Can Accountants Form an LLC?

By Jane Haskins, Esq.

Can Accountants Form an LLC?

By Jane Haskins, Esq.

An accounting firm can be an LLC in some states. In others, accountants aren't allowed to form LLCs. If you can't structure your accounting firm as an LLC in your state, you may be able to set up a professional LLC (PLLC) or a professional corporation.

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Can a CPA Firm Be an LLC in Your State?

State laws govern the formation of business entities like LLCs and corporations. When it comes to accountants and other professionals, the rules depend on where you'll be operating your business.

  • In some states, accountants can set up an LLC. However, your state may require some or all of the LLC owners (members) to be licensed by the state accountancy board.
  • Some states prohibit licensed professionals from forming regular LLCs and require them to establish a PLLC instead. Your state may restrict ownership to licensed accountants.
  • Many states also allow accountants to form a professional corporation, or PC. In California, accountants and other professionals can form PCs but not LLCs or PLLCs.

Because of these variations in state law, it's important to know your state's rules before you decide on a business structure for your accounting firm.

PLLC vs. LLC

Many small businesses of all types are organized as LLCs or corporations. The term PLLC means the business is structured like an LLC but is owned and operated by licensed professionals such as accountants, lawyers, doctors, or architects.

Both PLLCs and LLCs are appealing to small business owners because they provide liability protection and potential tax advantages. Compared to a corporation, an LLC or PLLC is more flexible in its ownership, taxation, and management structure. It also may have fewer reporting and record-keeping requirements.

Liability for a PLLC works the same as liability for an LLC. Members are always liable for their own negligence, including professional malpractice.

But an LLC or PLLC protects accountants from most other liability risks. LLC and PLLC members aren't personally liable for other members' negligence or for business debts (unless they've signed a personal guarantee). In contrast, accountants who operate a sole proprietorship or general partnership can be held liable for business debts as well as their business partners' misconduct.

An LLC or PLLC can be taxed as a sole proprietorship or partnership, depending on whether the business has one owner or multiple owners. An LLC or PLLC can also elect to be taxed as a corporation. This flexibility allows owners to choose the most cost-effective tax status.

Forming a PLLC or LLC

LLCs and PLLCs are formed by filing a document with the state agency responsible for business filings. But to start a PLLC—or an LLC operated by licensed professionals—you'll typically need to complete a couple of extra steps.

  • Obtain a copy of each member's license. Your state may require all members of the LLC or PLLC to be licensed accountants.
  • Check with your state to find out whether accounting LLCs or PLLCs need to meet additional requirements. In many states, you'll need accountancy board approval to establish an LLC or PLLC. The board may place restrictions on the names you can use, and your state may require documentation that you've obtained board approval. You may also need to include the “PLLC" designation at the end of your firm name.

Both LLCs and PLLCs should also have an operating agreement. This document contains important guidelines for running the business, including the way profits and losses will be split and the way you'll admit new members and deal with departing ones.

State law may restrict your choices when it comes to a business structure for your accounting practice. Before you start the business formation process, check with your state and your accountancy board so you know your options and requirements.

 

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.