If you’re looking to start a new business or restructure an existing one, you may be wondering about the differences between a PLLC and an LLC. While both structures offer liability protection for their owners, they have some key differences. Ultimately, the decision of which one to choose will depend on your specific business needs and goals. In this article, we’ll discuss the primary differences between PLLCs and LLCs to help you make an informed decision.
What Is a Limited Liability Company (LLC)?
A Limited Liability Company (LLC) is a type of business structure that offers its owners (known as members) liability protection. This means that the members are not personally responsible for the company’s debts or legal obligations. Instead, the LLC itself is treated as a separate legal entity, similar to a corporation. LLCs are often popular among small business owners because they offer the liability protection of a corporation while also allowing for more flexible management and taxation options.
LLCs can have a single member or multiple members, and they can be taxed as a sole proprietorship, partnership, S corporation, or C corporation, depending on the owners’ preferences.
What Is a Professional Limited Liability Company (PLLC)?
A Professional Limited Liability Company (PLLC) is a specialized type of LLC that is designed for professionals who provide services that require a state-issued professional license, such as doctors, lawyers, architects, and accountants. Like an LLC, a PLLC offers liability protection to its owners, but it also has certain requirements that must be met to maintain its professional status. These requirements typically include having all members of the PLLC be licensed professionals and complying with state-specific regulations governing the practice of that profession.
PLLCs are often preferred by professionals since they offer the flexibility of an LLC with the added protection of a specialized structure designed specifically for their profession.
The Differences Between an LLC and a PLLC
When deciding between a PLLC and an LLC, it’s important to understand that there are some key differences between the two structures. Here is a closer look at each of these differences to help you make an informed decision.
The business formation process for a PLLC and an LLC is slightly different. While both structures require filing articles of organization with the state, a PLLC may also require additional documentation and certifications to prove that all members are licensed professionals in their field.
Ownership or Membership
Ownership or membership structure is also slightly different between PLLCs and LLCs. While LLCs can have an unlimited number of members, PLLCs typically have restrictions on membership to licensed professionals within the same profession.
Profit sharing is another area where PLLCs and LLCs differ. In a PLLC, profit sharing is typically based on ownership percentages, while in an LLC, it can be based on a variety of factors agreed upon by the members.
Another difference is taxation. LLCs can choose to be taxed as a sole proprietorship, partnership, S corporation, or C corporation whereas PLLCs are typically taxed as a pass-through entity. This means that the profits and losses of the PLLC are passed through to the individual members, who are responsible for reporting them on their tax returns.
PLLCs and LLCs both provide owners protection from personal liability. However, PLLCs may offer added protection to licensed professionals from personal liability arising from the malpractice of other members.
Here are examples of professions that would benefit from the added liability protection of a PLLC:
- Accountants and CPAs
- Architects and engineers
- Doctors and physicians
- Financial advisors and planners
- Psychologists and therapists
- Real estate appraisers
PLLCs have more stringent compliance requirements, such as obtaining licenses and certifications and adhering to state-specific regulations. Failure to comply may result in penalties, fines, or even loss of professional licensure. LLCs typically have fewer compliance requirements, but must still adhere to state and federal laws related to their industry or business type.
Risks and Liabilities
When choosing between PLLCs and LLCs, it is crucial to consider the risks and liabilities associated with each structure. PLLCs can provide additional protection from malpractice liability, but they may also face increased scrutiny from professional licensing boards. Conversely, LLCs may face a higher risk of personal liability if they do not follow proper business practices.
The level of liability protection offered by a PLLC or LLC can vary depending on factors such as the state of formation and the specific nature of the business or profession.
Other Advantages and Disadvantages
Other advantages and disadvantages of each structure include factors such as management structure, ease of administration, and costs associated with formation and maintenance. Ultimately, the decision of whether to form a PLLC or an LLC will depend on your specific business needs and goals.
Making Informed Decisions for Your Business
The decision to choose between a PLLC and an LLC depends on the specific needs and circumstances of your business. While PLLCs offer greater protection from malpractice liability for licensed professionals, they also have more stringent compliance requirements. LLCs, on the other hand, offer greater flexibility and simplicity in terms of compliance, but they may not provide the same level of professional status or protection. Ultimately, you’ll want to carefully evaluate the advantages and disadvantages of each structure and seek professional guidance to ensure that you make an informed decision.
doola understands that choosing the right business structure can be a complex process. That’s why they offer professional accounting and bookkeeping services to help business owners navigate the various financial and compliance requirements of their chosen structure. Whether you are a licensed professional considering a PLLC or a small business owner exploring the benefits of an LLC, doola can provide the support and guidance you need to succeed.
Can you change an LLC to a PLLC?
In most states, an LLC can convert to a PLLC by filing articles of amendment or other conversion documents with the state’s Secretary of State office. However, it is important to note that conversion requirements and procedures can vary by state, and additional licensing or certification may be required for professionals seeking to form a PLLC.
How much does a PLLC cost?
The cost of forming a PLLC can vary depending on the state of formation and the specific requirements and fees involved. Generally, the cost of forming a PLLC can include filing fees, legal and accounting fees, and costs associated with obtaining any necessary licenses or certifications. In some states, the cost of forming a PLLC may be higher than that of forming an LLC due to additional licensing and regulatory requirements.
How do I dissolve my PLLC?
To dissolve a PLLC, the business owner or owners must typically file dissolution documents with the state’s Secretary of State office. Depending on the state, there may also be additional requirements for notifying creditors and distributing assets. It is important to consult with legal and financial professionals to ensure that all necessary steps are taken to properly dissolve the PLLC and avoid any future liabilities or legal issues.