Have you ever considered forming a professional corporation (PC) or professional LLC (PLLC)? These two entities are slightly more specialized than a traditional limited liability company or corporation. Entrepreneurs that incorporate as a PC or PLLC must be licensed professionals. These individuals must be work in a certain occupation. They also must offer a specific service before they can incorporate as a PC or PLLC.

How do you know your niche business is a fit to form a professional corporation or professional LLC? Let’s take a look at the differences between the two entity structures and how professionals can benefit from forming each one.

Professional Corporation (PC)

What is a professional corporation?

Much like a standard corporation, a professional corporation provides liability protection to small business owners. This separates you and your personal assets from that of the business.

Many companies that provide professional services have several partners. When a partner incorporates as a PC, they are protected from any malpractice of the practice’s associates. If one of your partners accidentally causes an injury, they may be targeted with a lawsuit. However, this lawsuit does not impact partners that have formed a PC. The professional corporation shields their personal assets. This ensures they are not held personally responsible for the negligence of other owners.

The major difference between a traditional corporation and PC is that a PC is designed to protect licensed professionals and their personal assets. State law has also authorized the professional corporation structure. Licensed professionals may incorporate as a PC, as long as they meet the entity’s specific requirements.

Who is qualified to incorporate as a PC?

Licensed professionals are individuals that require state licenses to offer professional services. The following occupations qualify to incorporate as a professional corporation:

  • Lawyers
  • Physicians
  • Engineers
  • Doctors
  • Dentists
  • Optometrists
  • Accountants
  • Architects

Additionally, forming a PC may be suitable for businesses that conduct activities considered to be professional services. Within most states these activities include:

  • Medical services
  • Legal services and representation
  • Accounting and financial services
  • Architectural services

How to form a professional corporation

Typically, it’s not enough to say that you are a doctor when filing to form a professional corporation. Proof of good standing must be provided in order to file as a professional corporation. An example of proof you may provide is your state license within your current professional occupation. Check in with your local Secretary of State to see if there are other forms of proof you may need to provide, too.

What happens after the state has reviewed relevant proof of your profession? You may move forward with filing articles of incorporation in the state in which you plan to do business. The state licensing board then approves the articles of incorporation. Keep in mind that the state licensing board may ask that your PC designates itself in a specific manner. For example, this could mean that you need to include “PC” or “Professional Corporation” after the name of the practice. (Similar to what many states ask of corporations, too.)

Professional LLC (PLLC)

What is a professional LLC?

As a business structure, a professional LLC has several things in common with limited liability companies (LLCs). PLLCs separate personal and workplace assets for those in professional occupations. But, much like a professional corporation, a PLLC also limits personality liability for claims related to the negligence of partners.

Who is qualified to incorporate as a PLLC?

Remember the list of licensed professionals we mentioned earlier for professional corporations? Here’s a quick refresher:

  • Lawyers
  • Physicians
  • Engineers
  • Doctors
  • Dentists
  • Optometrists
  • Accountants
  • Architects

These professionals, and businesses that provide professional services where state licenses are required, may incorporate as a PLLC.

How to form a professional LLC

But, there’s a twist to forming a PLLC. Before you can form this entity, you’ll need to do more than determine if you have necessary professional proof. In addition, you must research to see if the state you do business in has authorized PLLCs.

Some states provide PLLC legislation. The states that do essentially give professional LLCs the go-ahead to limit personal liability for claims related to the errors or malpractice of a partner. If a state has PLLC legislation, the partner that formed a PLLC isn’t held personally responsible for these claims. These same states may also provide PLLCs under certain statutes as well.

However, other states do not provide PLLC legislation. Before you begin to form a professional LLC, check in with your local Secretary of State. See if they have authorized PLLC formations. If so, you may begin the filing process.

Comments

  1. Hello Deborah,

    What an enlightening post! This is stacked with incredibly valuable information.

    I am looking ahead to employing the extraordinary resources you have shared. These not so subtle differences can make a big change for professional entrepreneurs. Thank you!

    I am presently working for a start-up called Efortles, which aspires to empower small business owners. Currently, we offer CPA services for free, which is just the initiation of our objective to eliminate all obstacles confronting small businesses.

    I will certainly share this information with all my friends, customers, and associates. Looking ahead to your next post.

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