LLC vs. PLLC
When comparing LLCs and PLLCs, consider that while both offer limited liability protection, PLLCs are specifically designed for licensed professionals, such as lawyers or doctors, providing additional regulatory compliance tailored to their professions.
Differences between
LLC and PLLC
| LLC | PLLC | |
|---|---|---|
| Ownership | Owned by one or more members who can be individuals, corporations, other LLCs, or foreign entities. | PLLC members are typically licensed professionals in specific fields such as law, medicine, accounting, engineering, or architecture. |
| Liability | Members' personal assets are protected from business debts and liabilities. | Similar to LLCs, PLLC members have limited liability protection; however, they may remain personally liable for their own professional malpractice or negligence. |
| Management | Can be managed by its members (member-managed) or by appointed managers (manager-managed). | PLLCs typically have a structure similar to member-managed LLCs, where members are actively involved in managing the company's affairs. |
| Formalities | Generally simpler to form and maintain, with fewer formalities and paperwork compared to LLPs. | PLLCs are subject to additional regulatory requirements imposed by state licensing boards governing the professional services they provide. |
| Transferability | Ownership interests can typically be transferred more freely, subject to any restrictions outlined in the operating agreement. | The transferability of ownership interests in a PLLC may be restricted by state law or the company's operating agreement, especially when it involves licensed professionals. |
| Flexibility | Offers greater flexibility in structuring ownership, management, and profit-sharing arrangements, allowing customization to suit the needs of the business and its members. | PLLCs have some flexibility but may be subject to more restrictions due to regulations imposed by state licensing boards. |
| Taxation | Flexible tax options; can choose to be taxed as a sole proprietorship/partnership (pass-through taxation) or as a corporation (if eligible). | PLLCs are typically taxed similarly to LLCs, as they also have pass-through taxation status. |
| Continuity | Continuity of the business is not affected by changes in membership. | PLLCs also have perpetual existence but may face challenges if licensed professionals cease their involvement or if regulatory requirements are not met. |
| Compliance | Generally has fewer compliance requirements compared to LLPs, with less stringent reporting and regulatory obligations. | PLLCs must comply with additional regulations imposed by state licensing boards governing professional conduct, licensing, and practice standards. |
| Costs | Formation and ongoing maintenance costs for an LLC are usually lower than those for an LLP, as there are fewer formalities and regulatory requirements. | PLLCs may incur higher formation costs due to additional regulatory requirements and ongoing professional licensing fees. |
Considerations for Choosing LLC or PLLC
- Professional Licensing Requirements: If the business involves providing professional services requiring a state license (such as law, medicine, accounting, or engineering), a PLLC may be necessary to comply with regulatory requirements.
- Liability Protection: Both LLCs and PLLCs offer limited liability protection, shielding personal assets from business liabilities. However, PLLC members may remain personally liable for their own professional malpractice or negligence.
- Professional Status: PLLCs are typically reserved for licensed professionals, while LLCs can be formed by individuals, other LLCs, corporations, or foreign entities engaged in various business activities.
- Regulatory Compliance: PLLCs are subject to additional regulatory oversight by state licensing boards governing the specific professional services they provide. Compliance with professional licensing requirements and ongoing regulatory obligations may influence the choice between LLC and PLLC formation.
- Ownership and Management Structure: LLCs offer flexibility in ownership arrangements and management structure, allowing for member-managed or manager-managed structures. PLLCs often adopt a member-managed structure, with licensed professionals actively involved in managing the company’s affairs.
- Transferability of Ownership: The transferability of ownership interests may be subject to restrictions in both LLCs and PLLCs. However, PLLCs may have additional limitations imposed by state law or professional licensing regulations.
- Tax Implications: Both LLCs and PLLCs typically enjoy pass-through taxation status, where profits and losses flow through to the members’ personal tax returns. Consideration should be given to the tax implications of each entity type based on the specific business circumstances and members’ tax objectives.
- Formation and Maintenance Costs: PLLCs may incur higher formation costs due to additional regulatory requirements and ongoing professional licensing fees. Consider the upfront and ongoing costs associated with LLC and PLLC formation and compliance.
- Perpetual Existence: Both LLCs and PLLCs have perpetual existence, allowing them to continue operations even if members leave or transfer ownership interests. Consider the long-term continuity and stability of the business when choosing between LLC and PLLC formation.
- Professional Reputation and Credibility: Depending on the industry and clientele, forming a PLLC may enhance the professional reputation and credibility of the business, signaling compliance with industry-specific regulations and standards.
Occupations that may have to form a PLLC
To start a Limited Liability Partnership (LLP), you typically need to follow these steps:
- Registered Nurses (RN) or Nurse Practitioners (NP)
- Physical Therapists/Physical Therapy Clinics
- Occupational Therapists/Occupational Therapy Practices
- Speech-Language Pathologists/Speech Therapy Practices
- Optometrists/Optometry Practices
- Veterinarians/Veterinary Practices
- Professional Surveyors/Surveying Firms
Remember to consult with professionals, such as legal and financial advisors, to ensure that you’ve covered all legal and regulatory aspects specific to your location and industry.
Not all states recognize the PLLC structure
States that recognize the PLLC
- Arkansas
- Arizona
- Colorado
- District of Columbia
- Florida
- Idaho
- Iowa
- Kentucky
- Maine
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Montana
- Nevada
- New Hampshire
- New York
- North Carolina
- North Dakota
- Oklahoma
- Pennsyslvania
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
States that DO NOT recognize the PLLC
- Alaska
- Alabama
- California
- Delaware
- Georgia
- Hawaii
- Illinois
- Indiana
- Kansas
- Louisiana
- Maryland
- Missouri
- Nebraska
- New Jersey
- New Mexico
- Ohio
- Oregon
- Rhode Island
- South Carolina
- Wisconsin
- Wyoming
In California, professionals cannot form an LLC or PLLC; instead, they may form a Professional Corporation or Limited Liability Partnership. In other states that don’t recognize the PLLC structure, professionals must choose an entity structure per the state’s specific rules for licensed occupations.
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