What's the Difference Between PLLC vs. LLC?
Have questions about an LLC and a PLLC? We’ve got answers! Learn more about both types of business structures right here.
Are you thinking about starting your business? Congrats! While owning your business is a lot of work, the joy of being your own boss and creating something you’re passionate about can be emotionally and financially worth it.
When you start setting up your small business goals, there are several details to consider — the big one being which business structure you should choose. An LLC could be your best bet because of its liability protections, but what about a PLLC?
We’re here to help you understand the difference between an LLC vs. a PLLC so that you can start your venture on the right foot — and with the right paperwork.
What Is an LLC?
An LLC (aka Limited Liability Company) is a business structure allowed by state statute and includes liability protection. That means that if you start an LLC as the structure for your company, you are less likely to be held personally responsible for your company’s debts.
There is also no limit to how many members can be in the LLC (these are called multi-member LLCs), so if you have a co-owner doing shady business behind your back, your personal assets will most likely be in the clear.
An LLC is slightly more complex to form than a sole proprietorship — primarily due to paperwork — but less so than a corporation. Learn more about a sole proprietorship vs. an LLC and the sole proprietorship pros and cons.
Can I Obtain an LLC in Any State?
Yes, though different terms may apply for each one. Some states don’t let you apply for an LLC for certain businesses like law, medicine, or architecture. It’s important to research the state in which you’re filing.
What Is a PLLC?
A PLLC is a professional limited liability company. Like an LLC, a PLLC can protect you from the company’s debts or losses, but if you have a license and perform malpractice, you may still be liable. So, make sure you get malpractice insurance just in case. PLLCs may protect you, however, if another owner/member is the one who messes up.
If you want to form a law, architecture practice, or small medicine business, some states require you to structure your company as a PLLC. To determine if you need an LLC vs. PLLC, ask yourself this question: Do I need a license to do what I do for my business? If the answer is yes, a PLLC is most likely required.
Can I Obtain a PLLC in Any State?
Nope, some states don’t allow PLLCs:
- South Carolina
- Rhode Island
- New Mexico
- New Jersey
In these states, you might need to form a different business structure — like a corporation or a partnership — if you require professional certification or licensing.
What Are the Similarities of a PLLC vs. LLC?
Because one of the only differences between a PLLC and an LLC is the type of business you have, there are many similarities between the two structures:
- Liability protection. This is one of the biggest reasons business owners structure their companies as LLCs or PLLCs. Owners of both types enjoy a legal separation of personal and professional finances.
- Taxation. Both have pass-through taxation. Essentially, the company’s income is passed through to the owners, who file one tax return.
- Filing documents. Both file articles of organization when forming the business. However, if you need to convert an LLC to a PLLC, you’ll have the additional task of providing proof of your professional license.
Here is a breakdown of the similarities and differences between an LLC and a PLLC:
Are There Any Downsides to Forming an LLC or PLLC?
Do you know who isn’t fond of LLCs? Investors. Investors favor C corporations over any other business structure because they only pay taxes on their dividends, enjoy flexible stock options, and can easily transfer shares. This is not the case with LLCs or PLLCs.
However, that doesn’t mean your LLC or PLLC can’t get funding. You can still get a small business loan to help your company get off the ground. An accountant or financial planner for small businesses can also provide sound advice while you’re researching loans and other types of fundraising.
Learning the differences and similarities between a PLLC vs. an LLC is important for any small business owner. Remember that the requirement varies by state, so be sure to bust out those expert research skills when determining which structure is best.