What Is a Professional Limited Liability Company?

By Joseph Scrofano

The exact definition of a professional limited liability company (PLLC) may vary from state to state. Some states require that people forming a professional services business, such as lawyers, accountants, doctors and engineers, form a PLLC rather than a limited liability company (LLC). Many states do not allow licensed professionals to limit their liability for malpractice. However, the PLLC structure may protect them from negligent acts of other members in the PLLC.

LLC Basics

An LLC is a business entity that combines features of corporations, sole proprietorships and partnerships. Like a corporation, an LLC is a legal entity separate from its owners (called members) that, in most cases, protects owners’ personal assets from the debts and liabilities of the company. In other words, if someone sues an LLC, except in cases involving fraud and misrepresentation, that person can only go after the assets of the LLC, not the members’ personal assets. Members, however, can elect to manage the corporation like a partnership or sole proprietorship. In addition, members can elect to be taxed as a sole proprietorship or partnership instead of being taxed like a corporation. In many states, PLLCs share these same basic characteristics with some slight restrictions.

Additional Filing Requirements

To form an LLC, most states require that the prospective LLC members file articles of organization with the secretary of state for the particular state. However, for professional service companies, states may require the professional licensing body (like the state’s bar organization for lawyers) to approve the PLLC articles. In addition, the state may require that a licensed professional in the LLC's field of business sign the documents. The signatory may have to include a copy of her license or other proof of licensing.

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Professional Liability

Many business owners choose an LLC when deciding what type of business entity to file because it limits the owner’s personal liability while providing flexibility for taxes and management. However, many states do not permit licensed professionals to limit their professional liability for acts of professional malpractice. In other words, an attorney found liable for legal malpractice may be subject to personal liability even where the attorney is a member of a PLLC. In most cases, however, the PLLC business entity does protect one attorney from liability for the negligent acts of another member. In addition, a member of a PLLC may be protected from personal liability for issues unrelated to professional services, like the PLLC’s debts.

Warning

Please contact a qualified attorney licensed to practice in your jurisdiction to find out whether a PLLC is the right business entity for you. This article should not be construed as legal advice. It is for educational purposes only.

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A Professional Corporation vs. an LLC

Starting a new business is a big undertaking that requires making many decisions. Once you have developed a vision for the business, you must decide how to structure it. Each state has laws that govern the basic structure and specific rules for each type of business entity permitted in that state. Two examples of common business forms in all states are professional corporations and limited liability companies. PCs and LLCs are popular choices for small businesses. You must determine which business form will best suit your company's needs.

How do I Register an LLC for Multiple Members?

A limited liability company, or LLC, is a “hybrid” business organization that combines the limited liability benefits of a corporation with the pass-through federal taxation and easier filing requirements of a partnership. The owners of an LLC are called members. State laws uniformly permit the creation of LLC’s with multiple members. Creating an LLC with multiple members requires filing a document, called the articles of organization, with the state agency responsible for registering business organizations.

Ways to Protect a Sole Proprietor From Being Sued

It is especially important for sole proprietors to avoid lawsuits because they are personally liable to pay for all of their business’s liabilities and claims. This means that they may have to pay for any business debt using their personal assets, not just the business's assets. There are two ways to protect a sole proprietor from being sued. The first is to ensure that the business does not participate in conduct that creates a high risk of a lawsuit. The second option is to protect the sole proprietor’s assets from a lawsuit.

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