If you qualify, you should strongly consider launching your business as a professional limited liability company (Professional LLC). If you love being self-employed, you’ll love the benefits of being a corporation and being a partnership.
What are the advantages of being a professional limited liability company?
They are much simpler and less expensive than corporations to set up and maintain. This is a big plus. When you start your business, you’ll be plenty busy. The last thing you need is to have lots of red tape to worry about. Setting up as a professional limited liability company is a snap.
Looking for more advantages? If you’re a member of a Professional LLC, you aren’t personally liable for your small business debt. Of course, some vendors will ask you to personally guarantee debts, and the Professional LLC doesn’t shield you from those potential liabilities. But for those creditors that don’t ask you to personally sign off on the debt, this protection is very valuable.
Important tip – run your business like a business. Don’t run personal expenses through the business entity. If you use the business to pay for personal expenses, creditors will have a case that the Professional LLC is a fiction and they’ll be able to come after your personal assets. Not a good scene.
Looking for more business protection? Be particularly careful about setting up your operating agreement. In this agreement, make sure to be clear about defining which are personal and which are private assets.
While the professional limited liability company offers many of the asset protection benefits that corporations offer, the Professional LLC also provides the tax benefits most often associated with partnerships. That’s right. Profits are passed through from the business to the partners. The Professional LLC entity doesn’t pay tax. That’s cool beans.
How do you qualify to form a professional limited liability company?
You can set up a professional limited liability company if the state you operate in requires that you have a license. For example, if you’re a doctor, lawyer, accountant, chiropractor or financial planner, you might be able to avail yourself of these benefits.
Of course, you have to run a business that is consistent with the licensing requirement. In other words, if you are a lawyer but you want to open up a smoke shop, you can’t do it in the business form of a Professional LLC.
What to be wary of:
First, not all states recognize the Professional LLC business form. Make sure your state does before you go through this process. Also, remember that if you do go this route, everyone who is a partner has to be licensed in the state.
There are other issues, of course, and that’s why I suggest you consult with a tax and legal professional before doing anything. I am a big fan of consulting with knowledgeable professionals, as you know. I learned the hard way that it’s always a good investment to have excellent advice – especially if I’m dealing with money or the government. In this case, you’re dealing with both.
While I do think you should consult an attorney and tax advisor, that doesn’t mean you have to spend a ton of money to set up the professional limited liability company. Consider using LegalZoom to set up your company. Let them do the heavy lifting. They’ll walk you through the setup and filing process once you’ve consulted with your attorney.
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 the board has 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 did you set up your company? Is it a Professional LLC? What was the process like? Was it worth it?