In many states, licensed professionals, such as lawyers, doctors, architects, and accountants, aren’t allowed to form LLCs. This is because the states don’t want licensed professionals to escape personal responsibility for malpractice by hiding behind the LLC structure’s personal liability protection. Instead, states offer the option of forming a PLLC (Professional Limited Liability Company), a special type of LLC that’s designed for licensed professionals. PLLC rules vary by state.
One of the key differences between an LLC and PLLC is that members of the PLLC must be licensed professionals. To register the PLLC, they must show proof of a valid professional license. In most cases, members of a PLLC are personally liable for their own malpractice claims. However, they aren’t personally liable for other PLLC members’ malpractice claims.
The LLC and PLLC are state constructs. As such, rules vary widely by state. For example, professionals in New York cannot form an LLC but may form a PLLC. Professionals in California cannot form an LLC or a PLLC but can form an RLLP (Registered Limited Liability Partnership) or PC (Professional Corporation). And professionals in Arizona can choose between an LLC or PLLC. The specific rules within a state may also depend on the type of profession.
Like an LLC, the PLLC creates a separation between the individual owners and the business. A PLLC will typically protect its members from personal liability for the business debts and the malpractice of other owners within the company. However, a PLLC member will still be personally liable for malpractice claims related to that individual’s own actions. For this reason, members can benefit from having a good malpractice insurance policy.
The process to form a PLLC is more involved and takes longer than forming an LLC. Typically, the state licensing board must first approve the PLLC’s Articles of Organization. Then the PLLC must file the Articles of Organization and other formation paperwork with the state. Most states require a signature and license number of a licensed professional to form the LLC.