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.

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.

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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.

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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Benefits of a Limited Liability Company

Limited liability companies (LLCs) offer several benefits because they share characteristics with several types of business entities. LLCs have similar characteristics to partnerships, corporations and sole proprietorships. Because of these shared characteristics, LLCs offer flexibility on a number of issues important to business owners. While state laws vary for LLCs, the same principal benefits typically apply from state to state.

Can an LLC Be Sued?

Limited liability companies (LLCs) are a relatively modern business structure governed by state laws. Wyoming and Florida first recognized these business entities in the 1970s. As of 2010, all 50 states and the District of Columbia recognize LLCs and have state statutes that govern the creation, management and termination of LLCs. Like corporations, LLCs are separate legal entities that have the ability to sue and be sued.

Difference Between LLC & LLP

An important aspect of starting a business is choosing which type of business entity to create. Two popular business entities are limited liability companies, or LLCs, and limited liability partnerships, or LLPs. Each entity has unique characteristics, but both are also similar in many ways, including the way they are taxed by the IRS.

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