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What Therapists Should Know About LLCs and PLLCs for Their Practice

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What Should Therapists Know About Limited Liability Companies (LLC) and Professional Limited Liability Companies (PLLC) for Their Practice

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Did you know a PLLC can be a game-changer for your practice's legal and financial health? This article is designed for therapists looking to find stability and resilience in these uncertain times with a robust business structure. Explore how a PLLC can safeguard your assets, streamline operations, and elevate your practice.

What does PLLC stand for?

What is the Meaning of PLLC?

A PLLC, or Professional Limited Liability Company, offers the liability protection of a corporation with the flexibility of a partnership. This business entity structure is designed for licensed professionals such as doctors, lawyers, accountants, and architects. Members of a PLLC enjoy personal liability protection, shielding their assets from business debts and malpractice claims.

Benefits of Forming a PLLC

Liability Protection

One advantage of forming a PLLC is that it limits the personal liability of its members. This means that personal assets are generally protected from business debts and malpractice suits, providing a significant shield for professionals offering services related to their profession.

Tax Flexibility

PLLCs offer flexibility in taxation. They can be taxed as a sole proprietorship, partnership, S corporation, or C corporation. This tax flexibility can result in significant tax benefits, depending on the specific financial situation of the business and its members.

Professional Credibility

Having a PLLC designation can enhance a business's credibility, indicating a higher level of professionalism and adherence to industry standards. This particularly benefits those offering professional services, such as legal or architectural work.

Management Flexibility

Unlike a regular LLC, PLLCs allow for more flexible management structures, which can benefit small to mid-sized professional practices. This flexibility extends to drafting an operating agreement that suits the specific needs of the members.

Further reading: Maximizing LLC Tax Benefits and Tax Write Offs: Essential Guide to Tax Deductions and Loopholes for Small Businesses

Differences Between PLLC and LLC

Eligibility

PLLCs are restricted to licensed professionals who offer services related to their profession, whereas any individual or group of individuals can form regular LLCs. This means that those who may form a PLLC must hold professional licenses.

Regulation

PLLCs are subject to additional regulatory oversight by state licensing boards, ensuring compliance with industry-specific standards. For instance, a law firm or real estate agents must form a PLLC to adhere to these regulations. This differs from LLCs, which do not require such stringent oversight.

Formation Requirements

The formation process for a PLLC typically includes additional steps, such as providing proof of professional licensure and obtaining verification from the state licensing board. Members must file articles of organization and often need to draft an operating agreement that outlines the management structure and operational procedures. In contrast, forming a regular LLC generally involves fewer steps.

Steps to Form a PLLC

Choose a Name

The business name of your PLLC must comply with state regulations, including the use of "PLLC" or "Professional Limited Liability Company" in the name. This helps to distinguish it as a professional entity, different from a general partnership or sole proprietorship.

File Articles of Organization

To form a PLLC, you need to file articles of organization with your state's business registration office. This document is essential for creating a PLLC and must include proof of professional licensure. States require PLLCs to comply with specific guidelines during this process.

Create an Operating Agreement

An operating agreement is beneficial, although not always required. This document outlines the management structure and operational procedures, ensuring all members of the PLLC are on the same page. It's especially important for a flexible business structure like a PLLC, providing clarity on the roles and responsibilities within the company.

Obtain Licenses and Permits

All members must have the necessary professional licenses to offer services related to their profession. The licensing board must verify these licenses. Depending on the state, PLLCs might need additional permits to operate legally. States allow and recognize PLLCs based on compliance with these licensing requirements.

Register for Taxes

Your PLLC must register for state taxes, and you will need an Employer Identification Number (EIN) from the IRS. This is vital for managing tax obligations and taking advantage of the pass-through tax benefits that PLLCs offer. States recognize the importance of tax registration in maintaining your PLLC's legal standing.

Further reading: State-by-State Business Registration

What Therapists Should Know About LLCs and PLLCs for Their Practice

Liability Protection

Both LLCs and PLLCs offer limited liability protection, but a PLLC specifically addresses the needs of licensed professionals, providing an added layer of protection against malpractice claims. This business entity ensures that the owner's assets are shielded from business debts and liabilities.

Professional Licensing Requirements

A PLLC, or “professional limited liability company,” requires all members to be licensed in the same profession, ensuring compliance with state regulatory boards. An LLC does not have this requirement, making it more flexible for business owners without professional licenses. Therapists who must be licensed to offer services related to their profession will find the PLLC structure aligns well with state law requirements.

Tax Considerations

LLCs and PLLCs can choose their taxation method, including the benefits of pass-through taxation. However, depending on the state, PLLCs might offer more specific tax advantages for professional practices. This flexibility allows professionals to optimize their tax obligations based on their unique financial situations.

Credibility and Trust

Forming a PLLC can enhance the credibility of a therapy practice, signaling a commitment to professional standards and regulatory compliance. This is especially important in professions where trust and adherence to industry standards are indispensable. A PLLC is a business structure similar to a professional corporation or limited liability partnership (LLP) that can boost the practice's professional image.

Maintaining Compliance as a PLLC

Renewing Professional Licenses

All members must keep their professional licenses current. This ensures that the PLLC, or “professional limited liability company,” remains in good standing with the state licensing boards. Licensed professionals to form a PLLC must meet these ongoing requirements to continue offering services related to their profession.

Filing Annual Reports

Most states require PLLCs to file annual reports and pay a filing fee. This is similar to what is required for other types of LLCs. Filing these reports keeps the business in compliance and maintains its status as a separate business entity. Owners must ensure these reports are filed on time to avoid penalties.

Adhering to State-Specific Rules

A PLLC must adhere to any additional rules set forth by state licensing boards. This includes any specific professions that form PLLCs, such as those offering legal services or other professional services. Compliance with these rules helps maintain the PLLC’s legal entity status and provides asset protection against malpractice claims.

Key Takeaways

  1. Professional Requirements: PLLCs allow professionals to form an entity type that complies with state regulations for licensed services related to its profession, unlike an LLC.
  2. Personal Liability Protection: Both PLLCs and LLCs offer limited liability protection, shielding personal assets from business liabilities and the need for malpractice insurance.
  3. Ownership Restrictions: PLLCs also often restrict ownership to licensed professionals in the same field, ensuring compliance, whereas members might have more flexibility in a typical LLC.
  4. Tax Flexibility: Both PLLCs and LLCs, including single-member entities, can choose pass-through taxation, unlike sole proprietorships, avoiding double taxation.
  5. Formation Process: The formation process for PLLCs includes additional steps, like verifying professional credentials and appointing a registered agent, compared to the more straightforward LLC setup.

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Legal Disclaimer

Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice. The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice. You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free.

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published

May 21, 2024

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Ralph Carnicer, CPA

Ralph Carnicer, CPA

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