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Choosing a business entity is a rather strenuous task. It is not surprising because the successful choice of entity type can endow the organizers with many privileges in the long run.
Table of Content
- 1 Start PLLC - Choose your State
- 2 What does PLLC mean?
- 3 Pros and Cons of a PLLC
- 4 PLLC vs Other Business Structures
- 4.1 PLLC vs. General Partnership
- 4.2 PLLC vs. Limited Liability Partnership (LLP)
- 4.3 PLLC vs Professional Corporation (PC)
- 5 How to Register a PLLC?
- 5.1 Choose a Business Name
- 5.2 Appoint a Registered Agent
- 5.3 Obtaining Licenses
- 5.4 Filing Articles of Organization
- 5.5 Creating an Operating Agreement
- 5.6 Obtaining EIN
- 5.7 Filing Annual Reports
- 6 Conclusion
Start PLLC - Choose your State
In this article, we'll detail all the aspects of the PLLC formation, advantages and disadvantages of such a decision, as well as answer the following questions:
- What is a PLLC?
- What is the difference between a PLLC and LLC?
- Who is a PLLC suitable for?
- What are the features of PLLC compared to other business structures?
- What are the advantages and disadvantages of a PLLC?
- How to register a PLLC?
- How to maintain a PLLC according to state requirements?
After reading this article, you will be able to make an informed decision about whether this business structure is suitable for you. Let's delve deeper into the analysis!
What does PLLC mean?
A professional LLC may offer you all of the same benefits and obligations as a regular LLC, but with one small adjustment: the employees of such a company have to be licensed to operate.
By and large, the licensing aspect is the only distinction between these two business structures.
If your company will be operating in one of the fields listed below, you need to obtain licenses and register a PLLC:
- Athletic Training;
- Certified Shorthand Reporting;
- Clinical Laboratory Technology;
- Interior Design;
- Land Surveying;
- Landscape Architecture;
- Massage Therapy;
- Medical Physics;
- Public Accountancy;
- Social Work;
- Veterinary Medicine.
A PLLC will not protect your company's employees from malpractice claims, but it will protect you as a business owner. This means that allegations will be made against a specific employee, not against the company as a whole.
This also applies to the co-owners of the company who will not be personally liable if the other founders are negligent.
Not all states encourage PLLC registration. Below, you will find a list of states that welcome the registration of such a business:
- District of Columbia;
- New Hampshire;
- New York;
- North Carolina;
- North Dakota;
- South Dakota;
- West Virginia.
And here is a list of states that do not allow PLLC registration:
- New Jersey;
- New Mexico;
- Rhode Island;
- South Carolina;
Pros and Cons of a PLLC
Like any other business structure, a PLLC has its strengths and flaws.
Among the positive aspects, we would like to highlight:
- By default, the IRS considers PLLCs to be pass-through organizations;
- Owners of such companies can choose the taxation system that best suits them;
- PLLCs can maintain a corporate veil (protect the personal liability of the founders);
- Owners can apply different business management models, which ensures flexibility (member/manager management).
But it is also worth noting such disadvantages of this business structure:
- Not all states allow PLLC registration;
- You will have to set higher requirements and adhere to superior standards because of increased financial and reputational risks;
- Company members are not protected from malpractice claims and require insurance;
- All income of such a company is subject to self-employment tax;
- Unlike a regular LLC, your company can provide services and perform deals only in the sphere you specified in your Articles of Organization.
PLLC vs Other Business Structures
If you are a licensed professional in the United States, a PLLC is not the only path you can follow. You may want to register another business entity.
To make an informed decision, it is worth evaluating the full range of options available.
PLLC vs. General Partnership
Unless you plan to be the sole organizer of your company, you've probably considered registering a general partnership.
While this is a fairly common solution, it does have one major drawback: you will be liable for the faults of other co-founders if any occur.
In a professional business, where the risk of a lawsuit is quite substantial, it is clearly unfavorable and even hazardous.
