What Exactly is a PLLC?

A Professional LLC, or PLLC is designed for licensed professions such as accountants, engineers, attorneys, architects, or doctors. LLCs allow for certain tax benefits and limited liability, but if a license is required, an LLC is not allowed. PLLCs allow these licensed but regulated professionals an opportunity to gain the benefits of an LLC, but the limited liability does not infringe upon the state’s regulatory authority.

Laws vary from state to state as far as which professions must form them, but the general principles remain the same.

Formation

The applicable state licensing board must approve your articles of organization. This approval represents an additional step to forming a PLLC that is in addition to forming an LLC.

The organizer must be a licensed professional and that organizer must sign the organizational documents. In Arizona, for example, the State Bar of Arizona and state law regulate who can set up law firms and they also define what legal services are, and who can provide them. Similarly, other state bar associations and state laws develop and enforce rules regarding the operation of law firms.

Once the licensing board (or State Board in the case of lawyers) approves the articles of organization, they must be filed with the Secretary of State, along with any other required documents. Whether you plan to set up the PLLC in your home state or any other state, the requirements are available online at the applicable Secretary of State website.

Liability

PLLCs are entities that are like corporations in that they can enter into contracts or sue and be sued. They do provide segregation between entity and individual assets. Therefore, in most cases an individual is not liable for lawsuits or debts against the company.

However, PLLCs do not provide protection against malpractice claims. Therefore, consider purchasing malpractice insurance whether you form a PLLC or any other entity. Also, in some cases you may be liable for the actions of employees under your supervision.

Finance

Liability protections are a factor when seeking a loan or credit line. If an attorney or other licensed professional applies for credit with a PLLC, a personal guarantee may still be necessary. Like any other businesses though, the PLLC may be eligible for credit by itself after meeting certain requirements. It is common for those requirements to include solid business credit, along with at least two years in business and $250,000 in annual revenue.

PLLCs are not allowed in California.