Should Small Businesses Incorporate as a PLLC or PC?

Chances are you’re probably familiar with entity formations like limited liability companies (LLCs) and corporations. How about professional limited liability companies and professional corporations?

What does it mean to incorporate as a PLLC or a PC? Let’s look at these legal structures and determine who is eligible to incorporate as one of these entities based on your profession.

Professional LLC (PLLC)

One of the best ways to understand what a PLLC is by learning about what it means to form an LLC.

What’s an LLC?

A limited liability company (LLC) is a business structure that allows the business to act as a separate legal entity. Incorporating as an LLC allows entrepreneurs to separate their personal assets, including houses and cars, from business assets with the help of limited liability protection. In the event of an unforeseen circumstance that negatively effects the business, such as a lawsuit, limited liability protects the owner’s personal belongings from potential seizure or impact.

Outside of limited liability protection, an LLC is also a flexible entity. It’s easy to run and manage and has few compliance requirements.

What’s a PLLC?

A PLLC is a more specialized version of an LLC. Like an LLC, it also provides professionals with limited liability protection to separate personal and professional assets. Professional LLCs, in states where there is PLLC legislation, may limit personal liability for claims related to the malpractice or negligence of a partner(s). This ensures one partner of the PLLC is not held fully responsible for claims as they relate to a co-partner.

However, the individual(s) incorporating as a PLLC is not an everyday entrepreneur. They must be licensed professionals. These individuals work in professional occupations where a license is required by the state to provide their specific services. A few examples of professionals that may form a PLLC include lawyers, doctors, dentists, architects, and engineers.

Professional Corporation (PC)

Incorporating as a standard corporation is typically a good fit for businesses that wish to expand to have a global presence, issue shares of stock, or take their company public with an IPO.

Like a PLLC, a professional corporation (PC) may only be formed by individuals in select licensed professions. These may include doctors, lawyers, and architects as well as accountants, optometrists, and dentists.

The partner that incorporates as a PC receives limited liability protection. This provides two forms of protection. It ensures that the partner’s personal assets are protected from any malpractice or negligence of the practice’s associates. Incorporating as a PC also protects the partner and makes sure they are not held personally responsible for any liabilities relating to the owners.

Forming a PLLC or PC

Before you decide to form a PLLC or a PC, it’s a good idea to check in with the state in which you wish to do business. Make sure that the state has authorized PLLC and PC legislation prior to filing to incorporate as the formation. Not every state has authorized PLLC and PC formations, so it’s always wise to ask ahead of time.

In addition, the state of incorporation may require proof that you are a licensed professional. You may need to show your state license in your existing professional occupation as an example of proof. Reach out to the Secretary of State in the state you wish to do business in to see if there are any additional proof examples you’ll need to provide prior to filing, too.

Still uncertain as to which entity to incorporate as? Speak with a trusted legal professional or CPA for additional guidance and advice.

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Author: Deborah Sweeney

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