- Suppose you are planning to engage in construction and repair services;
- When laying the foundation of a house, your colleague makes incorrect calculations or violates the technology of the process;
- This leads to the foundation sagging or even the destruction of the walls with the ensuing consequences;
- The client goes to court, which explicitly finds NOT only your colleague but your entire company responsible for the accident.
This not only presages criminal liability and significant material costs but also poses the risk of huge reputation losses. It could conceivably lead to the collapse of your business.
But PLLC registration can protect you and your assets from this. If you're not willing to be responsible for the faults of others in any aspect, then registering a general partnership is a poor choice.
PLLC vs. Limited Liability Partnership (LLP)
Frequently, without legal advice, it is hard to discern the difference between a PLLC and an LLP. An LLP is a limited liability partnership, and a PLLC is a professional limited liability company.
Both of these business structures offer their organizers limited liability protection and corresponding risk mitigation. It means you will not have to take responsibility for the actions of your colleagues within the company.
But then, what is the main distinction? Not all states allow professionals to register this type of company. It all comes down to the licensing system. This process can occur at various levels from local to federal.
If your business requires a license at the federal level, some states will not allow you to register an LLP and conduct certain activities.
For instance, Texas is among such states where you will not be able to operate as a lawyer on behalf of an LLP.
PLLC vs Professional Corporation (PC)
A professional corporation will provide you with the same protection as a PLLC but will impose many more obligations on you. There are a huge number of dissimilarities between the two business structures.
|You can choose the management system (members/managers)||Strictly established management system|
|Tax system can be chosen||Strictly established tax system|
|No additional regulations to keep PLLC in compliance with state requirements||Additional requirements like electing a board of directors, holding meetings, and others|
By opting to register a PLLC, you get the same coverage as you would with a PC, but the process of forming and maintaining a business becomes much simpler and cheaper.
How to Register a PLLC?
If you've pondered all the pros and cons and decided to register a PLLC, it's time to move on to step-by-step instructions on how to do so. Forming a PLLC is not radically different from this process for an LLC but rather has its own peculiarities.
Also, getting a license and having them reviewed by the licensing board absorbs a significant amount of time. So, forming a PLLC will require a noticeably longer period than setting up a regular LLC.
Choose a Business Name
At first glance, choosing a business name may seem like a trifling task. In fact, any state you choose has a pretty extensive list of requirements regarding the choice of a company name.
If even one requirement is ignored, you will have to re-file your Articles of Organization. It is worth approaching this issue with the utmost responsibility so as not to waste time in the future.
Most commonly, you will encounter the following guidelines for choosing the appropriate business name:
- The name should be 100% unique and not even resemble other names registered in the state. If the difference is one letter – your application will be rejected;
- Specify the chosen business structure in the name. For example, if you choose the name "Les Constructions", your legal name will be "Les Constructions, PLLC";
- Your business name should not contain profanity or words resembling it. For example, "Buzztard Constructions" is definitely not a valid name;
- It should not offend the sentiments of believers, minorities, or other population segments. A name like "Divine Constructions" may be rejected by the state;
- Your name should not hint at connections to the state organizations. For example, the abbreviation "FBI" cannot be used.
Contact your Secretary of State for a more detailed list of business name requirements.
Appoint a Registered Agent
Each state mandates the founders of the business to appoint a registered agent. This person is the communication pathway between your PLLC and the state.
The registered agent receives all business paperwork at his or her physical address, filters out spam, and notifies you of important correspondence.
And while every LLC needs a registered agent, the issue is even more critical for professional companies, as they are more likely to be the target of lawsuits and other litigation.
If a registered agent fails to receive notice of a lawsuit on time, the trial is held without your participation, you have no chance to represent the defending side, and the verdict will clearly not be in your favor.
Additional benefits of appointing a registered agent:
- A registered agent protects your privacy. The professional will indicate his or her address on the paperwork, and your information will not be in the public domain;
- The commercial agent will be at the listed address during business hours, and you can have breaks, vacations, or sick leaves;
- Because the agent's address is in the public domain, there is a lot of spam flowing in. The specialist skillfully sifts through the spam and won't lose important notice.
