When forming a new business, particularly if professional in nature, you should understand the difference between Limited Liability Companies and Professional Limited Liability Companies. An LLC is a business entity that is formed under state law. Some states allow for the formation of specialized LLCs, such as a the PLLC. Each state has different restrictions on each business type, and LLCs and PLLCs are not business entities that are available in every state.
Limited Liability Corporations
An LLC, in general, is a kind of hybrid between a corporation and partnership. An LLC provides a flexible management structure similar to a partnership. However, unlike a partnership, if the business is sued or goes bankrupt and cannot pay its debts, the members are not usually personally responsible. Each member's liability is limited to how much they contributed to the business, meaning that if a member contributed $1,000 to the startup capital of the business, she may not get this back if the LLC does not make money.
In an LLC, there is no limitation on who may be an owner, or member. The business may be owned by one or more individuals and/or other business entities. Generally, an LLC may be organized for any type of business from retail to landscaping. However, some states provide that specific business types are barred from forming an LLC. This usually includes businesses in professional fields.
Read More: LLC Member Rights
In contrast, the members of a PLLC must usually be licensed professionals. In most states, there is a specific list of professions that may pursue a PLLC, such as accountants, attorneys or architects. Businesses that do not fall into one of the categories are not allowed to form a PLLC. When registering the PLLC, you will likely be required to provide proof that every member of the PLLC is properly licensed in the profession. No other business, nor a person not licensed in the profession, may be a member of a PLLC.
In many states, members of a PLLC remain personally liable for malpractice claims. For example, if a patient sues a doctor for malpractice, the doctor may be personally liable even if she is a member of a PLLC. However, other members of the PLLC may not be liable for the other doctor's malpractice claims. It is in the best interest of PLLC members to hold professional liability insurance. However, like an LLC, PLLC members will not be personally liable for the debts of the business unrelated to malpractice claims, such as payment due on leased office space.
- Small Business Administration: PLLCs - Information for Licensed Professions
- National Conference of Commissioners of Uniform State Law: Uniform Limited Liability Company Act
- New York Limited Liability Company Law: Article 12 - § 1205 Professional Relationships and Liabilities
- Small Business Administration: Limited Liability Company
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