A professional limited liability company (“PLLC”) is a business entity designed for licensed professions, such as lawyers, doctors, architects, engineers, accountants, and chiropractors. While many businesses choose to form a limited liability company (“LLC”) because of the tax, limited liability, and other benefits, states generally don’t allow LLCs for businesses where a license is required. Licensed professionals who want the benefits of an LLC must form a PLLC instead.
Every state, with the exception of California, allows PLLCs, although state laws vary on what type of professionals must form one. In California, licensed professionals can form a professional corporation.
Laws and requirements vary state to state, but here are some general principles regarding PLLC's.
To form a PLLC, you usually must meet the following requirements.
First, the state licensing board for your profession must approve your articles of organization or similar organizational document. The requirements will differ depending on the state and the particular profession. Getting licensing board approval is an extra step in the LLC formation process and, as a result, it usually takes longer to form a PLLC than an LLC.
Second, a licensed professional must be the organizer and sign the appropriate organizational documents. The state may have additional restrictions about who can operate certain professional businesses. For example, state laws and bar associations have rules about who can operate a law firm.
Third, upon approval by the licensing board, the articles of organization and all other required paperwork must be filed with your secretary of state. To learn more about the filing process, review the secretary of state’s website in the state where you plan to incorporate or organize.
Most states also restrict who can own stock in a PLLC. Some states and professional licensing associations require all stockholders to be licensed professionals.
One of the major reasons to form a PLLC is because it creates a separation between the individual and the entity. In most cases, if a PLLC is formed, the individual will not be personally liable for the business’ debts or any lawsuits against the business.
However, there are instances where a PLLC will not protect you. For example, forming a PLLC does not protect you from malpractice claims. Because of this, it is a good idea to carry malpractice insurance even if you form a PLLC.
In addition, in order to receive a loan, banks often require a personal guarantee to back up a loan to a PLLC. Upon signing this agreement, you will be personally liable for any debts that you guaranteed. In addition, although a PLLC generally protects you from your employees’ actions, if you act in a supervisory role, you may be liable for the actions of the employees whom you supervise.