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If you’re a budding entrepreneur, you probably feel overwhelmed by the amount of acronyms being thrown your way.
This is especially true when you’re faced with the decision to choose between two or more business structures.
Each structure has its own pros and cons, so making the right choice for your business can be daunting.
Fear not! In this article, we’ll make sense of the LLC and PLLC structures so that you can choose one for your business.
We’ll discuss definitions, pros and cons, and guide you through your final decision between LLC and PLLC.
By the end of this article, you should be able to confidently and securely make an informed choice of LLC and PLLC, depending on the goals of your business.
- Professional limited liability companies (PLLCs) are appropriate for companies that provide professional services and need additional liability coverage for their business.
- Limited liability companies (LLCs) serve as versatile business structures suitable for a wide range of industries (not just professionals) that are interested in limited liability and management flexibility.
- There are several key differences between a PLLC and an LLC. Namely, you can see discrepancies in the purpose of services, formation requirements, professional standards, and more.
- Most states allow PLLCs, but each state government has its own rules and regulations.
- Choosing between an LLC and a PLLC comes down to the disadvantages between the two structures, as they are both very similar.
Professional Limited Liability Company (PLLC)
Professional limited liability companies (PLLCs) are appropriate for companies that provide professional services and need additional liability coverage for their business.
These services include medical, legal, accounting, engineering, and other professions that may require specific business protections.
PLLCs enable businesses to benefit from limited liability, as seen in an LLC.
The PLLC structure also allows professionals to create a business entity and uphold their professional title.
Furthermore, PLLCs are fairly straightforward to establish and come with a simple tax process.
Limited Liability Company (LLC)
Limited liability companies (LLCs) act as versatile business structures suitable for a wide range of industries (beyond professionals) that are interested in limited liability and management flexibility.
LLCs are popular among small businesses seeking a simpler structure, both in taxes and management.
In fact, about 35% of small businesses are LLCs. Furthermore, the LLC’s appeal to small businesses is not the only reason why it’s utilized often.
LLCs provide asset protection; this means that the personal assets of the LLC members are protected from the company’s debts and legal obligations.
This is favorable for managing financial risks that would have otherwise impacted the owners, in addition to the company.
What’s the difference between a PLLC and LLC?
There are several key differences between a PLLC and an LLC. Namely, you can see discrepancies in the purpose of services, formation requirements, professional standards, and more.
Take a look at the chart which displays the differences between PLLCs and LLCs:
|For professionals who provide services that need a state license
|For many different businesses, no restriction on profession
|Submit documents for business and professional status (degrees, certifications, etc.)
|Submit documents for business
|Adherence to the standards of practicing as a professional, along with those of an operating business, is required
|No professional standards necessary (just structural standards laid out by the LLC)
Advantages & Disadvantages
Next, we’ll explore the advantages and disadvantages of PLLC and LLC structures as it relates to you and your business.
Pass through taxation (on personal return)
Less collaboration (limited to professionals in field)
Pass through taxation (on personal return)
Limitations in stock options, which can dissuade investors
Which states allow PLLCs?
Most states allow PLLCs, but each has its own rules and regulations. For example, states like New York offer more common PLLC structures, such that most licensed professionals can obtain one.
Conversely, Nevada does not allow PLLCs, and some states have strict regulations that need to be met in order to file.
States that allow PLLCs:
- District of Columbia
- New Hampshire
- New York
- North Carolina
- North Dakota
- South Dakota
- West Virginia
Which states don’t allow PLLCs?
California allows you to form limited liability partnerships (LLP) or professional corporations (PC), but not LLCs or PLLCs.
States that don’t allow PLLCs:
- New Jersey
- New Mexico
- Rhode Island
- South Carolina
Also, Connecticut and Illinois don’t allow PLLCs. Make sure to check with your state’s government website for more details on your region-specific differences in forming a PLLC.
How to choose between an LLC and a PLLC
Choosing between an LLC and a PLLC comes down to the disadvantages between the two structures, as they are both very similar.
If you are eligible to create a PLLC, this might be the best option for you and your protection.
However, if you are not a professional (doctor, lawyer, etc.) and want to participate in collaboration across different fields, consider adopting an LLC structure.
PLLC vs. LLC: Which option is best for you?
You’re at the end of this debrief on choosing the best structure option for your business.
PLLCs and LLCs are wonderful structures that offer limited liability and operational simplicity.
Just remember – no matter which structure you choose, your business’s success will benefit from your diligence in learning about the different structures.
Does a PLLC pay more taxes than an LLC?
No, as both structures have the same tax structure. However, PLLCs might benefit from other insurance or business benefits, depending on their state.
Who can own a PLLC?
Only professionals can own a PLLC, including doctors, lawyers, engineers, and other professionals who require a license to practice or operate.
If you do not have a professional title according to your state, you cannot operate a PLLC.
Can you convert an LLC to a PLLC in New York?
No, you cannot convert an LLC to a PLLC in New York. You would have to submit a completely separate application to be considered for PLLC status.