Understanding Professional LLCs
A Professional Limited Liability Company (PLLC or Professional LLC) is a type of business entity created for licensed professionals, such as accountants, legal practitioners, doctors, therapists, and architects, who need to meet additional legal requirements or need protection from lawsuits related to their professional services. It is a form of limited liability company (LLC) that offers the same protection from personal liability as regular LLCs, with added legal requirements specific to professional services.
Advantages and Disadvantages of Professional LLCs
A Professional LLC offers legal and financial benefits over practicing professional services as a sole proprietor or general LLC. Professional LLCs must meet additional legal requirements, depending on the professional services, but these also offer more protection from malpractice, professional negligence claims, and other liabilities related to their services. The main advantages of forming a Professional LLC include:
- Personal Liability Protection: Professional LLCs provide personal liability protection from legal and tax liabilities of the business. This means that business owners and employees will not be held personally liable for any debts or other obligations of the LLC.
- Tax Benefits: A Professional LLC can often enjoy lower taxes, as well as the flexibility to allocate profits and losses among members. This may help business owners reduce their overall tax liabilities.
- Professional Oversight: Professional LLCs are required to have a designated individual who will oversee the business’s professional services. This professional is usually another licensed professional, such as a lawyer or accountant, who is already working for the company.
However, Professional LLCs also come with certain drawbacks, such as additional registration requirements and paperwork. Additionally, they may require more capital than a regular LLC formation, as some professional services may involve additional licensing fees, and additional working capital.
How to Establish a Professional LLC
Forming a Professional LLC involves different steps than forming a general LLC. Here are the steps to follow when setting up a Professional LLC:
- Choose a Professional Service Provider: The first step is to select a professional service provider such as a lawyer, accountant, architect, or other licensed professional.
- Choose a Business Name: Choose a unique name for your Professional LLC that is not already being used by another business in the same jurisdiction.
- File the Necessary Document: File Articles of Organization with the agency that is responsible for registering businesses in the state where you plan to operate.
- Appoint a Registered Agent: This is the person or company that will receive legal notices and documents on behalf of the Professional LLC.
- Obtain Licenses and Permits: Obtain any additional licenses and permits necessary for the type of professional service being offered.
- Create an Operating Agreement: Develop an operating agreement for the Professional LLC, which outlines the ownership and operating procedures of the business.
- Register with the IRS: Register your Professional LLC with the IRS to obtain a federal Tax ID Number and pay the necessary taxes.
- Open a Business Bank Account: Open a business bank account in the business’s name to separate business and personal finances.
- Maintain Records: Maintain accurate records and document important business decisions.