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What Is a PLLC and How Is It Different From an LLC?

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Starting your own medical practice or business is an exciting time, but navigating the legal intricacies – not so much. Amidst the sea of acronyms like LLCs, S Corps, and C Corps, one stands out for licensed professionals: the PLLC.

Tailored exclusively for doctors, lawyers, accountants, and other service providers, it offers coveted liability protection and flexible taxation options. So, let’s dive deeper into the world of PLLCs and see if it’s the right fit for your business.

This article will tell you:

  • What is a PLLC company?
  • How does a professional LLC vs. an LLC compare?
  • All the PPLC requirements and rules.

Read more:

What is a PLLC?

A PLLC (professional limited liability company) is a business structure similar to a standard LLC – except for licensed professionals like doctors, accountants, and lawyers. Professionals offering legal advice, medical care, and other services need licensing from state regulatory boards, which can make it tricky to form a standard LLC.

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However, like an LLC, the main advantage of a professional limited liability company is its protection of your personal assets. So, if your business hits a rough patch and finds itself in debt or facing lawsuits, your home and car typically stay off-limits.

But this shield isn’t bulletproof. If you start mixing business funds with your personal cash, you might find yourself in hot water. That’s when the dreaded “piercing the corporate veil” happens, and suddenly, your business debts become your personal problems.

Now, there’s one potential obstacle that could put an end to your PLLC business – your location. Some states require licensed professionals to become PLLCs, while others don’t recognize the entity at all.

Take a look:

States that allow PLLCs States that don’t recognize PLLCs
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, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington and West Virginia. Alaska, Alabama, California, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Kansas, Louisiana, Maryland, Missouri, Nebraska, New Jersey, New Mexico, Ohio, Oregon, Rhode Island, South Carolina, Wisconsin and Wyoming.

Note: California doesn’t allow PLLCs or LLCs – instead, you can form a registered limited liability partnership or professional corporation.

What Does PLLC Mean for a Doctor?

Forming a PLLC means protecting your personal assets if your company comes under duress. Issues with contracts, employee disputes, or slip-and-falls in the waiting room? What happens in the business stays in the business.

You’ve got the same perks as any other LLC owner — asset protection, liability, the works. But while a PPLC can protect you from the malpractice of other owners, you’ll be held responsible for your own malpractice or negligence. 

With almost one-third of US physicians reporting they’ve previously been sued, it’s essential that you’re covered with malpractice insurance.

How Does PLLC Taxation Work?

PLLCs are pass-through entities, so the profits and losses flow through to the owners who report them on their tax returns. It’s a pretty sweet deal because it means no double taxation headaches (you don’t pay tax twice on the same source of income).

For single-member PLLCs, you’ll report your PLLC’s income and losses on your personal tax return, just like you would for a sole proprietorship. If you’ve got a multi-member PLLC, you can file taxes similar to a limited liability partnership (LLP), where each member reports their share of the PLLC’s profits or losses on their individual tax returns.

In both cases, you’ll need to pay self-employment taxes – 12.4% for Social Security and 2.9% for Medicare.

And I get it – navigating taxes can be a minefield. Check out our top picks of tax strategists if you need some extra help with tax planning.

How to Start a PLLC?

One of the benefits of forming a PLLC is how easy it is to get up and running. Here are the steps you should take to apply for a PLLC and keep operations in order:

Decide on a name

Choose a name as unique as your fingerprint. Each state has its own rules, but make sure your name ends with “Professional limited liability company,” “P.L.L.C.,” or “PLLC,” and that it’s not already taken by another business in your state.

Appoint a registered agent

Every PLLC needs a registered agent who handles official documents. This role is crucial, especially as professionals are more likely to get sued or handed official notices from state licensing boards.

And speaking of licenses, every owner in your PLLC needs to be licensed in the profession of your business.

File articles of organization

Once you’ve got your team in order, it’s time to file those PLLC articles of organization with the secretary of state. You can file online, and the licensing board will check and review the articles.

Once the state approves, you’ll get a copy of the documents.

Create an operating agreement

The operating agreement is like your PLLC’s rulebook, outlining how things will work and keeping everyone on the same page.

You should include details about who’s running the show, responsibilities, profit disbursements, and how to handle conflict (around 20 pages should cover everything).

Respect PLLC requirements

Dot your i’s and cross your t’s when it comes to regulations. Whether it’s getting a PLLC EIN number, buying workers’ compensation insurance (unless you’re in Texas), or setting up that separate business bank account.

Keeping things squeaky clean will keep things running smoothly and maintain that precious limited liability protection.

Understand your taxes

PLLCs are pass-through entities, so you and your fellow owners will pay federal and state income taxes on your share of the profits on your personal tax returns.

