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.
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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:
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!
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:
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:
And here is a list of states that do not allow PLLC registration:
Like any other business structure, a PLLC has its strengths and flaws.
Among the positive aspects, we would like to highlight:
But it is also worth noting such disadvantages of this business structure:
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.
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.
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.
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.
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.
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.
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:
Contact your Secretary of State for a more detailed list of business name requirements.
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:
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 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:
You only need the PLLC form because the standard form for regular LLCs may differ in a few sections.
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:
The Operating Agreement can contain the following information:
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:
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.
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.