Understanding the Difference Between PLLC and LLC

Here’s a breakdown of the differences between a PLLC (Professional Limited Liability Company) and an LLC (Limited Liability Company), as well as why some states require a PLLC instead of an LLC:

1. What is an LLC?

• LLC (Limited Liability Company) is a common business structure that provides personal liability protection for its owners (called members). This means that the owners are not personally liable for the company’s debts or legal obligations. An LLC is highly flexible in terms of taxation and management and is used by a variety of businesses.

• Who can form an LLC? Any individual or group of individuals can form an LLC for almost any type of business, except for certain regulated professions.

2. What is a PLLC?

• PLLC (Professional Limited Liability Company) is a special type of LLC designed for licensed professionals, such as doctors, lawyers, accountants, architects, and others who are required to have state licenses to practice their professions.

• Why is it different? A PLLC provides the same liability protection as an LLC, but it’s tailored for professionals to protect their personal assets while allowing them to maintain their professional responsibilities. However, PLLC members must all be licensed in their specific field of work.

• Who can form a PLLC? Only individuals who hold professional licenses can form a PLLC. For example, a group of licensed doctors could form a PLLC to provide medical services, but they couldn’t form a traditional LLC for that same purpose in certain states.

3. Key Differences Between an LLC and PLLC

Factor LLC PLLC

Who can form it? Any individual or group Only licensed professionals

Purpose Any business purpose Restricted to licensed professionals

State requirements Flexible across industries Required in some states for licensed professionals

Liability protection Protects personal assets from business liabilities Same protection, but members are still personally liable for malpractice

State regulation Less regulated, depends on the industry More regulated, subject to professional licensing boards

4. Why Some States Require a PLLC Instead of an LLC

• Regulation of Professional Services: Some states require professionals (such as doctors, lawyers, accountants, etc.) to form a PLLC instead of an LLC because they want to ensure that only licensed professionals can provide certain services. This ensures that those in certain industries adhere to specific ethical and legal standards.

• Malpractice Liability: In an LLC, business owners have broad protection from liabilities. However, states recognize that licensed professionals—such as doctors—cannot be protected from personal malpractice claims. In a PLLC, while the company’s general liabilities (like debt) are shielded from members, each professional remains personally responsible for their own malpractice. States require PLLCs to ensure that personal liability for malpractice is not avoided.

• Professional Oversight: Many states with strict licensing boards (such as in healthcare and law) require PLLCs because they are subject to more oversight. Members of a PLLC are typically required to provide proof of their professional licenses, and the business is often subject to the same regulations as individual practitioners.

5. States That Require PLLCs

States like California, Texas, New York, and Florida are known for having strict requirements for professionals. In these states, professionals in fields such as medicine, law, and accounting must form a PLLC or a similar structure, such as a PC (Professional Corporation), to operate legally.

For example:

• California does not allow PLLCs, but instead requires a Professional Corporation (PC) for licensed professionals.

• New York and Texas both require licensed professionals to form a PLLC, ensuring that all members are qualified and licensed to provide their respective services.

6. Choosing Between LLC and PLLC

• If You’re a Licensed Professional: If you and your co-founders are all licensed professionals (doctors, lawyers, etc.), and you plan to provide professional services, you may need to form a PLLC depending on your state’s requirements.

• If You’re Not a Licensed Professional: If you’re running a business that doesn’t involve providing regulated professional services (e.g., a tech startup, e-commerce business, etc.), an LLC would be the better option due to its flexibility.

Conclusion:

• LLC: Used by a broad range of businesses and provides liability protection for its owners. More flexible in terms of purpose and membership.

• PLLC: Required for licensed professionals in states with strict regulations to ensure that all members are qualified and personally liable for their professional conduct.

Would you like help determining whether a PLLC is needed for Moonah, or to explore legal structures that fit your goals?