What is a Professional Limited Liability Company (PLLC)?
A Professional Limited Liability Company (PLLC) is similar to a professional corporation. Both are organized to provide professional services. Professionals — such as accountants, architects, lawyers, engineers, chiropractors, dentists, and doctors — are permitted in many states to form a standard LLC. However, some states require that these individuals form a PLLC, a similar but distinct entity from the limited liability company. If your state offers the PLLC entity and your industry is one that requires a license from the state, you may consider forming a professional LLC.
How to Form a PLLC
A professional limited liability company is formed in much the same way as a standard LLC. Submit your Articles of Organization to the appropriate state agency — usually the Secretary of State’s office or a subsidiary office such as the Corporations Division — with the applicable filing fee. If your state requires LLCs to draft an Operating Agreement, PLLCs have the same requirement.
The only difference in the formation process occurs on a single line on the Articles of Organization. The document must contain a signature from an individual licensed to perform the professional task in the state. This person must be identified as the PLLC’s organizer (similar to the requirement that the professional be the incorporator of a professional corporation). Include the individual’s license number from the state if applicable. The Secretary of State may also require a certified copy of the professional’s license.
This is only required of the PLLC’s organizer; if the PLLC has multiple members who are professionals, the other members need not submit proof of their professional credentials.
In some states, the approval of the licensing board — such as the state bar for lawyers — is also necessary before the PLLC may be organized. Consult your licensing agency or the Secretary of State if you are unsure.
Professional Limited Liability Company Ownership
Though states tend to be extremely lenient with who may own or serve as a member of an LLC, the same leniency often does not extend to PLLCs. In some states, at least half of the ownership interest in a PLLC must be held by individuals licensed to perform the task around which the PLLC was organized. In other states, all of the members must be licensed professionals. Generally, individuals who previously held the professional license and have retired are also allowed to serve as members.
This membership restriction also affects the transferability of ownership interest, though some states do permit unlicensed individuals to hold a transferred interest for a period of two years following the transfer. This most often occurs in the case of a member’s death. The two-year period allows the individual’s next of kin to sell or transfer their ownership during the administration of the individual’s estate.
Even if your state permits non-professionals to be members in a PLLC, the PLLC must still be organized exclusively to provide the professional service.
As with standard LLCs, professional LLCs may be taxed as a disregarded entity or as an S-corporation. Which election you make is a personal choice that should reflect the specific accounting practices of your PLLC. In all cases, the PLLC will function as a pass-through tax entity, meaning that members claim their share of the profits on their own personal income tax returns. PLLCs avoid what is called corporate double taxation because the PLLC does not need to pay its own taxes. You may still have to submit an informational tax return, however, if your PLLC is taxed like an S-corp or partnership.