tax-law corporate-law
PLLC&#39;s and LLC&#39;s
<p>I was recently looking into the PLLC legal structure and am wondering if there are any benefits to forming a PLLC over an LLC in states where professionals are not required to form a PLLC. At first glance, it seems to me like one would never choose to form a PLLC over an LLC. In PLLC's at least one member (and sometimes all members) must be licensed, the business must only provide services in its professional domain, and the business naming laws are stricter.</p>
<p>Are there perhaps tax or liability benefits that PLLC's provide that LLC's don't? If not, then why is forming a PLLC an option in states that don't require it for professionals?</p>
<p>Thanks.</p>

<blockquote>
<p>I was recently looking into the PLLC legal structure and am wondering
if there are any benefits to forming a PLLC over an LLC in states
where professionals are not required to form a PLLC.</p>
<p>At first glance, it seems to me like one would never choose to form a
PLLC over an LLC. In PLLC's at least one member (and sometimes all
members) must be licensed, the business must only provide services in
its professional domain, and the business naming laws are stricter.</p>
<p>If not, then why is forming a PLLC an option in states that don't
require it for professionals?</p>
</blockquote>
<p><strong>The predominant reason to form a professional limited liability company (PLLC), or a professional corporation (PC), rather than an ordinary limited liability company (LLC) or an ordinary corporation (Inc.), is because it is required by the regulatory officials of a profession to practice that profession in the form of a limited liability entity.</strong></p>
<p>This is a holdover from the days when licensed professionals were not allowed to form limited liability entities, out of fear that such entities would be used to limit malpractice liability, and these professionals instead were required to operate as general partnerships (which have unlimited liability) if they weren't sole proprietorships.</p>
<p>Historically, professionals wanted to form corporations (limited liability companies basically didn't exist at the time), not because of the limited liability protections that they afforded, which weren't a big concern, but because they wanted to be able to secure the health insurance and retirement plan benefits that were available to limited liability entities at the time, but not to sole proprietorships and general partnerships. Professional corporations (PCs) were invented to allow professionals to get these tax benefits while preserving most of the protections for the public and the profession that had previously been protected by prohibiting professionals from practicing in limited liability entity form. Later, when limited liability companies became popular for tax reasons, the PC concept was generalized to the PLLC concept, because it was a route of least resistance strategy to address the new form of entity.</p>
<p>Many states require professionals who practice through limited liability entities to have certain levels of malpractice insurance in place. Others provide that while a PC or PLLC provides limited liability protection with respect to most obligations, that it does not do so with respect to professional malpractice obligations (at least if malpractice insurance requirements are not satisfied).</p>
<p>Many states also have ethical rules that prevent professionals from sharing profits in a manner equivalent to an equity interest in an entity with non-professionals, in theory, to make sure that decisions pertinent to the professional activities of the firm are made by professionals exercising professional judgment in light of their ethical responsibilities that is independent from the judgment of non-professionals who don't share the same ethical responsibilities. But to a great extent, it is really just a form of economic protectionism achieved through the cartel structure of professional regulation, a tradition that dates all of the way back to the <a href="https://www.nlm.nih.gov/hmd/greek/greek_oath.html" rel="nofollow noreferrer">Hippocratic Oath</a> of doctors in Greece in antiquity (which in addition to its famous provisions is also stuffed full of economic protectionist provisions).</p>
<p>Later on, when professionals practicing through an entity became commonplace, the substantive requirements were retained as professional ethical rules, but the requirement for a special form of entity was dropped in many states. But the power of inertia in the law is great, so many states retained the PC/PLLC requirement.</p>
<p>Keep in mind that even if the state where the entity is formed does not itself require a PLLC or PC form of entity, an entity can operate in more than one state in a multidisciplinary practice.</p>
<p><strong>Thus, if your firm has professionals that practice in both State A which the entity is formed, that does not require PC/PLLC entity forms, and also in State B which does require PC/PLLC entity forms to engage in providing professional services through a limited liability entity, retaining the PC/PLLC option makes sense in State A even though it is no longer required.</strong></p>
<p><strong>The secondary reason to use a PC/PLLC form is for marketing purposes. When professional firms had to be organized as a PC or PLLC, the public became accustomed to that idea that legitimate professionals organized into limited liability firms used the PC/PLLC entity designation without really knowing why, and some firms retain that designation because the public expects it and it confers a sense of legitimacy and normalcy.</strong></p>
<blockquote>
<p>Are there perhaps tax or liability benefits that PLLC's provide that
LLC's don't?</p>
</blockquote>
<p>No.</p>
