PLLC vs. LLC
If you own a professional services organization, you may have heard that you should structure your company as a PLLC. You are probably also wondering what a PLLC is and whether you should be one.
What’s the Difference Between a PLLC and an LLC?
A PLLC (Professional Limited Liability Company) is a limited liability company designed for licensed professionals such as doctors, lawyers, accountants, and other professional service providers. Forming a PLLC is subject to specific state regulations, and the members must be licensed in the profession for which the company is being formed.
An LLC (Limited Liability Company) is a business structure that offers the liability protection of a corporation but with the tax benefits of a partnership. Unlike a PLLC, an LLC can be formed by anyone, regardless of their profession. LLCs are flexible and can be used for various business types and structures.
The main difference between a PLLC and an LLC is that a PLLC is specifically designed for licensed professionals. At the same time, an LLC is a more general business structure that can be used for various businesses.
Professional Limited Liability Companies
Professional Limited Liability Companies (PLLCs) are formed by state law, and the requirements for forming a PLLC vary by state. In general, the state’s board or agency that regulates the profession or occupation for which the PLLC is being formed will oversee the formation and operation of the PLLC.
For example, in California, a PLLC is formed by the California Secretary of State and the state’s relevant regulatory agency for the profession, such as the California Board of Accountancy for accountants.
In Texas, the formation of a Professional Limited Liability Company (PLLC) is governed by the Texas Business Organizations Code (BOC). The BOC sets out the requirements and procedures for forming a PLLC in Texas and the rules and regulations that apply to PLLCs once they are formed. Additionally, the Texas Secretary of State oversees the registration of PLLCs and maintains a registry of all entities registered in the state.
The Virginia Professional Limited Liability Act (PLLC Act) governs the formation of a Professional Limited Liability Company (PLLC) in Virginia. A PLLC is a business entity formed by members of a licensed professional to provide licensed professional services. For example, dentists, architects, CPAs, and clinical nurse specialists may form a Virginia PLLC.
Generally, all members of a PLLC must be licensed, and the PLLC must provide only one kind of professional service; but there are exceptions to these rules. State licensing boards may require prior approval to form a PLLC, and some may even require formation as a PLLC rather than LLC. (Like the State Bar)
The articles of incorporation for a PLLC must state the type of services the PLLC will provide. A PLLC may only provide the services for which it was organized. There are naming requirements for a PLLC outlined in the VPLLC Act.
Limited Liability Company
A Limited Liability Company (LLC) is a general business entity comprising one or more individuals who own the LLC. These individuals are not necessary but may be licensed professionals providing licensed services. An LLC may engage in various services that may or may not include professional services.
Both structures offer similar liability protections for business debts and are taxed similarly.
It is important for individuals who are considering forming a PLLC to consult with an attorney or a professional regulatory agency to ensure that they comply with all applicable state laws and regulations.
Does formation as a PLLC eliminate liability?
No. Generally, both PLLCs and LLCs have similar liability benefits; they protect individual members from claims for personal injury unrelated to the services provided and certain financial debts of the company, and acts of malpractice committed by other PLLC members. This is different from a Partnership which imposes liability on all the partners.
A member of a PLLC is NOT protected from individual professional malpractice, intentional torts, gross negligence, malfeasance, or personally guaranteed business loans. Because they are individually liable for their own malpractice, Individual members of a PLLC should have individual professional liability insurance.
What professional services may form as a PLLC?
The specific professional services that can form a PLLC may vary by state, as each state has its own laws and regulations regarding PLLCs. However, in general, PLLCs are typically available to licensed professionals who provide services that require a professional license, such as:
- Physical therapists and therapist assistants
- Practitioners of the “Healing Arts” (those individuals who deal “with the prevention, diagnosis, treatment and cure or alleviation of human physical or mental ailments, conditions, diseases, pain or infirmities”), including all physicians and medical professionals who are otherwise not specifically mentioned under the Act
- Nurse Practitioners
- Practitioners of Behavioral Science (i.e., Psychologists, Social workers, Counselors, etc.)
- Professional Engineers
- Land Surveyors
- Landscape Architects
- Certified Interior Designers
- Public Accountants and Certified Public Accountants
- Insurance Consultants
- Audiologists and Speech Pathologists
It is important to note that some states may have limitations or requirements for the types of professionals that can form a PLLC, so it is best to check your state’s specific laws and regulations.
Which one should I select?
Before forming as a PLLC you should review the Virginia Professional Limited Liability Company Act and check with the applicable licensing board for specific provisions related to your profession.