PLLC vs. LLC: Key Differences, Benefits + How To Form Each

If you're starting a business, one of the first decisions you'll need to make is choosing the right legal structure. For licensed professionals like doctors, lawyers, and accountants, the choice often comes down to PLLC vs. LLC. Both offer liability protection, but they serve different purposes depending on your profession and your state.

Forming a business is simpler than most people think. You'll need to choose the right fit based on your business type, how you plan to operate, and your profession. Learning how to start an LLC is a good place to begin. However, if you're a licensed professional, a PLLC might be the better call.

‍What is a PLLC?

PLLC stands for "professional limited liability company," also called a professional LLC. It’s a business structure specifically for licensed professionals, including:

• Lawyers
• Doctors and dentists
• Accountants and CPAs
• Engineers and architects
• Therapists and counselors

They can offer some personal liability protection but typically won't protect you from malpractice claims related to your own work.

PLLCs share some similarities with LLPs, since both are built for professionals who want liability protection without forming a full corporation. The main difference is that LLPs are partnerships, while PLLCs follow the LLC structure. Understanding how an LLP vs. LLC works can help you decide which one fits your situation better.

What is an LLC?

A limited liability company (LLC) is one of the most popular structuring options for small business owners. They are easier to set up than corporations, and there are no restrictions on who can own one. 

LLCs separate personal debts from business assets, have a flexible management structure, and allow pass-through taxation, meaning the profits go straight through the business to the owners. The owners are then taxed on their personal returns.

For example, it might be wise to start an LLC if you’re a:

• Freelancer or consultant
• Online business/e-commerce store
• Restaurant or retail store
• Real estate investor
• Marketing agency
• Construction company

If you're not sure what it means to be an LLC or which type of business fits your situation, a lawyer can help you sort it out. LegalShield's small business plans connect you with a lawyer who can walk you through your options.

PLLC vs. LLC: Key differences

The main difference between LLC and PLLC boils down to:

1. Who can start one
2. How they’re set up
3. How liability is assigned

Here’s how LLCs vs. PLLCs compare across different areas: 

Ownership and management eligibility

Only licensed professionals can own or manage a professional limited liability company. You may need approval from your state licensing board, proof of your professional license, and, in some cases, malpractice insurance before you can register. 

Many states require PLLCs in professions, like law, medicine, and accounting, to carry professional liability insurance or provide proof of financial responsibility, with minimum coverage ranging from $100,000 to $1 million, depending on the state and profession.

Some of the professionals who typically choose to form PLLCs:

• Doctors and physicians
• Lawyers
• Accountants and CPAs
• Architects
• Engineers
• Therapists and counselors
• Dentists
• Veterinarians
• Chiropractors

There are zero licensing requirements to create a standard LLC. Individuals, corporations, other LLCs, and even foreign entities can own and manage an LLC. This flexibility makes LLCs the better option for most aspiring business owners.

Formation requirements

Forming a PLLC involves more steps than a standard LLC requires. When comparing articles of organization vs. professional LLC requirements, PLLCs need additional approvals. You have to obtain approval from your state's licensing board, and you’ll also need to have proof of your professional license. 

Some states require PLLCs in professions such as law, medicine, and accounting to carry professional liability insurance or provide proof of financial responsibility. Those coverage minimums can range from $100,000 to $1 million, depending on the state and profession.

The process of forming an LLC is much easier than forming a PLLC. You first file articles of organization with the state and pay the filing fee. Then, you designate a registered agent, or a person or business you designate to receive legal documents and official government mail on behalf of your LLC. Your registered agent must have a physical address in the state where your business is registered.

Note: For both entity types, you'll need articles of organization. For a full list of what you'll need, check out the documentation required for an LLC.

Liability

A PLLC protects your personal assets from general business debts; however, it doesn’t shield you from malpractice claims based on your own professional work. If you make a professional error while providing services, you can still be personally liable. However, other members of the PLLC are usually protected from your individual errors. 

For LLCs, standard liability protection applies. Your personal assets are generally safe from business lawsuits and debts. 

‍Taxes

There isn’t much difference in PLLC vs. LLC taxes. Both PLLCs and LLCs are pass-through entities by default, meaning the profits flow to the owners and are reported on personal tax returns.  

Owners of both PLLCs and LLCs are subject to Social Security and Medicare taxes on their share of the business profits. This self-employment tax is currently set at 15.3% on net earnings.

Either entity can also elect to be taxed as an S-corp or C-corp. 

S-corp elections can help reduce self-employment taxes by allowing owners to pay themselves a salary and take the rest as distributions, which aren't subject to those taxes.  

Election for a C-corp means the business pays its own corporate tax rate, which may benefit some businesses depending on their income and goals.

State recognition

LLCs are recognized in all 50 states, meaning you can form an LLC regardless of where your business is run.

On the other hand, PLLCs are not available everywhere. Some states, such as California, don't allow PLLCs at all and require licensed professionals to form a professional corporation instead. 

For help deciding where to register, check out our guide on which state to incorporate your small business.

Naming conventions

Your business name must include "PLLC" or "LLC" (or the full written version) so customers and the state can identify your business structure. Either way, the name must be unique and not already registered in your state. Some states have additional rules about abbreviations and formatting.  

For example, some require periods in "L.L.C." while others don't allow them. Some states restrict certain words like "bank" or "insurance" without proper licensing. You can check your Secretary of State's website or call their office before filing to confirm your name meets all requirements.

Benefits of PLLC vs. LLC

There are pros and cons to both PLLCs and LLCs. Determining which is best for your unique situation is key. The ideal choice ultimately depends on your profession, your state's laws, and how you plan to run your business.

