When starting a business, you often run into the dilemma of choosing the correct business structure that benefits you and keeps you legally compliant. And you probably landed on starting an LLC.
What if we told you there was a whole other layer to consider when determining your company’s structure: professional entities.
A professional entity, such as PLLC, is a specific business entity for licensed professionals, regulated by the Education Department.
We know what you’re thinking. “But I am a professional in my industry, do I need a PLLC?” And to that we say, probably not. We have no doubt you are a professional. You’re doing a bang-up job. Keep up the good work!
We will cover the difference between a PLLC and a regular LLC, who they are for, and the process of starting each up.
PLLC vs LLC
Who Needs a PLLC?
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As previously mentioned, only certain professions need a PLLC rather than a traditional LLC. If you’re looking for a complete list of the professions that would need a professional entity, you can find our list here:
Running List of Professions that Need a PLLC
If your business falls on that list, you need a PLLC. Also keep in mind that this list is specific to New York but it serves as a good baseline when determining if you will need a PLLC in any state.
This list isn’t all encompassing, and laws can always change. So to determine if you need a PLLC, your best bet is to speak to a member of our team.
Structure of a PLLC vs an LLC
Structurally, a PLLC is the same as an LLC. The only major differences are that all owners of a PLLC must be licensed in that profession.
We’ll briefly go through the main benefits of an PLLC/LLC for business owners, using both LLC and PLLC interchangeably since they are the same entity type.
The biggest benefit of an LLC is that it is a pass-through entity. This means that all profits and losses are passed directly to the owners, whereas a corporation or professional corporation is taxed twice.
Corporations are taxed on any profits made and then again on any money taken out of the business in the form of dividends. With LLCs, you make what your business makes.
The other major benefit of an LLC is the limited liability protection it offers its owners. If you’re wondering what limited liability protection is, check out our other article breaking down exactly what it is.
In short, liability protection is the separation of owners from their company in situations where the business is sued or takes on debt. The owners are not personally liable.
The main exception when it comes to liability protection for business owners is “gross negligence”. Gross negligence is when the owners are found to be responsible along with their company for acts of extreme disregard or indifference for the safety of others.
When it comes to PLLCs, owners also aren’t protected from malpractice lawsuits. Malpractice is most commonly associated with doctors and physicians but malpractice can apply to most licensed professionals and public officials.
LLCs and PLLCs offer a lot of benefits and protections for their owners but you are never fully protected. So keep your hand steady during surgery; don’t cut corners when you design that building; and check your math when you crunch those numbers!
Forming a PLLC
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Okay so now that you know which business you need, we can talk about how to form these businesses. Good news, we’ll do it for you! All you have to do is book a call with our firm and we take care of the whole process.
But if you’ve made it this far in the article, the least we can do is give you the rundown of the process. We’ll start with PLLCs.
To form your PLLC, first you will need to collect your degrees and licenses in the profession you are looking to operate in, for each member. Next is picking a business name. And this may seem obvious but the business name is incredibly important as the Department of Education is incredibly selective and pedantic about the name of your business. For more information on business naming restrictions, check out our article on How to Avoid Processing Delays for Professional Entities.
You will then need to ask the Department of Education for their PERMISSION to open your business. And they don’t make it easy.
You will need to create your Articles of Organization; fill out the Education Department’s Contact Information form; and fill out an affidavit, which must be notarized. Then, you must write an explanation of the business name you chose, with a breakdown of each word or phrase. Then mail it into the Education Department’s Office of the Professions for review, which will take at least 8 weeks. Fun!
If you get denied, repeat all those steps again, addressing the issues they outlined. This will most likely mean changing the business name altogether or writing a stronger explanation letter.
Once you get approval from the Education Department, you can then file the approved Articles of Organization with the Department of State. Wait 2-3 days and your PLLC will be formed, barring any other setbacks.
But wait, there’s more.
Once your business is formed, you should get an EIN, which stands for an Employer Identification Number. This is the business equivalent of a social security number. This is incredibly easy if you apply for your EIN online.
You can now open a business bank account and run your business. This doesn’t mean you’re done yet. New York likes to give you one last kick in the pants on the way out. You will need to publish.
New York is one of three states to require that you publish a notice in a newspaper to announce that the business has been formed. And this isn’t a one time event. New York requires that you publish in 2 newspapers for 6 consecutive weeks. Once publishing is complete, you file a Certificate of Publishing with the state, along with signed affidavits from the publishers.
Then, and only then, is the formation process complete.
Forming an LLC
LLC formations are much quicker and easier than PLLCs. Even then, if you’d like to save yourself time, energy, and money, our firm can get your LLC started in 24 hours.
But if you’d like to make a go of it yourself, the process to form an LLC is the same as a PLLC, minus all the steps involving the Education Department.
You create and file Articles of Organization, get an EIN, and publish in two newspapers for 6 consecutive weeks.
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If you were looking for a way to summarize the PLLC vs LLC questions, it’s simple. PLLCs and LLCs are exactly the same, except a PLLC is for licensed professionals and an LLC is for everyone else.
PLLCs are regulated by the Department of Education, which makes the formation process much longer and more difficult.
If you still have questions or would like to form your PLLC or LLC. You can book a call with our firm.