Most new businesses that move beyond the sole proprietor stage form as limited liability companies (LLCs). There are other options, though. The most similar other option is the professional limited liability company, which is often a better option for professionals who are starting a business.
Here’s a comparison of LLCs and PLLCs. Particular details are state-specific, but this’ll help you decide which is likely the better structure for your business.
What is an LLC?
A limited liability company is a flexible business structure available to essentially anyone. It creates a legal separation between the business and its owners (members), which shields members’ personal assets from debts or lawsuits against the business.
The LLC structure also lets businesses file taxes like a sole proprietor or a corporation. Either may be more beneficial depending on your business’s revenues and expenses.
There aren’t licensing requirements to start an LLC, meaning virtually anyone can create one.
What is a PLLC?
A professional limited liability company is a specialized version of the LLC for licensed professionals who provide state-regulated services. The professions that qualify vary by state, but the list typically includes doctors, dentists, lawyers, accountants, architects, engineers, therapists, chiropractors, and veterinarians, occupations where a state board issues a license.
With regard to benefits, LLCs and PLLCs are quite similar. Both create a “corporate veil” that protects personal assets from business debts and lawsuits, although PLLCs may extend some liability protection to licensed services that fall outside the scope of LLCs.
It should be noted that PLLCs aren’t available everywhere, and which professions require a PLLC varies by state. An LLC is the default option if your state doesn’t have a PLLC for your line of work, even if you’re licensed.
PLLC vs. LLC: key differences
The defining difference between PLLC and LLC business formations lies in licensing. PLLCs are for state-licensed professionals. LLCs are for businesses that don’t require state licensure. In some states, licensed professionals might still use an LLC.
Who can form one
Any individual, business (LLC or corporation), or foreign entity can start an LLC. It’s not uncommon for LLCs to be owned by multiple individuals or other entities. There is no professional licensing requirement.
A PLLC is restricted to certain licensed professionals. Most states that have PLLCs require approval from the state licensing board for that profession, before forming the PLLC. Additionally, often all owners are required to be licensed.
Licensed professions requiring a PLLC can include medical professionals, mental health professionals, legal professionals, financial professionals, engineers and architects, veterinarians and others. Exact lists vary by state and can be quite specific.
For example, Louisiana is an outlier that only uses PLLCs for dentists. Other medical professionals use either a standard LLC or a professional corporation (PC). Thankfully, other states vary but generally aren’t this convoluted.
Formation requirements
Forming an LLC means filing Articles of Organization with the state, paying a filing fee, and designating a registered agent. Some states also require an Operating Agreement, and New York is an outlier with its NY LLC publication requirement. The process is straightforward, and you usually can file in a single day if using an LLC formation service. (New York takes longer because of the publication requirement.)
Forming a PLLC requires the same basic steps as creating an LLC, plus you also must provide proof of licensure. Proof must be sent from the state’s licensing board to the Secretary of State. This is an additional step that adds time, and frequently also another fee.
Some states further require professionals to carry liability insurance. If your state requires liability insurance, you could have to submit proof of insurance along with your formation documents. A Certificate of Insurance (COI) can typically be sent from your insurer to the Secretary of State; check with your insurer on turnaround time and any fee, since this varies by carrier.
Liability protection
One of the main reasons to form an LLC or a PLLC is for liability protection. Both provide general protection for personal assets. A PLLC goes further by adding protection against certain malpractice claims.
An LLC creates a “corporate veil,” which separates business finances from personal ones. This includes separating assets, debts and lawsuits should you face one. Even if a business can’t cover its debt or a lawsuit, personal assets usually don’t have to be used to pay. There are exceptions for things like intentional misconduct, fraud and malpractice.
A PLLC offers the same protections against debts, and against “slip and fall,” defamation, false advertising lawsuits, and other common lawsuits. In this regard, there isn’t much difference between the two business structures.
A PLLC also adds specific protections against malpractice lawsuits, but these protections aren’t comprehensive and the details vary by state. Generally speaking, a PLLC won’t protect your personal assets if you, yourself, are found guilty of malpractice, and it typically won’t protect you for the negligent acts of anyone working under your direct supervision, employees included.
Where PLLC protection is strongest is for a co-member’s malpractice you had no supervisory role in and weren’t personally involved in: many states allow a PLLC to shield the other members’ personal assets in that scenario, while a member personally supervising the negligent employee could still be exposed.
Because this depends heavily on your state’s specific statute and the facts of a given claim, this is an area to confirm with a business attorney rather than treat as a blanket guarantee.
In states that have PLLCs, an LLC doesn’t protect against malpractice claims even if you personally aren’t at fault. If you’re in a state that doesn’t have PLLCs, whether an LLC would offer protection from others’ malpractice depends on the state’s laws and regulations.
