What Is an LLC
A limited liability company is a business entity formed under state law that provides liability protection to its owners, called members. LLC statutes exist in all fifty states.
An LLC can be used for most lawful business activities unless state law restricts certain licensed professions.
Core characteristics of a standard LLC include:
- Limited liability protection for business debts
- Flexible management structure
- Pass through taxation by default
- Option to elect corporate taxation
- No ownership restrictions in most states
LLCs are commonly used for retail businesses, consulting firms, real estate ventures, ecommerce companies, and many service based operations.
However, certain licensed professions are restricted from forming a standard LLC in some states.
What Is a Professional LLC
A Professional Limited Liability Company, commonly abbreviated as PLLC, is a special type of LLC formed by licensed professionals when state law requires it.
States that authorize PLLCs typically limit ownership to individuals who hold an active professional license in the relevant field.
Common professions that may require a PLLC depending on state law include:
- Physicians
- Dentists
- Attorneys
- Certified public accountants
- Architects
- Engineers
- Psychologists
- Chiropractors
The purpose of a PLLC statute is to ensure that professional licensing boards retain oversight and that only licensed individuals control the entity.
Not all states use the PLLC model. Some states use a Professional Corporation instead. Some allow licensed professionals to form a regular LLC.
Because rules vary significantly, state specific review is essential.
How State Laws Differ on PLLCs
State treatment of professional entities is not uniform.
Examples of variation include:
- California does not allow most licensed professionals to form an LLC and instead requires a Professional Corporation
- Texas allows licensed professionals such as physicians and attorneys to form a PLLC
- New York requires certain licensed professionals to form a PLLC rather than a standard LLC
- Florida allows certain professionals to form a PLLC but also permits Professional Associations
In many states, filing a PLLC requires:
- Identification of the specific profession
- Verification of professional licensure
- Approval from the relevant licensing board before formation
Failure to use the correct entity type can result in rejection of formation documents or disciplinary action.
Liability Protection Differences
One of the most misunderstood aspects of PLLCs involves liability protection.
Both LLCs and PLLCs provide limited liability for business debts and contractual obligations. However, professional malpractice liability is treated differently.
A PLLC does not shield a licensed professional from personal liability for their own malpractice.
Key liability principles include:
- Members are protected from debts of the entity
- Members are protected from malpractice of other members in many states
- A professional remains personally liable for their own negligence
- Professional licensing rules still apply regardless of entity type
For example, if two doctors form a PLLC and one commits malpractice:
- The doctor who committed malpractice remains personally liable
- The other doctor may be protected depending on state law and involvement
Liability outcomes depend heavily on state statutes and court interpretation.
Ownership and Management Restrictions
A regular LLC generally allows broad flexibility in ownership.
A PLLC typically imposes stricter ownership rules such as:
- All members must hold an active license in the profession
- Ownership may be limited to the same professional field
- Transfers of ownership may require board approval
- Non licensed investors may be prohibited
These restrictions are designed to preserve professional independence and regulatory compliance.
Management rules may also require that:
- Managers be licensed professionals
- The company provide only professional services related to the licensed field
Formation Process Comparison
The procedural steps differ depending on whether a PLLC is required.
To form a standard LLC, typical steps include:
- Filing Articles of Organization
- Appointing a registered agent
- Paying state filing fees
- Creating an operating agreement
To form a PLLC, additional steps may include:
- Confirming eligibility with the licensing board
- Submitting proof of licensure
- Including professional designation in the company name
- Obtaining board approval before filing
- Filing specialized formation documents
The name of the entity often must include Professional Limited Liability Company or an approved abbreviation such as PLLC.
Tax Treatment Differences
From a federal tax perspective, PLLCs and LLCs are treated the same.
Both structures can be taxed as:
- Sole proprietorship if single member
- Partnership if multi member
- S corporation if elected
- C corporation if elected
State tax treatment is generally the same as well, though some states impose professional licensing fees separate from business entity fees.
The key difference lies in regulatory compliance, not tax classification.
When You Should Form a PLLC
You should form a PLLC if:
- Your state requires licensed professionals to use a PLLC
- Your licensing board mandates a professional entity
- You are forming a multi member professional practice
- State law prohibits forming a standard LLC for your profession
Before forming, confirm:
- Your profession is covered under the PLLC statute
- Your license is active and in good standing
- Your co owners meet licensing requirements
When a Standard LLC Is Appropriate
A regular LLC is appropriate if:
- Your state allows licensed professionals to form standard LLCs
- You are not in a regulated profession
- You are operating a non professional business
- Your licensing board does not require a PLLC
Always verify with both the Secretary of State and the relevant licensing authority.
Common Misunderstandings About PLLCs
Several misconceptions frequently arise:
- A PLLC does not eliminate personal malpractice liability
- A PLLC is not available in every state
- Forming an LLC when a PLLC is required may invalidate the entity
- A PLLC does not provide stronger liability protection than an LLC
- Tax benefits are generally identical between structures
Choosing the wrong entity can delay operations or trigger regulatory issues.
References
- https://www.americanbar.org/groups/business_law/publications/blt/2020/05/llc-professional-entities/
- https://dos.ny.gov/professional-service-limited-liability-companies
- https://www.sos.state.tx.us/corp/formation.shtml
- https://www.corporations.ca.gov/forms/
- https://www.law.cornell.edu/wex/limited_liability_company