How to Form a PLLC in Delaware

As a licensed professional in Delaware you can structure your business as a Delaware limited liability company (LLC). This will give you protection from several important types of liability. It also may provide certain tax advantages compared to other ways of structuring your business.

Note: Delaware law doesn't use the term professional LLC (PLLC). For this article, a PLLC simply means an LLC formed by licensed professionals in Delaware that provides professional services.

What is a Delaware PLLC?

A Delaware PLLC is a limited liability company (LLC) formed specifically by people who will provide Delaware licensed professional services. LLCs in general are businesses registered with the state that consist of one or more people—called LLC members—who own the business. Like other LLCs, PLLCs protect their individual members from people with claims for many (but not all) types of financial debts or personal injuries.

Unlike the vast majority of other states, Delaware's LLC Act doesn't include provisions specifically for LLCs that will provide professional services, nor is there a separate PLLC statute. (Delaware's corporation laws do include provisions for professional corporations, which are entities somewhat similar to PLLCs).

However, nothing in Delaware's LLC Act prohibits professionals from forming LLCs. In addition, a few of the state's various laws regulating professions and occupations (Title 24 of the Delaware Statutes) refer to professionals forming limited liability entities such as LLCs.

What is a Professional Service in Delaware?

Delaware's LLC Act does not mention professional services. By contrast, other states' LLC laws frequently provide specific lists of professional services. These lists typically include, at a minimum, physicians, surgeons, dentists, lawyers, certified public accountants, professional engineers, architects, and veterinarians, but often include other professions, as well. (Delaware's professional corporation law mentions as professions architects, certified or other public accountants, chiropodists, chiropractors, doctors of dentistry, doctors of medicine, optometrists, osteopaths, professional engineers, veterinarians, and attorneys-at-law). Meanwhile, in a few cases, laws or rules regulating individual professions mention LLCs, or more generally, limited liability entities. In short, any professional should be able to form an LLC in Delaware. However, if you have any question about whether your licensed or authorized profession is prohibited from forming a Delaware LLC, you should check the state law regulating your profession as well as consult with a local business attorney.

How Do I Form a Delaware PLLC?

To form your Delaware PLLC you'll need to:

• have the state licenses for professionals who will be a member of the company (licenses may be required for either some or all members depending on the profession)
• check with the state licensing board for your profession to see if its prior approval is required (and, if so, obtain the necessary documentation showing that approval), and
• file a certificate of formation with the Delaware Department of State (DOS).

You can download a blank certificate of formation form from the DOS website. The downloadable form is generic for any LLC—it contains no information specifically for professionals forming LLCs. The current filing fee is $90.

Naming Restrictions

All Delaware LLCs must contain the words "Limited Liability Company" or the abbreviation "L.L.C." or the designation "LLC". The laws for your particular profession may impose additional restrictions on names. For additional important information on LLC names generally, check the Business Name, Location & Licenses section of the Nolo website.

Service and Membership Restrictions

There may be service or membership restrictions on Delaware PLLCs providing specific types of professional services. Check the statute for your particular profession and consult with a local business attorney for more details. Also, keep in mind that Delaware PLLCs and/or their members are subject to the regulation of the relevant state professional licensing authorities.

Operating Agreement

You should make sure you have an operating agreement for your PLLC. Unlike professional licenses, articles of organization, naming restrictions, and service restrictions, this is not a state requirement. However, it is important to have an operating agreement so that other members of the PLLC (if any), as well as outside companies and businesses (for example banks), know what the internal rules are for the company. Depending on your own level of knowledge and expertise, you should consider having a lawyer assist you in preparing this document.

A PLLC Will Not Protect You From All Liability

Forming your professional service business as a PLLC will protect you personally from:

• creditors seeking to collect unpaid debts owed solely by the PLLC
• liability for the malpractice of other PLLC members, and
• people who are personally injured in connection with your PLLC because of things having nothing to do with your own professional malpractice or torts (for example, if someone slips and falls in your PLLC's offices).

Regarding protection from liability for the malpractice of fellow PLLC members, be aware that, for some professions in some states, PLLC members are required to have a minimum amount of malpractice insurance before they are eligible for such protection. Therefore, it's always a good idea to double check your state's PLLC laws, as well as your state's rules for your particular profession, regarding minimum insurance requirements.

Meanwhile, you are personally responsible if:

• you personally guarantee repayment of a business loan
• you engage in professional malpractice (such as completely botching a patient's treatment or egregiously mishandling a client's case), or
• you intentionally or negligently commit a tort (such as assaulting someone).

Because you are not protected from your own malpractice, you should make sure you have professional liability insurance—and, if applicable, that your coverage meets any minimum insurance requirements.

A PLLC is Different From a Professional Corporation

A PLLC is not the same thing as a professional corporation (PC). A PLLC is a newer type of business entity than a PC. Here are some of the key differences:

• a PLLC, like other LLCs, is comprised of members, but a PC, like other corporations, is comprised of shareholders
• following from the previous point, PLLC ownership consists of so-called membership interests in the business, but PC ownership is based on shares of stock; and
• a PLLC, like other LLCs, is a so-called pass-through tax entity, meaning that in most states only the individual members have income tax obligations, while a PC, like other corporations, usually has its own income tax obligations.

The tax differences between PLLCs and PCs can become complicated. For example, Delaware imposes a flat annual tax on LLCs. (More information on this tax is available in other Nolo LLC articles.) Moreover, a PC can elect a special tax status (S corporation status) that effectively makes it a pass-through tax entity like a PLLC. And, meanwhile, PCs that don't elect special status may be subject to double taxation—in other words, both the PC itself and its shareholders may have to pay taxes on business income.

Delaware allows professionals to form both LLCs and PCs, and both LLCs and PCs provide liability protection for, respectively, their members or shareholders. Because the protection is essentially the same for both LLCs and PCs, but LLCs are simpler to create and operate, many professionals prefer the LLC structure.

Additional Information

For more information on the requirements for forming and operating an LLC in Delaware, such as those relating to annual reports and taxes, see Nolo's articles in 50-State Guide to Forming an LLC and 50-State Guide to Annual Report and Tax Filing Requirements for LLCs, along with the other articles on LLCs in the LLC section of the Nolo website.