When choosing a business structure, many professionals—particularly those in the legal, medical, architecture, engineering, and accounting fields—consider forming a limited liability company (LLC) or a professional corporation (PC). In some states, a professional limited liability company (PLLC) may be another option.
These business structures all have their advantages and disadvantages concerning limited liability protections and taxation, so if you're looking at LLC versus PC—and even versus PLLC—you should know more about each so you can make the best decision for your enterprise.
An LLC is a legal entity formed according to state law. The main advantage of an LLC is that it provides limited liability to its members, which means they are not personally liable for the debts and liabilities of the company, including lawsuits brought against the LLC.
An LLC is managed by its owners, also called members, and all states and the District of Columbia permit the formation of single-member LLCs. An LLC enjoys the “pass-through" taxation benefits of a partnership, meaning that business profits pass directly to LLC members, who report them on their individual income tax returns. The LLC entity is not taxed itself, unlike a corporation, which is subject to corporate taxation. However, an LLC may be subject to an annual state tax.
A PC is a type of corporation in which the shareholders, directors, and officers must be licensed members of the profession for which the PC is organized to operate. Accordingly, an attorney's non-attorney husband cannot be a member of an attorneys' PC, but he may be a member of an LLC of attorneys.
Like an LLC, a PC protects its owners from personal liability for the business's debts. Note, however, that neither an LLC or PC protects you from personal liability for claims of your own malpractice or negligence, though both could shield you from being held personally responsible for the acts or omissions of another member of the practice.
PCs are corporations and the IRS taxes them as such, which means they file separate tax returns and are subject to corporate tax rates, which, depending on current rates, could make a PC a far less attractive option. That means that in a PC, a sole practitioner would get taxed at both the corporation level and the personal level, resulting in double taxation.
Just as with an LLC, a PC may choose to file with the IRS as an S corporation to benefit from pass-through taxation, but a PC still pays tax at the maximum corporate rate. A PC may, however, claim deductions for group life, health, and accident insurance.
PCs and PLLCs share so many features they can become difficult to distinguish. State laws vary, but, in general, members of PCs and PLLCs must be licensed in the same profession. States may require specific words or initials in the business name to indicate the type of business structure.
One area in which a PC and PLLC differ greatly is taxation. As noted above, the IRS treats PCs as corporations. PLLCs, however, are taxed the same as LLCs, with pass-through taxation benefits.
Notably, forming a general LLC is not an option for all professionals because some states instead require members of certain professions to form a PLLC. As with PCs, state law may restrict the types of professionals that can form a PLLC, and the option isn't even available in all states. Accordingly, if your firm will practice in multiple states, it is critical that you make sure that all states in which you practice recognize your intended business structure as legitimate.
Overall, remember that state laws govern the formation of all of these business structures, so be sure you are familiar with those provisions—as well as potential tax and liability consequences—in order to make an informed decision.
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.