PLLC vs. LLC

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PLLC members pay taxes like members of a partnership.
PLLC members pay taxes like members of a partnership. (Image: Eileen Bach/Photodisc/Getty Images)

A limited liability company and a professional limited liability company both serve the same purpose. Setting up a business as an LLC or PLLC protects the members' personal assets from business debts and lawsuits. The big difference between PLLC and LLC is who can become members.

Company Membership

Most business owners can choose to set up their company as an LLC by filing articles of organization with the state. However, state law may not give this option to licensed professionals such as accountants, doctors or attorneys. North Carolina, for example, requires the professionals to form a PLLC. The licensing board for your state and profession should be able to tell you whether you need to become a PLLC.

Legal Requirements

To form an LLC, file articles of organization with your state government. The exact forms and fees are set by each state. Some states, Entrepreneur magazine says, also require you file an operating agreement spelling out how your LLC is run. A PLLC files the same paperwork, but it has added requirements. The state licensing board must approve the articles of organization. If you have a mix or professionals, such as accountants and attorneys, you may need approval from more than one board.

Liablity Protection

If someone sues an LLC or PLLC, or the company goes out of business with unpaid debts, the members' personal assets usually are untouchable. There are exceptions, however. For example, if one member of the company personally guarantees payment, she's on the hook if the company doesn't pay. Members of a PLLC also are vulnerable if they're sued for professional malpractice. Some states, such as West Virginia, require a PLLC to carry liability insurance, but not an LLC.

Money Matters

Financially, PLLCs and limited liability companies work much the same. Members contribute capital to start the company and typically get a share of profits relative to their investment. It's possible to set up a special allocation where, say, a partner who contributed 25 percent gets 35 percent of the profits, but the IRS scrutinizes these arrangements carefully. Members pay tax on the profits as personal income: the PLLC or LLC itself doesn't pay federal tax as an entity.

Lmited Liability Partnerships

Another option for licensed professionals is the limited liability partnership. The status of LLP varies from state to state. For example, West Virginia allows both LLPs and PLLCs, while California only allows LLPs. An LLP operates like a regular partnership -- many former professional partnerships have reformed as LLPs -- but with liability protection similar to a PLLC.

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