What are some of the differences and similarities between a PLLC and an LLC?
A Professional Limited Liability Company (“PLLC”) is a specific form of Limited Liability Company (“LLC"). The primary difference between a PLLC and an LLC is that professionals who are recognized in a state through licensing form a PLLC. These licensed professionals can consist of architects, physicians, surgeons, engineers, accountants, dentists, and chiropractors. It is imperative to check with the respective state to verify who is considered to be a licensed professional and required to form a PLLC. However, not all states allow PLLCs. In this case, and pursuant to the respective state laws, filing as a professional corporation or as a standard LLC may be an option.
It is important to note that a PLLC will not shield members from malpractice claims. Nonetheless, the misconduct of one individual member does not create liability for other members. If one member is accused of wrongful conduct, the other members are protected. Since there is no protection for malpractice claims, most licensed professionals obtain malpractice insurance.
A PLLC and an LLC both need certain documentation, such as an Articles of Organization, for their formation. These documents need to be filed with the appropriate state agency. On the other hand, there are additional steps for a PLLC when filing its Articles of Organization. The LLC documentation needs to be adapted to a PLLC, as well as, other documents may be required to verify the licensing status of the member(s). Certain documents may also need to be filed with the appropriate licensing agency.
Under a PLLC and an LLC, business owners are allowed to keep their personal assets separate from the business. This effectively limits their own liability when it comes to financial business liabilities and responsibilities. A PLLC and an LLC are often equated as a cross between a sole proprietorship and corporation. Hence, a PLLC and an LLC offer flexible management and taxation. Business owners have the option of pass-through taxation, and as a result, they do not have to file completely separate taxes for the business.
Ultimately, there are no real tax variances between a PLLC and an LLC. The Internal Revenue Service does not acknowledge either PLLCs or LLCs for tax purposes. A business owner will need to determine if they want to be taxed as an individual, a partnership, or an S Corp. In the event there is only one member of a PLLC or an LLC, it is called “disregarded status.” In the event an individual owner of a single-member LLC, runs a trade or a business, that individual is responsible for the tax on net earnings from self employment in the same fashion as a sole proprietor. The IRS has a form (Form 8832 – Entity Classification Election) that business owners are required to fill out. Failure to complete this form may put a business owner in the wrong category. Consequently, it is imperative that the appropriate forms are completed when filing taxes.
Please contact one of our trusted and experienced attorneys at Peace & Squires Law to help with the formation of your PLLC or LLC.