Professional Limited Liability Companies
In some states, professionals that hold a license can form a professional limited liability company (PLLC) rather than the more common LLC.
A professional limited liability company (“PLLC”) is a business entity designed for licensed professionals, 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, some states don’t allow LLCs to be owned by professionals whose occupation requires a license. In these states, licensed professionals who want the benefits of an LLC must form a PLLC instead.
Most states that don't allow professionals to form regular LLCs do allow professionals to form PLLCs, with the notable exception of California. California allows professionals to form registered limited liability partnerships (RLLPs) or professional corporations (PCs), but not LLCs or PLLCs.
Laws and requirements vary state to state, but here are some general principles regarding PLLC's. For information on each state's rules, see Nolo's article 50-State Guide to Forming a Professional LLC.
To form a PLLC, you usually must meet the following requirements.
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 sometimes takes longer to form a PLLC than an LLC.
Upon approval by the licensing board, the articles of organization and all other required paperwork must be filed with your Secretary of State or other LLC filing office. To learn more about the filing process, review the Secretary of State’s website in the state where you plan to incorporate or organize.
In most states, only those who hold professional licenses can own a share of the PLLC. In a few states, a licensed professional must be the organizer of the PLLC and sign the appropriate organizational documents (meaning a private company cannot form the PLLC for you).
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 for your own malpractice. 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.