Here are some real-world scenarios that show how the two business structures function:
- Customer slips in the entryway and is injured. Both business structures would generally shield your personal assets from an injury lawsuit.
- Competitor sues over a defamatory statement you post on social media. Both business structures would generally shield your personal assets from the defamation suit.
- You’re found guilty of gross negligence or malpractice. Neither business structure would typically shield your personal assets.
- A partner is found guilty of gross negligence or malpractice, and you had no supervisory role in their work. A PLLC would typically shield your personal assets in many states; an LLC generally would not, in states that also offer PLLCs.
Note: Neither structure would prevent your business from having to pay a successful lawsuit. No business formation is a substitute for carrying the right liability insurance coverages. Tailor Brands can help you find business insurance for what you do.
State availability
LLCs are recognized in every state and the District of Columbia. Roughly 30 states plus the District of Columbia recognize a distinct PLLC designation; a few states, like Delaware and Oregon, don’t have a PLLC option at all and instead use alternatives like registered limited liability partnerships, professional corporations, or standard LLCs and corporations for licensed professionals.
Because sources vary slightly on the exact count and states periodically update their statutes, check your specific state’s current requirements rather than relying on a fixed number.
Naming requirements
Both options have the same naming requirements. You must use your business name followed by “LLC” or “PLLC,” or an acceptable derivation thereof. For example, “First Business, LLC” or “First Professional, PLLC.” Spelling out the business structure, using periods between letters, and a few other similar variations are usually acceptable. Check with your state’s specific naming requirements to be sure.
Are PLLCs taxed differently than LLCs?
No, the IRS treats LLCs and PLLCs the same.
They’re pass-through entities by default. A single-member PLLC is treated as a disregarded entity, with income reported on the owner’s personal return. A multi-member PLLC is treated as a partnership, filing an informational return while profits and losses flow to the members.
Both can elect to be taxed as an S Corporation or C Corporation if it’s advantageous to do so. Being taxed as a corporation, usually an S Corp, can reduce self-employment tax on a portion of earnings. This doesn’t change the business structure, and choosing corporation taxation is the same process for LLCs and PLLCs.
Check with a Certified Public Accountant (CPA) before making such a change. Tax strategy can have a significant impact on how much you owe.
What is the advantage of a PLLC over an LLC?
If your state offers, or requires, a PLLC for your profession, PLLCs offer a few advantages over LLCs:
- Member-to-member malpractice protection: Member-to-member malpractice protection: The primary legal benefit of a multi-member PLLC is the personal liability firewall it can build between partners for a co-member’s malpractice that a member had no hand in supervising. Depending on your state, an LLC or General Partnership might leave your personal assets exposed for another’s malpractice.
- Professional credibility: Operating with a “PLLC” designator signals to prospective clients, patients, insurance providers, and financial institutions that your business is fully licensed, properly structured, and compliant with state professional regulatory boards.
- Compliance with state law: In many states, whether licensed professionals file a PLLC isn’t optional. If you fail to comply with such a requirement, you could be at risk of fines, licensing issues, and loss of personal assets if sued.
To reiterate, a PLLC does not protect your personal assets if you commit malpractice or generally for malpractice by someone under your direct supervision. It’s not a substitute for liability insurance.
Which one is right for you: LLC vs PLLC?
Whether you should file your new business as a PLLC or LLC basically comes down to three factors: state requirements, profession and professional liability exposure.
Choose an LLC if:
- You’re not in a state-licensed profession
- Your state doesn’t have PLLCs for your licensed profession*
- You have the option (uncommon) and run a solo practice**
*If you’re a licensed professional, your state could require filing as a Professional Corporation (PC) rather than an LLC. Check your state’s requirements.
**There’s no need to worry about others’ malpractice if you’re the only person providing services.
Choose a PLLC if:
- You’re state-licensed, and the state requires a PLLC for your field.
- You’re licensed but have the option, and are part of a multi-person practice**
**You should have the member-to-member malpractice protection if working with other licensed colleagues.
Conclusion
As you move forward with a new business, first check your state’s requirements for your profession. Then, consider whether member-to-member malpractice protection is needed. PLLCs aren’t available in all states, but you should use one if it’s an option and you answered yes to either of the above. If you’re unsure, consult a business attorney before making the decision. This is one business decision you want to get right.
FAQ
It’s a specialized version of an LLC for licensed professionals, like doctors or lawyers, who provide state-regulated services.
PLLCs are restricted to state-licensed professionals and often require proof of licensure, while LLCs have no such licensing requirement.
It offers member-to-member protection from a colleague’s malpractice you weren’t involved in, but it doesn’t shield you from your own malpractice or that of someone you supervised.
No, the IRS treats them the same as pass-through entities by default, and both can elect S corp or C corp taxation if beneficial.
No, roughly 30 states plus DC recognize PLLCs, while others use alternatives like professional corporations for licensed professionals.