable if just half of the members have the necessary professional certifications.
Once you’ve learned and fulfilled these requirements, you can get started on your articles of organization and the other start-up forms, but unlike a normal LLC, you can’t submit them right away. First, you’ll need to have your state licensing board approve those documents, which is typically a relatively simple process for most professions in most states.
When you receive the approval, you can file those documents with the state to form your professional LLC. The extra approval from the state licensing board means that forming a professional LLC usually takes a bit longer than the formation process for a traditional LLC.
Hiring a Formation Service to Form Your PLLC
If you would rather not tackle the formation process yourself, there are other options.
You could hire a business attorney to draft and file your formation documents, but this costs hundreds or even thousands of dollars that many startups simply don’t have access to. Fortunately, there’s another option, and that’s hiring an online business formation service.
Because the process for forming a PLLC doesn’t vary that much from a standard LLC, it typically doesn’t cost too much more to hire a formation service to form one. These services can form your PLLC for far less money than an attorney will charge, and some of them even charge less than $100.
If this option interests you, feel free to peruse our guide to the top LLC formation services. We’re confident that one of our top four picks will be able to fulfill your needs, without costing an arm and a leg.
Professional LLCs allow licensed professionals to form a business together and get the best of both worlds: the flexibility of a partnership, with the limited personal liability of a corporation. Of course, that liability protection only goes so far, as each member is still subject to malpractice lawsuits.
If you’re a licensed professional looking to start your own business, then a professional LLC might be perfect. Otherwise, forming a standard LLC (DIY or through a service like LegalZoom/ZenBusiness) may be your best bet.