What Are My Options If I Already Have An LLC But Realize I Need A Professional Corporation?

So, you have started an LLC and had a lot of hopes regarding the business. But at one point, you got to know the truth.

You learned that you made a mistake by forming an LLC. And instead, you should have started a Professional Corporation.

 

Now, you might be thinking, what are my options if I already have an LLC but realize I need a Professional Corporation, right?

If you have realized that you need to form a Prof Corp, your options are either C Corp or S Corp. But what are they? And how is a Professional Corp different from LLC? Read to find out!

For help, email me at sam@mollaeilaw.com and I will be happy to assist you.

What Are Professional Corporations?

Before anything else, you need to know that shareholders create corporations. And at its core, a corporation is a separate legal entity.

It is a business type where the owners will not be personally liable for the lawful debts and disputes of the company.

However, there are several types of corporations. And each of them is a little different than the other. Let’s walk you through them to give you a better idea:

Professional C Corporation

The most common form of the corporation out there is the Professional C Corp. One of the major advantages of this is the liability for the shareholder is only the amount of money they have invested in the business.

On that note, A C Corp can have any number of shareholders. There is no limit.

Furthermore, the owners’ profits will be taxed separately. For that reason, there will be fewer clashes among the owners, and the business can flow smoothly. However, a C Corporation must follow some formalities. That includes reports, officers, and meetings.

Without those, the business will not be capable of protecting the assets of the shareholders.

Professional S Corporation

The Professional S Corp is pretty similar to Professional C Corporation. And it is the best option for small organizations.

Nonetheless, the part where it is not identical to the C Corp is that the profits and losses will be divided among the shareholders.That is why many consider the Professional S Corp as a Pass-through entity.

Furthermore, the S Corp can only have 100 shareholders. And as it is a pass-through organization, there will be no need to pay tax two times for the profits.That said, an S Corp must follow the formalities that a C Corp needs to follow.

That includes the reports, employing officers, and holding meetings. Again, these are for protecting the assets of the shareholder.

For help, email me at sam@mollaeilaw.com and I will be happy to assist you.

What Makes LLC And Professional Corporations Different?

So, some things make LLCs different than Professional Corporations. And they are:

Eligibility

Everyone is eligible to form an LLC. However, some businesses, such as banking and insurance agencies, can not create an LLC.

But the case is a little different for PC (Professional Corporations). As the names suggest, professionals with a state license authorizing them to practice their profession can form PC.

State Regulations And Rules

The rules and regulations for the LLC and PC will vary from one state to another. For example, one-owner companies are not eligible for forming these business structures in some states.

Also, in a few states, LLCs and PCs are not even recognized.

Nonetheless, the main takeaway is that the rules and regulations that revolve around LLCs might not be the same for PCs in your state.

Tax Considerations

The Professional Corp and LLCs have advantages and disadvantages regarding personal liability protection and taxation.

Regarding the tax of Professional Corps, it will depend on the company’s net profit. But if the after-tax net profits are distributed among the owners, they will be subject to double taxation.

Limited Liability Company, on the other hand, does not need to pay state taxes in most cases. Some might need to, but they will fall under different criteria.

Also, some states impose renewal, franchise, and annual registration fees on LLCs.

Now, to avoid double taxation, LLCs and PCs can file themselves as an S corp. And as you might know by now, an S Corp is created through an IRS tax election.

For help, email me at sam@mollaeilaw.com and I will be happy to assist you.

Final Words

Are you still asking yourself what are my options if I already have an LLC but realize I need a Professional Corporation? Well, you have two! You can either go for S Corp or C Corp.

Each has its advantages and disadvantages. So, keep them in mind before converting your business type.