LLCs can also elect to be taxed as a corporation to avoid self-employment taxes. Depending on your state, you may need to pay an annual franchise or gross receipts tax based on your business’ revenue.

Professional LLC: Benefits and Drawbacks

Are you on the fence about whether a PLLC is the right move for your business? Here are all the benefits and drawbacks to give you more clarity:

Pros

  • Solid liability: In addition to having your personal assets protected from debts and lawsuits, PLLC members aren’t personally on the hook for the malpractice of their fellow members.
  • Flexible taxation: With a PLLC, you’ve got options. You can choose to be taxed as a pass-through entity or as a corporation, avoiding the dreaded double taxation that haunts other business structures.
  • Easy set-up: One of the best things about PLLCs is how simple they are to form and maintain. No need for a board of directors or rigid rules like you’d see in a corporation. You can run your business your way, whether you want to be hands-on or delegate to managers.
  • Boosted credibility: Operating as a PLLC can increase your business’ credibility, making clients, investors, and partners more confident in your services.

Cons

  • State restrictions: Not all states recognize PLLCs, which can be a roadblock if you offer services across state lines. Even in states that allow PLLCs, there might be limitations on who can form one and what services they can offer.
  • Self-employment taxes: Each member must pay self-employment taxes of 15.3% (12.4% for Social Security and 2.9% for Medicare) on their share of the LLC’s profits.

PLLC vs. LLC: What Is the Difference?

In simple terms: there isn’t much difference between the two business structures. In fact, there are more similarities than differences; here are the basics:

Membership

With a regular LLC, you can have single or multiple memberships with anyone interested in owning a piece of the business. There’s an open invitation to join the club. Whether you’re a doctor, lawyer, artist, or dog walker, you’re welcome to become an owner.

PLLC membership is more specialized with licensed professionals. State PLLC laws often specify that only licensed professionals in certain fields — like law, accounting, medicine, or architecture — can become members. Some states take it further and require that a certain number of members in a PLLC must be licensed. In some cases, this can be as low as 50%.

Liability

PLLCs and LLCs both offer a shield against personal liability for business debts and lawsuits.

While LLCs and professional LLCs won’t be held personally responsible for business troubles, you do have to pay the price for your own illegal actions, misjudgments, or negligence.

For example, if you take out a loan for your medical practice, you could be held personally responsible if you can’t pay the debt.

The same story goes for malpractice. While you’re shielded from the malpractice of other owners — you’re still on the hook for your own slip-ups. So, if you mess up a diagnosis, the patient can come knocking on your door, laying claim to your personal assets – making it essential to carry malpractice insurance.

Taxes

PLLCs essentially play by the same rules as ordinary LLCs. By default, the IRS taxes LLCs and PLLCs as a sole proprietorship (single member) or a partnership (multi-member). They use “pass-through taxation”, meaning members report all profits and losses on their personal income tax returns.

LLCs and PLLCs must also pay the 15.3% in self-employment tax (Social Security and Medicare) on their share of the company’s profits – usually every quarter.

Both business structures can elect to be taxed as an S Corporation to help lower taxes by paying themselves a salary. S Corp members must pay self-employment tax on their wages – but not on income taken from distributions.

So if you pay yourself 60% in salary and 40% as distributions, you could save a decent amount as distributions don’t get hit with Medicare, personal income, or Social Security taxes.

Bottom Line

When deciding if a PLLC is right for you, consider your profession, liability concerns, and business goals. If you’re a licensed professional seeking personal asset protection while practicing your trade, a PLLC could be a solid choice.

Evaluate the fine print in your state and chat with legal and financial professionals to weigh the benefits and drawbacks of your specific situation.

FAQs

What is an example of PLLC?

An example of a PLLC in the medical field could be a group of doctors coming together to form a practice. Each doctor is a member of the PLLC, enjoying personal asset protection while collectively running the business.

Licensed professionals eligible for a PLLC include lawyers, accountants, architects, dentists, and engineers. However, it’s best to check with your state which professionals can form a PLLC and how many members.

Is a PLLC a sole proprietorship?

A single-member PLLC can be taxed as a sole proprietorship, while a multi-member PLLC is taxed as a partnership. Both forms of taxation are pass-through entities, where profits and losses flow through to the individual members, who report them on their tax returns.

Is a PLLC the same as an LLC?

While both PLLCs and LLCs offer limited liability protection, there are some minor differences. A PLLC is specifically tailored for licensed professionals, while an LLC can be formed by anyone for any type of business.

What does PLLC stand for in medical terms?

PLLC stands for Professional Limited Liability Company. It’s a business structure specifically designed for licensed professionals like doctors, providing personal asset protection while allowing them to practice their profession.



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