While every PLLC is an LLC, not every LLC is a PLLC. In this guide I explain the differences and similarities between a PLLC and an LLC and which structure will suit you better.
While anyone can register their LLC, not everyone can form a PLLC, and it is only limited to professionals. The word PLLC stands for professional limited liability company. It is, however, a minor difference to consider, and now we will take a further look into the significant differences between an LLC and a PLLC.
But, before we go into the details of differences and similarities between a PLLC and an LLC, let’s first understand the structural differences between a PLLC and an LLC:
An LLC, or limited liability company, is a registered business entity primarily formed for two purposes: tax benefits and protection of personal assets. It offers business owners great flexibility to structure their business per their needs. They can accordingly structure their profit allocations, tax management, and employees’ management.
All these advantages have made LLCs a favorite choice for entrepreneurs across the United States. PLLC is a further extension of an LLC, and while it offers similar benefits, it varies from a traditional LLC in many ways.
For the professionals like doctors, engineers, architects, and lawyers, who want to register their businesses of offering services, a specific structure of an LLC exists, known as a PLLC. While a PLLC is an LLC, it is only allowed for professionals who need a license to operate.
It is important to note here that not every state offers PLLCs, and every state that provides a PLLC structure has varying requirements. Some states also list the professions that may form a PLLC, but not all states do so. However, the basic needs that are asked by every state are the proof of licensing and member approval from the licensing board of the given state.
DIFFERENCES BETWEEN AN LLC AND A PLLC
Now that we have understood the structural differences between a PLLC and an LLC, we will move towards more detailed differences between these two business structures:
- PERSONAL GUARANTEES
Personal guarantees vary extensively between an LLC and a PLLC. Because there is a lot more risk involved in a PLLC, lenders are always hesitant in lending and require personal guarantees. It can then subject the members of a PLLC to more personal liability.
On the other hand, an LLC is relatively more protected and has lesser risks involved. Lenders are thus less reluctant to lend to an LLC, and it also ensures that the members of an LLC are subject to very little personal liability
- DERELICTION OF DUTIES
While PLLC, being a substructure of an LLC, offers personal liability protection to its members, it does not protect them from malpractices related to their profession. However, one professional member of a PLLC is protected from the liability of malpractice of another member.
For example, if you are an engineer and a member of a PLLC, and another engineer from your PLLC is sued over professional malpractice, your finances will remain protected, and you will not be responsible in any way for the malpractice of your fellow PLLC members.
These two are the primary differences between an LLC and a PLLC, and we will now move to the similarities between these structures and how you can benefit from them.
- FREEDOM OF FORMATION
Last but not least, freedom of formation is a big difference between an LLC and a PLLC. All states allow the formation of an LLC, but not all states allow the formation of a PLLC. For example, the state of California doesn’t allow professionals to form a PLLC to offer their services.
Instead, professionals are required to form a PC or professional corporation. Similarly, the state of California also doesn’t allow limited liability companies to offer the services of certified and licensed professionals.
SIMILARITIES BETWEEN AN LLC AND A PLLC
LLCs and PLLCs have more in common than they have in contrast, and this section will discuss the primary similarities between these two business structures. It will explain how both of these structures are technically similar.
- MEMBERSHIP STRUCTURE
There is no limit to how many members an LLC can have in any state of the United States, and it is the same for PLLCs. A PLLC can have as many members as it wishes to, albeit they all should be licenses professionals.
Similarly, as an LLC can be a single-membered LLC, so does a PLLC. A professional can form a PLLC with only him as a member and operate as a sole proprietorship. Furthermore, as each state bars specific individuals from becoming a part of an LLC, it is similar for PLLCs.
An LLC and a PLLC similarly pay their taxes. Per se, IRS doesn’t recognize an LLC or PLLC as a separate legal entity for tax purposes, and it is left on the choice of LLC and PLLC’s owners to choose the way they want to be taxed. Multi-membered LLCs and PLLCs can either choose to be taxed as a C-Corp or as an S-Corp. IRS provides Entity Classification Form 8832, in which owners are required to fill and select the kind of taxation structure they want for their LLCs or PLLCs.
Furthermore, single-member LLCs and single-member PLLCs are considered disregarded entities for taxation purposes by IRS. As a disregarded entity, a single-member LLC and PLLC pay its taxes as part of the income tax on the owner of the respective entity.
- LIABILITY PROTECTION
We have already discussed the limited liability protection that LLCs offer, and it is similar for a PLLC. However, one of the significant differences is the scope of limited liability protection when it comes to the malpractice of an individual in a PLLC. Apart from that, LLCs and PLLCs offer the same kind of limited liability protection to their members.
There is, however, something about limited liability in both LLCs and PLLCs that needs to be understood. While members of both LLC and PLLC are not responsible for the acts of other members, they are still responsible for the employees working under their supervision.
After carefully weighing what you want from your business, it shouldn’t be hard for you to understand which business structure suits you better. But, if you are still confused, we are here to help (INSERT SITE CONTACT INFO).
Frequently Asked Questions
This section answers some of the frequently asked questions about PLLCs and LLCs:
- WHAT ARE THE MAIN ADVANTAGES OF FORMING A PLLC?
While forming a PLLC is a requirement of most states to offer professional services, it also comes with many benefits. By forming a PLLC, you are entitled to limited liability protection, as well as many tax advantages.
- CAN A PLLC HAVE EMPLOYEES?
Yes, a PLLC can have employees that can or cannot be professionals. However, the members of PLLC can only be licensed professionals, and an unlicensed person can’t own a PLLC.
- DOES A PLLC REQUIRE AN EIN?
If the PLLC is a single-member PLLC and has employees working for it, it will need to acquire an EIN to meet the legal requirements defined for the functioning of LLCs. However, if your PLLC does not have any employees, you are not legally required to have an EIN.
- DOES IT COST MONEY TO GET AN EIN FOR MY PLLC?
IRS offers EIN for free, and there are no fees involved in obtaining the EIN for your PLLC. However, if you are not directly acquiring your EIN from IRS and using professionals’ help, they may charge you some service fees for it.