PLLC benefits

PLLCs offer the following advantages for licensed professionals looking to protect their assets:

• Personal asset protection: Your home, car, and savings are generally protected from business debts and lawsuits unrelated to your professional services.
• Member-to-member protection: If another member of your PLLC commits malpractice, you are typically not held personally responsible for their mistake.
• Professional credibility: Operating as a PLLC is a sign of legitimacy for clients and patients. As a PLLC, everyone can see you've taken steps to formalize your practice.
• Pass-through taxation: Profits pass directly to members and are taxed on personal returns, so businesses avoid double taxation. 
• Tax flexibility: You can elect to be taxed as an S-corp or C-corp if it benefits your financial situation.

PLLC considerations

There are some limitations to keep in mind before forming a PLLC.

• No protection from your own malpractice: If a patient or client sues you over a mistake you made on the job, your personal assets are still on the line. A PLLC only protects you from other members' errors, not your own.
• Limited eligibility: Only licensed professionals can form a PLLC. If you don't hold a qualifying license, this structure isn't available to you.
• Extra formation steps: You may need licensing board approval, proof of licensure, and malpractice insurance before you can register.
• State restrictions: PLLCs aren't available in every state. Some states, like California, require professionals to form a professional corporation instead.
• Self-employment taxes: Like LLCs, all PLLC earnings are subject to self-employment taxes unless you elect S-corp taxation.

‍LLC benefits 

An LLC is a solid choice for most business owners who want liability protection without the complexity of a corporation.

• Personal asset protection: Your personal assets are generally shielded from business debts and lawsuits.
• Flexible ownership: Individuals, corporations, and other entities can all be LLC members. No licensing requirements or restrictions on who can own a piece.
• Simple formation: File articles of organization, pay a fee, designate a registered agent, and you're in business — no licensing board approval needed.
• Pass-through taxation: Profits are taxed on members' personal returns, avoiding double taxation.
• Universal availability: LLCs are recognized in all 50 states, so you can form one no matter where you're located.

LLC considerations

A few things to think about before forming an LLC.

• Self-employment taxes: LLC members typically pay self-employment taxes (15.3%) on their share of profits unless they elect S-corp taxation.
• Operating agreement recommended: Not every state requires one, but having a written agreement that specifies who does what and how profits are split can save you from disagreements later.
• State-by-state rules:  Filing fees, paperwork, and yearly requirements like annual reports are different in every state. Check yours before you file.
• Not always available to professionals: If your state requires licensed professionals to form a PLLC or professional corporation, a standard LLC may not be an option for you.
• Less specialized: An LLC doesn't carry the same professional credibility as a PLLC for licensed service providers.

Choose the best path for your business with LegalShield

Deciding between a PLLC and a LLC comes down to your profession, your state's rules, and how you want to structure your business. If you're a licensed professional, a PLLC may be your only option. If you're starting a business that doesn't require a professional license, an LLC is likely the simpler choice. 

Either way, you may also need to register a DBA (doing business as) if you plan to operate under a name different from your legal business name.

Starting a business involves a lot of decisions. Getting the structure right from the beginning can save you time and money down the road.

With a LegalShield membership, you can:

• Talk to a provider lawyer about whether a PLLC or LLC fits your business
• Get your articles of organization or operating agreement reviewed before you file
• Ask questions about your state's licensing and formation requirements
• Get guidance on tax elections like S-corp or C-corp status

LegalShield's legal plans give you access to lawyers who can help with your business questions.

Frequently asked questions

‍What is a PLLC business?

A PLLC (professional limited liability company) is a business structure designed for licensed professionals, like doctors, lawyers, and accountants. It offers liability protection while meeting state requirements for professional services.

What is the difference between an LLC and a PLLC?

The main difference is who can form one. Anyone can form an LLC, but only licensed professionals can form a PLLC. PLLCs also require licensing board approval in most states and don't protect members from their own malpractice claims.

Is a PLLC considered an LLC?

Yes, a PLLC is a type of LLC, but it's specifically designed for licensed professionals. It follows most of the same rules as a standard LLC, with added licensing and liability requirements.

Which is easier to form, a PLLC or LLC?

An LLC is easier to form. You file articles of organization, pay a fee, and designate a registered agent. A PLLC requires additional steps like licensing board approval and, in some states, proof of malpractice insurance.

Are PLLCs taxed differently from LLCs?

No. When it comes to PLLC vs. LLC taxes, both are treated the same by the IRS. Both are pass-through entities by default, and both can elect to be taxed as an S-corp or C-corp.

What is the difference between a domestic and professional LLC?

A domestic LLC is simply an LLC registered in the state where it operates. A professional LLC (PLLC) is a specific type of LLC for licensed professionals. The term "domestic" refers to location, while "professional" refers to who can own and operate the business.

Is PLLC a corporation or partnership?

Neither. A PLLC is a limited liability company, which is a separate business structure. However, it can choose how it's taxed. By default, a single-member PLLC is taxed like a sole proprietorship, and a multi-member PLLC is taxed like a partnership.

Is a PLLC a sole proprietorship?

No, a PLLC is a formal business entity that provides liability protection, while a sole proprietorship does not. Unlike a PLLC or LLC, a sole proprietorship offers no legal separation between you and your business, so your personal assets are at risk. 

Which professions must form a PLLC?

Common professions that require or allow PLLCs include doctors, lawyers, accountants, architects, engineers, therapists, dentists, and veterinarians. Some states require these professionals to form a PLLC, while others offer it as an option. Check with your state's Secretary of State and licensing board for specific requirements.

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