You can perform the agent's tasks for your PLLC yourself. But then, you would have to give up all of the benefits mentioned above.
Commercial agent services cost on average from $45 per year (local providers' offerings) to $200 per year (national providers' offerings).
Consider services like Northwest Registered Agent, IncFile, ZenBusiness, LegalZoom, Rocket Lawyer, Tailor Brands, and others. These providers can not only offer registered agent assistance but also help with company formation.
What's more, if you order PLLC registration services from them, you can often get a year of RA's assistance for free.
This makes for great savings at the beginning of the company journey, when there are a lot of expenses waiting for you at each step.
The hardest and most demanding step on your way to a successful and legal PLLC is getting a license. In addition to the professional license that every owner of a PLLC needs, you may also require some permits for in-state operations.
What's more, licensing can occur at different levels (from local to federal). There is no one-size-fits-all solution for every PLLC, so we suggest contacting your state licensing board for advice.
Filing Articles of Organization
Filing the Articles of Organization is a milestone for your business. Once your Articles of Organization are reviewed and approved by the Secretary of State, your PLLC will be deemed to be formally registered with the state.
You will need to pay a fee of $50-$300 for filing Articles of Organization, depending on the state of registration.
Of course, this isn't the bottom line: there's still a lot to be done before you can legally operate in the state. But in fact, you will already be a business owner.
To fill out the Articles of Organization, visit your Secretary of State's website. You can either download, fill out, and mail the form or complete the application online.
Online filing is usually faster and easier since it eliminates the time it takes to mail the paperwork.
On the form, you will find sections such as:
- Organizers' names and details;
- License information;
- The registered agent's contact info;
- LLC name;
- Other basic info about your company.
You only need the PLLC form because the standard form for regular LLCs may differ in a few sections.
Creating an Operating Agreement
An Operating Agreement is an internal document that describes the rules by which your PLLC will operate. It is generally an optional, not a mandatory document.
It is binding only in some states like California and New York. But even for PLLC organizers in another locality, we would advise creating an Operating Agreement for such reasons:
- This document is easy to draft. You can use a template and include any relevant information in the paper;
- This document can help you in resolving possible conflicts within the company.
The Operating Agreement can contain the following information:
- Rules for the day-to-day operation of the company;
- Distribution of company shares and profits;
- Duties and rights of employees and organizers, and more.
In order to pay taxes, you need to decide on the type of taxation. For a PLLC, there can be various options: pass-through entity, S-corp, and C-corp.
Next, your goal is to get an EIN so that the IRS can identify your business as a taxpayer. This procedure is completely free and won't take you more than 5 minutes of your free time. To figure out if you need to get an EIN, answer these two questions:
- Are you planning to hire employees?
- Are you having or planning to have partners?
If you have answered affirmatively to at least one question, go to the IRS website to apply for an EIN.
In addition to paying taxes, you'll need your EIN to obtain business loans or simply open a business bank account. You require it to preserve the corporate veil and to separate your personal assets from the company's assets.
Filing Annual Reports
Some states require PLLC organizers to file annual reports. In this document, you include any data that needs to be updated.
For example, if you decide to change your headquarters address or appoint a new registered agent, you should indicate this on the annual report.
To find out the filing deadlines, it is worth consulting your Secretary as conditions vary from state to state.
Along with filing the report, you will need to pay a state fee for its review. Typically, the fee is $50-$150. Be sure to include these expenses in your PLLC budget planning.
If you plan to practice as a licensed professional, PLLC registration can greatly minimize the risks and provide you with many benefits.
If your state allows PLLC registration, you are lucky to safeguard your assets and reputation in the event of unforeseen circumstances.
Moreover, the flexibility of PLLC is extremely enticing: you can select the most advantageous tax system and management structure for your business.