Professional LLC – Is It for You?

by Neal Frankle, CFP ®

What is a Professional LLC and is it for you?

Let’s say you have a great idea for a small business. Now all you need to do is the paperwork. There are so many ways to form your business, it can get confusing. But if you qualify, you should consider becoming a Professional LLC. It combines the benefits of a corporation and a partnership. Let’s take a quick look under the hood:

Who can form a Professional LLC?

If you are required to have a license to work in your industry, you may be able to set up a PLLC. The people who take advantage of this business form are mainly doctors, lawyers, accountants, chiropractors and dentists. As I said, if your state requires you to have a license, you can form as a Professional LLC.

The only stipulation is that the PLLC can only be operated to provide professional services. If you’re a doctor and you want to open a pinball arcade, go for it. Just don’t try to do so as a Professional LLC. Also, not all states recognize this business entity, so make sure to find out before you go through all the trouble.

Generally speaking, you can save 85% of the cost of an attorney by using LegalZoom.

What’s the advantage?

First, Professional LLCs are easy to set up and maintain. They are much simpler and less expensive than corporations. This is a big plus. It’s hard enough trying to figure out how to make a business successful. It’s nice to save time and money by getting rid of the red tape.

Also, the members of the PLLC aren’t usually liable for its debts. This doesn’t mean you don’t need business insurance. But not being liable for debts can come in handy if the business doesn’t work out as planned. Just make sure that you run your Professional LLC like a business and not as an ATM for your personal use. Keep good records and keep business expenses separate from personal expenses. If you don’t, creditors may be able to argue that the PLLC is a fiction and they’ll come after you personally. Scary.

Also, make sure you create your operating agreement properly. Basically, you should make sure that the operating agreement spells out that personal assets are not part of the PLLC.

What are the tax benefits?

Income is passed through the organization just like a partnership. Sweet. No messy double taxation to worry about. I bet that puts a smile on your face. This helps increase the value of your business.

Any fine print?

First, all the partners in the Professional LLC have to be licensed by the state to work in the given profession. And that’s not all.

As with anything, there are tons of other issues to consider. That’s why I always recommend that you speak with an attorney and a CPA before you make any decision. The money and headaches you save will more than make up for the consultation fees. Of course, this doesn’t mean you have to use the lawyer to set up the PLLC. You might consider just consulting with the attorney and then using a service like LegalZoom to set up the documents. This would probably be much cheaper.

How do you set up a Professional LLC?

It’s pretty much the same process as setting up any other limited liability company. However, for a Professional LLC you have to file with a state licensing board, and they have to approve everything before the Secretary of State gets the paperwork. So, as you can imagine, it takes a little longer to form a PLLC than a regular LLC.

How is your business set up? How did you decide which entity to use?

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