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Choosing between different types of business organizations can be difficult, but especially so if you are in a professional career such as law or medicine. In several states, licensed professionals have the option of forming a professional limited liability company (PLLC), which is a variation of a general limited liability company (LLC). » MORE: Business Models: How to Choose the Right One
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A Professional Limited Liability Company (PLLC) is a business structure that provides personal asset protection for business owners in licensed professions, such as medicine and law. Only recognized in some states, PLCs are subject to the same rules as regular LLCs. However, the licensing board must verify each owner's license and approve the PLLC articles of association. The following states allow licensed professionals to form a PLLC:
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Many business owners open LLCs because this business structure provides less personal liability for owners. A business lender cannot pursue the personal assets of any owner. Additionally, if one owner in an LLC makes a mistake or acts negligently, the other owners cannot be held liable. Other benefits of an LLC include tax flexibility and low setup costs. Several states recognize a PLLC as a special type of LLC for licensed professionals - such as attorneys, accountants, physicians, and developers. Licensed professionals can also form other types of business entities. For example, some countries allow professionals to form limited partnerships (LLPs), and others recognize a professional corporation (PC). Your secretary of state or business registry will be able to tell you more about the laws of professional organizations in your state. In countries that recognize PLCs, many of the same rules that apply to regular LLCs apply to PLLCs. LLCs and PLLCs have the same management structure and are taxed in the same way. A key difference between an LLC and a PLLC has to do with exclusion clauses. Just like LLCs, PLC owners are protected from business debt and liability, and are not liable for mistakes made by their business partners. However, they themselves are responsible for what they are accused of because of their negligence. If the doctor is negligent, then the patient can sue the doctor and get the doctor's belongings. For this reason, it is important for PLLC members to carry professional liability insurance, commonly known as malpractice insurance.
Generally, an individual seeking a state license, registration, or professional practice certificate is eligible to form a PLLC. In some cases, such as a doctor's office or a law firm, it is obvious that a PLLC can be formed, but other cases may be less clear. Fortunately, in many states, such as Colorado and Minnesota, you will find a list of specific professions that are eligible to form a PLLC. Note that all owners in the business must be licensed. Charlton M. Messer, an attorney at the Messer Law Firm, PLLC, says, "LLCs can only provide services related to their business (unlike an LLC, which can engage in any business it wants, as long as it's legal, of course). The only people who can have ownership in a PLLC are those they can provide services that require a license. PLLCs usually have multiple owners, called members. However, it is also possible to have a single member PLLC, which is a PLLC with one owner. On a daily basis, the members can jointly manage the PLLC. This is called a member-managed LLC. Alternatively , they can appoint one of the members or hire someone from outside the organization to act as manager. This is called a manager-led LLC.
In most states, professionals have the ability to form other types of businesses in addition to a PLLC. Here's how a PLLC compares to other business entities:
Professionals often form a PLLC as an alternative to a regular corporation. A general partnership is the most common type of business entity for multi-owner companies. However, in a full partnership, each partner is responsible for the wrongs and actions of the other. For example, suppose a general practitioner makes a mistake during an operation and the patient sues. The patient can contact the doctor himself, but he can sue other doctors in this case. In contrast, owners in a PLLC are not responsible for the errors or omissions of other partners. Protecting personal assets is important in industries like medicine where lawsuits are common. In the doctor example mentioned above, the patient could only sue the doctor who performed the surgery if the treatment plan was PLLC. That doctor is responsible for what he does and should have comprehensive insurance to protect his assets. However, some doctors may not be at risk of surgical errors.
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The LLP partnership offers limited protection for shareholders. Unlike an ordinary partnership, partners in an LLP are personally liable only for their actions. Partners in an LLP are not responsible for the acts or omissions of other partners. In that sense, an LLP is similar to a PLLC. However, some states do not allow licensed professionals to form LLPs. Messer says, "A PLLC differs from an LLP in that a PLLC may be required if the type of business to be conducted requires a license from the state. For example, in Texas, an attorney cannot provide legal services through an LLP.
Most states allow a professional to form a PC instead of a PLLC. For both PLLC and PC, owners must be licensed in their profession. However, a corporation is taxed differently than an LLC. The corporation is subject to tax and compliance laws that may affect a C-corporation or S-corporation. In addition, the management system of the computer is different. Owners are shareholders, not members, and they own their shares in the PC. Shareholders must elect a board of directors and hold meetings of directors and shareholders.
Now you know that business owners in the professions often have many business organizations to choose from. Here are some of the pros and cons of a PLLC to consider before making the final decision about which business structure is right for you.
Forming a PLLC is similar to forming a regular LLC, although the forms involved may be slightly different. The state licensing board must also verify each owner's license, which means it can take a little longer to form a PLLC, compared to a regular LLC. These are the steps involved in forming a PLLC:
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Choosing a name for your PLLC may seem like the easy part, but each state has unique requirements. In most states, the name of your PLLC must be different from other businesses in the state. Additionally, your business name must end with "Professional Limited Liability Company", "P.L.L.C." or "PLLC". The Secretary of State can provide more information about name requirements, including how to secure a business name.
In all countries, businesses must appoint a registered representative or legal representative. A registered agent is a person or company that receives service of processes and legal documents for your business. Professional businesses often receive legal notices from state licensing boards and are often sued, so it is especially important to appoint a registered agent. If you are not sure who to appoint as your registered agent, IncFile is an online legal services company that offers registered services.
The most important license for a PLLC is a professional license, which will be issued by the licensing board of your profession. Each owner in a PLLC must be licensed to practice the specific work that the business will provide. However, there may be other business licenses or property licenses that you need to apply for before you can operate. Cities and counties often issue business licenses.
Next, you need to file the articles of association with the registrar of your country. You can often submit your documents online for quick processing. The details of the PLLC's organizational form may be slightly different than the form used by regular LLCs. Your occupational licensing board will review and approve the documents, after which the state will issue a stamp of approval. You will receive a copy of the filed Articles of Association to keep with other business documents.
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Several states, including California and New York, require LLCs and PLCs to write an operating agreement. Even if your state doesn't require it, it's wise to have one, especially if your PLLC has multiple owners. This document provides the structure of your PLLC
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