You can conduct just about any trade or business as a limited liability company. The one thing that you need to be aware, however, is some professions cannot be operated as limited liability companies. For example, commonly state laws prevent physicians, dentists, lawyers, accountants and other professionals from operating as limited liability companies.
And that’s where the professional limited liability company thing comes into play: When state law doesn’t allow a professional to operate his or her business as a limited liability company, state law usually allows the professional to operate as a professional limited liability company or PLLC.
If you are a professional, therefore, you need to call the Secretary of State’s office in your state to determine whether or not you form a limited liability company or a professional limited liability company.
You can also usually determine whether or not a particular profession should operate as a PLLC or as an LLC by doing a quick Google search. If all or most of your professional colleagues in town operate as a PLLC, you know that a PLLC is probably required for your profession in your state.
Caution: You will occasionally see professionals who should have formed their business as a PLLC but instead mistakenly formed their business as an LLC. This mistake, unfortunately, is a serious one. Probably, state law says that this professional who should have formed a PLLC gets no limited liability protection from a regular LLC.
Professionals make this mistake, by the way, when they try to setup an LLC by mistake and then the Secretary of State’s office doesn’t catch the mistake. In other words some guy name named Johnson forms an LLC and a Secretary of State clerk doesn’t realize or can’t tell that Johnson is a physician forming an entity for his medical practice. Johnson in this example should almost certainly be forming a PLLC.
Because we’re on the subject of professional limited liability companies, let me share three other tangential comments concerning the PLLC option:
1. One good question to ask about the professional limited liability company option is whether a PLLC provides the same level of legal protection as a regular limited liability company. Usually, a PLLC doesn’t provide the same level of legal protection as a regular limited liability company or LLC. As a generalization, the PLLC doesn’t allow professionals within the PLLC entity to avoid malpractice risks. Note, however, that a PLLC provides the same tax accounting flexibility as a regular LLC.
2. One or two states don’t allow professions to form an LLC and don’t provide the PLLC option. For these states, however, professionals probably can form a professional corporation or a professional service corporation. You can easily determine if this is the case in your state by doing, again, a quick Google search to see if local colleagues in your profession use the LLC or PLLC acronym in their business names. If professionals in your state must instead use the professional corporation option, you will probably see the acronym PS or PC in their legal names or you see the phrase “a professional corporation, or “a professional service corporation” in their name.
3. Most of the kits sold on this website will allow you to create either an LLC or a PLLC. Typically, you use the same form to create a professional limited liability company as you do to create a regular limited liability company. You should, however, use the professional limited liability company acronym. For example, rather than naming your limited liability company, “John Smith, LLC” you would instead name your entity, “John Smith, PLLC.” Or you might name your entity something like “John Smith, MD, PLLC” or “John Smith, CPA, PLLC”.