Can Accountants Form an LLC?

By Larissa Bodniowycz, J.D.

Can Accountants Form an LLC?

By Larissa Bodniowycz, J.D.

A limited liability company (LLC) is a flexible business form well-suited for many small businesses. State laws provide the rules that govern LLCs. In some states, accountants cannot form an LLC or are limited to forming a specialized type of LLC.

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Reasons for Restrictions

The limited liability offered by LLCs is one of their most appealing attributes. Business owners can rest easy knowing that their personal assets are not at risk from business operations. However, a problem arises when it comes to accountants and similar licensed professionals. Many states prohibit accountants from avoiding personal liability for professional malpractice. For this reason, some states prevent accountants from forming standard LLCs.

PLLCs for Accountants

In an effort to strike a balance between competing policy concerns, some states allow accountants and similar professionals to form PLLCs, a special type of LLC designed for certain licensed professionals. As with LLCs, the rules governing the creation and operation of PLLCs vary by state, and states aren't consistent when it comes to which types of professionals can form PLLCs.

However, there are some commonalities. Generally, all or a majority of owners of a PLLC must be licensed in the relevant profession. Accountants must be licensed in the state where the PLLC formed. PLLCs do not provide personal liability protection from professional malpractice suits, but they do offer personal liability protection for most other business liabilities. The process for creating a PLLC in states that offer the business entity is usually similar to forming a regular LLC, with a few other requirements, such as certifying that the requisite percentage of owners are licensed professionals.

Standard LLCs for Accountants

In some states, accountants can still form standard LLCs. In fact, in some states, it is the only option for accounting professionals. In these states, accounting LLCs form in the same manner as any other LLC.

Other Entity Options

Some states do not offer PLLCs but instead require that accountants form professional corporations (PCs), professional limited liability partnerships (PLLP), or similar entities for their business. These types of professional business entities are similar to PLLCs in that most or all of the owners must be licensed in the relevant professional field.

The other option for accountants is to operate as a sole proprietorship—in other words, in their own name. This option is usually not advisable because it makes the accountant personally liable for all business-related debts and liabilities.

Choosing an LLC or PLLC

In most states that offer PLLCs or similar business forms (e.g. PCs, PLLPs), accountants must form PLLCs and cannot form general LLCs. However, there are exception states where accountants have the option to choose between the two forms. Accountants can form an LLC or PLLC through their state's Secretary of State (or comparable authority) website or through an online legal service provider.

Malpractice Insurance

Regardless of the business type they choose, accountants generally remain on the hook personally for professional malpractice. Fortunately, they can minimize this risk by obtaining professional liability insurance. Some states even require that accountants in PLLCs carry malpractice insurance.

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.