Lawyers, accountants and doctors may list the designation LLC after their academic or professional titles. This designation is not connected with professional status but means a professional has organized his practice as a limited liability company. A limited liability company is a corporate structure that protects business owners against losing personal assets in case of professional or corporate liability. The procedure for opening a professional LLC differs slightly from that for a regular LLC.
Definition and Rules
A limited liability company is a form of organization in which business income is treated as personal income for the owners, but where liabilities are limited only to the assets of the company. It is defined by each state that permits it, and the Internal Revenue Service may recognize an LLC as a corporation, partnership or as a disregarded entity in which its income is taxed as if it were any other income that its owner earns.
Professional LLCs
Professionals in states other than California, which permits only professional corporations, can organize their solo, partnership or group practices as LLCs. Most states that permit this form of organization have slightly different requirements for professional LLCs, which may be referred to as PLLCs. Typically, the state licensing board for a profession must approve any LLC filed for by practitioners of that profession. In addition, the responsible party for the professional LLC must be a licensed professional, whereas a regular business can appoint an agent as its responsible party.
Benefits
Professionals who form an LLC do enjoy some protection against business debts and ordinary lawsuits, as they are not held personally liable for these financial responsibilities. If two or more professionals own an LLC, they can file IRS Form 8832 and elect to have the IRS treat their organization as a corporation. Like any LLC, a professional LLC also can issue unlimited shares to shareholders. This helps professional firms attract new partners, who are rewarded with shares in the LLC. Because LLC owners can issue different classes of stock, they also can issue nonvoting stock to support staff or even family members.
Limitations
Professional LLCs do not protect their owners against malpractice suits. Professionals are advised to carry malpractice insurance regardless of their business organization status. A PLLC also may not shield its owners against improper actions by its employees, especially if the owners actively supervise these employees. PLLC owners should carry errors and omissions insurance or make sure their employees are covered by malpractice policies. Some banks do not grant loans to PLLCs unless their owners provide personal guarantees.
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Writer Bio
John DeMerceau is an American expatriate entrepreneur, marketing analyst and Web developer. He now lives and works in southeast Asia, where he creates websites and branding/marketing reports for international clients. DeMerceau graduated from Columbia University with a Bachelor of Arts in history.