Happy June! Summer is fast approaching and with new beginnings, we bring you a new post in our FAQ series! This month, we discuss the Professional LLC, or “PLLC” and the ins and outs of filing them.
Q: What is a PLLC?
A: A Professional Limited Liability Company is a special type of LLC that’s designed for licensed professionals, such as accountants, lawyers, and doctors (typically, professions that require a license). Some states do not allow licensed professionals to form an LLC since they don’t want them to escape personal responsibility for professional malpractice by “hiding behind” the personal liability protection of an LLC. Instead, they allow professionals to form an LLC. But, specific rules vary by state.
Q: If I’m a licensed professional, how can I find out if my state allows me to form an LLC, PLLC, or something else?
A: The LLC and PLLC are state constructs; as such, rules vary widely by state. For example, professionals in New York cannot form an LLC, but may form a PLLC. Professionals in California cannot form an LLC or a PLLC, but can form a RLLP (Registered Limited Liability Partnership) or PC (Professional Corporation). And professionals in Arizona can choose between an LLC or PLLC. And the specific rules within a state may also depend on the type of profession as well.
The easiest way to determine your business entity options is to give us a call at 1.888.449.2638 and we’ll discuss which entities are available for your profession in your state.
Q: How do I form a PLLC?
A: As expected, the process to form a PLLC is more involved than forming an LLC. You’ll typically need to have your state licensing board approve your articles of organization first (again, this requirement varies by state). As a result, it takes longer to form a PLLC than an LLC. After the proper state licensing board has approved your articles of organization, then you will need to file the articles of organization and other formation paperwork with the state. Most states require a signature and license number of a licensed professional to form the LLC.
Our small business experts can help you with each stage of the process. First, we’ll ensure that your particular business needs to file a PLLC in your state. Then, we’ll help obtain the necessary approvals and file your paperwork.
Q: Who can be an owner/member of a PLLC?
A: While specifics vary by state, many states limit who can be an owner/member of an PLLC. In some states, only licensed professionals of the specific service can be members in a PLLC.
Q: How does limited liability work with a PLLC?
A: Like an LLC, the PLLC creates a separation between the individual owners and the business. But there’s a very important distinction. You will still be personally liable for malpractice claims related to your own actions. For this reason, you’ll need to have a good malpractice insurance policy even if you form a PLLC. However, a PLLC will typically protect you from personally liability for the business debts, as well as the malpractice of other owners within the company.
