If you are planning to start a new company, it can be challenging to select the right business structure.
This decision is crucial as it has a direct impact on a host of essential aspects of your business.
If like most people you are trying to know more about common business structures, you will mostly come across options such as LLC, partnership, and corporation.
But another not so popular business structure is PLLC. If you do qualify for this structure, your business can experience some valuable benefits.
But what is a PLLC? Who can form a PLLC? What are the benefits of this business structure?
Let us find answers to these essential questions.
What is a PLLC?
A PLLC or Professional Limited Liability Company is a type of LLC. This business structure is only available to a few licensed professionals. With this business structure, the company can only offer services related to their profession.
It is important to note that only a few states in the US let licensed professionals select between LLC and PLLC. In many other states, it is mandatory for licensed professionals only to form PLLCs. But there are some states where the PLLC structure does not exist. In such states, licensed professionals can go ahead with the standard LLC structure.
Just like an LLC, a PLLC can also have a single owner or multiple owners. The owners are known as members. In case if it a single-member PLLC, its taxation will be similar to that of a sole proprietorship. Taxation of a partnership will apply for multi-member PLLCs.
Who Can Form a PLLC?
There are many different types of licensed professionals who can form a PLLC. The state laws designate the professions that can create a PLLC.
While the laws vary between states, some common professions eligible to set up a PLLC are as follows-
Benefits of Forming a PLLC
PLLCs are just a type of LLC. As a result, they offer all the benefits available with the LLC business structure. For instance, PLLC also provides limited liability protection. If someone files a lawsuit against the PLLC, the personal assets of the owner/s remain protected. But there are limitations to this protection.
They can also have employee retirement plans that have higher limits for contribution as compared to partnerships or sole proprietorships. Taxation flexibility is also an excellent advantage which makes PLLC an ideal choice for licensed professionals.
Forming a PLLC
Forming a PLLC is similar to creating an LLC. It is a 2-step process in which the PLLC first needs to file the Articles of Organization. The next step is to get the professional license and Articles of Organization reviewed by the state licensing board.
For instance, if you are a doctor and you want to form a PLLC, the medical licensing board will review your license and Articles of Organization. Also, some of the states require your business name to have “PLLC” in it.
Taxation of PLLC
Just like an LLC, a PLLC pays taxes like a sole proprietorship or a partnership depending on the number of members it has. PLLCs are also pass-through tax entities. This means that the PLLC taxes pass through the personal income tax of the owners.
In the case of multi-member PLLC, the members will pay taxes by their ownership share in the PLLC.
Difference Between PLLC and LLC
PLLC and LLC are fundamentally the same. It is just that to form a PLLC; you have to be a licensed professional. Apart from this, the formation, taxation, and functioning of LLCs and PLLCs are the same.
But it is essential to know about PLLC as in some of the states it is compulsory for some licensed professionals to only form a PLLC and not the standard LLC.
What is a PC? Is It Similar to PLLC?
No, PLLC or Professional LLC is a type of LLC and PC, or Professional Corporation is a type of corporation. While both the business structures require licensed professionals to be the owners, there are significant differences between the two.
For instance, a PLLC is a pass-through tax entity wherein the business profits are passed through the personal income tax of the owners. But with a PC, a corporate rate of tax is applicable, and taxation of the owners is as per the dividends they receive from the business.
There are other significant differences with regards to the formation, management, and functioning of PLLC and PC.
As you can see, LLCs and PLLCs are mostly same business structures. The difference in the name is due to the requirement of some states where some specific licensed professionals can only form a PLLC.
So, if you are a licensed professional wanting to form a legal business entity, make sure that you go through your state laws. It is possible that PLLC might be mandatory, optional, or not applicable in your state.
If you want to select between PLLC and PC, know that PC is a more complex structure. However, in a lot of cases, the PC structure can be a better choice. Consult a legal professional in this matter to make the right decision.