If you work as a professional in the accounting, legal, medical, or architectural field, and wish to establish a business, you may what to know more about forming a PLLC.
So, what is a PLLC (and who needs a PLLC?)
The following information will explain how this type of business entity works. A PLLC is short for professional limited liability corporation. This type of entity protects your personal assets and enables you to use pass-through taxation.
By choosing this business formation, you can separate your personal and professional assets and avoid paying taxes on your business. Only your personal income is taxed, thereby making it easier to stay ahead financially.
Table of Contents
What Is a PLLC and Its Legal Definition?
Let’s first give a legal definition to a PLLC by answering the question, “What is a PLLC?”
By definition, a PLLC stands for a professional limited liability company. Again, a PLLC offers tax benefits and limited liability for professionals, such as lawyers, medical professionals, and accountants.
While a PLLC is similar to an LLC (limited liability company), it does not provide as much protection from liability. Also, the owner or owners of a PLLC are limited in what they can provide in services within the same business
Mollaei Legal Tip
Some states, such as California, will not allow professionals to form a PLLC. In these cases, the business owner must set up a professional corporation or PC, or a registered limited liability partnership.
Unlike other states, California does not permit professionals to form a PLLC or LLC. Therefore, professional people, such as dentists, lawyers, certified public accountants, and optometrists, must choose the above-mentioned alternatives.
What is a PLLC and Its Rules for Formation?
When answering the question, “What is a PLLC?” you also need to consider the formation of the entity. In other words, who exactly can form a PLLC when it is an allowed business entity?
While some states, such as California, will not recognize PLLCs, other states only will give professionals the option of establishing a PLLC.
To form a PLLC, one or more owners (also called members) must be licensed professionals. In some states, the owners/members must have a license in the same profession.
In these situations, an owner may hire an employee without a license to run things, but on the professionals in the business must legally own the company. Therefore, to own a PLLC, you must have the required credentials to practice your chosen profession.
If you need to know what it takes to form a PLLC where you live, you can contact me and my staff any time. Book a call to speak to us here: https://mollaeilaw.com.
Does Your Occupation Quality?
The term “professional” basically references jobs where a practitioner must hold a state license before he or she can provide services. Usually, the following occupations qualify when it comes to forming a PLLC:
- Social Workers
- Real Estate Agents
Some states prevent owners of PLLCs from combining more than one service under the business entity. For example, if you set up a real estate firm under a PLLC, you cannot provide graphic design services under the same entity.
Legally, these 2 businesses are considered separate from one another. Therefore, in this case, you would not receive liability protection for your graphic design business. You would also have to report the income and expenses for the design business separately.
However, with that being said, most U.S. states will make exceptions to the above rule in certain fields, especially health care. For example, if you set up a medical practice under a PLLC, you may be able to establish a pharmacy under the same entity.
To learn what services you can combine, you need to check the PLLC statutes for your state.
I can also help you with this type of formation. You can contact me any time. Simply email email@example.com.
What Is a PLLC and Its Rules for Liability?
To see how you are protected under a PLLC as a professional, you need to know more details. Therefore, you need to answer the question, “What is a PLLC and its rules for liability?” To what extent are you protected?
A PLLC provides limited liability. Therefore, if someone sues your company or your business owes money, you, as an owner, cannot be held personally responsible for paying that debt.
However, your protection from liability does not extend as far as malpractice, also known as professional negligence. Malpractice happens when a professional does not meet the expected professional standards and requirements of his or her profession.
Therefore, if a client sues you for malpractice, your PLLC cannot be used to protect you. Your personal assets are still on the line if you get involved in a lawsuit. In this case, you need to purchase medical malpractice insurance to protect you personally and professionally.
Despite the above restriction, a PLLC does provide worthwhile protection. For example, if you form a PLLC with another professional and he or she gets sued, you will not be held personally liable in a legal claim.
By contrast, you could be held liable if you formed a partnership.
In addition, a PLLC will safeguard you from liability for other obligations and debts, such as a vendor disagreement or office lease dispute. It also can keep you financially safe from an injury claim that originated on your premises.
Therefore, it helps to get the protection a PLLC can supply, provided you can set up the entity in your state.
What Is a PLLC and Its Tax Benefits?
Defining a PLLC also includes learning more about its tax advantages. When you ask, “What is a PLLC?” you also need to review the type of tax benefits you will receive.
A PLLC is considered a pass-through entity, which means that you don’t have to pay taxes on the business.
Therefore, the profits of the business flow or pass through to the owner’s individual tax return. By contrast, a traditional C corporation pays a corporate income tax. Also, after the profits have been distributed, a tax is paid a second time on the dividends.
An owner of a PLLC also enjoys a pass-through deduction of 20%. This allows a member to deduct up to 20% of his or her business income on their personal income tax form. However, the IRS limits the deduction for professionals whose yearly income goes over $160,700.
To make sense of the tax code and learn how you can benefit in this regard, you will need the support of both an accountant and lawyer. For any legal answers that need to be answered, contact me any time by email. Email firstname.lastname@example.org.
What Is a PLLC and Its Basic Requirements for Set-up?
When answering, “What is a PLLC?” you need to determine the basic requirements for set-up. To establish the entity, you need to do the following:
- Obtain a state license with your state’s professional licensing organization, such as the state bar for lawyers or a CPA license for accounting professionals.
- Obtain approval from the licensing board in your state, usually in writing.
- Choose a business name that follows your state’s rules for naming. For example, many states require that PLLCs add “Professional Limited Liability Company” or “PLLC” after the business’s name. In some states, PLLC owners must add the last name of at least one of the members in the business name.
- File formation documents and pay a filing fee. Depending on the state, the formation documents might refer to a certificate of formation or articles of organization.
- Create an operating agreement, or an internal document that stipulates how disputes will be handled, how salaries will be paid, and how the business will be run.
As you can see, forming a PLLC can benefit you greatly if you plan to set up a professional practice. However, to form a PLLC, you need to rely on professional legal services. Contact me and my team any time.
Book a call to speak to us here: https://mollaeilaw.com.
What To Do Next
You probably still have additional questions after answering some on the basic questions concerning a PLLC. What is a PLLC and how can it help you personally and professionally?
You can learn more by booking a consultation with me today. Email email@example.com for further details and information.
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