What Makes an LLC Different than a PLLC?

By Ronna L. DeLoe, Esq.

What Makes an LLC Different than a PLLC?

By Ronna L. DeLoe, Esq.

If you are running your business as a limited liability company (LLC), you're limiting your liability in the event someone sues the company or if the LLC has debts. An LLC protects you by separating your personal assets from those of the business.

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A professional limited liability company (PLLC) is similar to an LLC in that the members are also limiting their liability. The difference is that a PLLC's members are limited to certain types of professionals, such as:

  • Doctors
  • Attorneys
  • Architects
  • Chiropractors
  • Engineers
  • Real estate agents

State law governs LLCs and PLLCs. Not all states allow PLLCs, and some states specifically prohibit them.

How an LLC Differs from a PLLC

Each state has its own rules as to whether it allows PLLCs or whether professionals need to form other entities, such as limited liability partnerships or professional corporations. A few states actually require professionals to form PLLCs. Other states, such as California, do not allow professionals to form LLCs or PLLCs.

PLLCs must conform to the state's requirements. Creation of a PLLC requires an extra step compared to creating an LLC, so it may take a little longer.

Steps to Form a PLLC

In the states that allow PLLCs, most of the process is similar.

1. Determine eligibility. Check the state or states you want to work in to find out if they allow PLLCs. You may find that you can set up your PLLC in your state but not in a neighboring state where you also want to do business. Depending on the state, a business may have to include the designation “PLLC" in its name.

2. Obtain an employer identification number (EIN). You will also need this for the next step.

3. Prepare and file the Articles of Organization. The name of this document varies by state, with some calling it the Articles of Incorporation. The document requires that you name a registered agent and note the agent's contact information. You must also list the details of your business, such as the EIN, the type of professional business you intend to run, your principal place of business, the members of the PLLC, and the PLLC's contact information.

4. Prepare an operating agreement. This document details how the business must be run. Your members can run the PLLC, or you can use a managing partner who is also a licensed professional.

5. Fill out the application in your state to create a PLLC. Contact the state agency that regulates businesses, usually the Secretary of State, or check online to obtain the form. Pay the fee with the application. A licensed member must sign the PLLC application.

6. Show proof of professional licenses held by every member of your PLLC. In some states, members must all have the same type of license. Some states also require every member to have a license, while other states require licenses by only some members.

This extra step of proving that members have the proper licenses makes the process take a little longer than when forming an LLC. The state licensing board reviews the licenses to make sure they're valid, although in some states, the Secretary of State also does license verification. The PLLC exists once the proper authorities approve the licenses and the application.

LLC vs. PLLC: Differences in Terms of Liability

LLCs and PLLCs both give their members limited liability in the event there are lawsuits or debts owed. PLLCs have additional liability: for example, if someone sues a member for malpractice, the other members are not held responsible. However, it's important for each member to also get his own malpractice insurance, as the PLLC does not insulate members for their own malpractice.

LLC vs. PLLC: Taxation Differences

LLCs and PLLCs are similar for tax purposes. The Internal Revenue Service doesn't recognize LLCs or PLLCs as taxing entities unless a single-member PLLC is a corporation for tax purposes. Otherwise, the IRS considers the PLLC or LLC a partnership.

If the PLLC has more than one member, the members pay taxes on the profits and losses as part of their personal taxes. This “pass-through taxation" allows taxation of members in relation to that member's percentage of ownership in the PLLC or LLC.

Whether an LLC or PLLC is right for you business depends on a variety of factors, including the level of liability you need and how you wish to be taxed. Your choice may even be limited by your state, so first check with the Secretary of State regarding eligibility 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.