Businesses can be set up without registration such as the case for a sole proprietorship. However, this setup leaves the business owners vulnerable to certain situations. On the other hand, registering a business as a corporation seems to be far too much work for smaller businesses. Thus, many people register their business as an LLC, a Limited Liability Company. However, some professionals such as accountants might have certain restrictions in terms of setting up their business as an LLC.

If an accountant wants to register their business where they offer services related to their profession, then they would have to set up a different type of LLC – a PLLC (Professional Limited Liability Company). A PLLC is a special type of LLC that is designed for licensed professionals. However, this is strictly a state-by-state basis as different states have different requirements for professional entities. Some states allow PLLCs, some states allow licensed professionals to form LLCs, and some only allow professional corporations.

What is an LLC?

An LLC is a business structure that is considered to exhibit characteristics of both a corporation and a sole proprietorship or a partnership. While the LLC gets some of the benefits of a registered business such as a corporation, there are also benefits that overlap between LLCs and non-LLC entities such as pass-through taxation – a taxation scheme where the taxes for the business would automatically “pass through” over to the members’ personal tax return.

Although a business can run and be operated unregistered, many business owners are attracted to the concept of registering their business as an LLC due to certain perks. One major perk associated with setting up an LLC is limited liability protection.

Since the LLC is considered an entity of itself that runs the business and holds assets, any financial burden that may fall onto the LLC is typically restricted to the LLC. The members, or owners of the LLC, are protected and their personal assets are not at risk when the LLC received financial obligations and debts.

Learn More: How Long Does it Take to Create an LLC?

LLC vs PLLC

LCCs are incredibly appealing for limited liability protection but the circumstances can be quite different for licensed professionals who offer their particular services. In some states, these professionals would have the option to register their business as a PLLC – a Professional Limited Liability Company.

PLLCs still get some degree of limited liability protection as the members involved might not be liable when the company is sued or owes debt. However, members of the PLLC are still liable for their own malpractice or professional negligence. Thus, professionals can still enjoy some benefits from registering their business, but they are not totally protected by the registration.

It is best to think of a PLLC as a slightly different version of an LLC. Just like a regular LLC, PLLCs also benefit from pass-through taxation. The owners of the entity are still called members and an Operating Agreement is still required to govern how the PLLC’s financial and functional decisions including rules, regulations, and provisions.

PLLCs are also ideal for multiple licensed professionals to work together since the liability of one does not affect the liability of the other members involved. For example, if one accountant in a PLLC is sued for malpractice in some form, the other members in the PLLC are typically protected by the structure of the PLLC.

One difference between an LLC and a PLLC that might be worth noting is that the formation of a PLLC has more steps involved compared to the formation of an LLC. Aside from submitting the Articles of Organization, the legal documents needed to establish an LLC at the state level, the PLLC must also submit the Articles of Agreement including a certified copy of their license to their respective professional licensing board for review.

It Depends on the State

Accountants and other licensed professionals such as attorneys, chiropractors, or architects can possibly register their practice as an LLC. Some might have to register their business as a PLLC. However, it all depends on the state; Laws differ from one state to another, and these licensed professionals have to check with their state laws what they can register their business as.

For example, licensed professionals in Wyoming can simply register their practice as an LLC as long as their respective licensing authorities do not prohibit it.

On the other hand, licensed professionals in Iowa cannot register their practice as an LLC. They can only either register their practice as a professional corporation (PC) or a PLLC.

It really depends on the state. States such as California and Hawaii do not even provide PLLCs, and licensed professionals can only register their practice as PCs. Other states might have different entities altogether such as a Professional Limited Liability Partnership (PLLP).

If a licensed professional is interested in the options they have regarding registering their practice, it is highly recommended that they simply check their own state laws regarding the formation of LLCs or inquire with a coordinator from the state government.

Specifically for accountants, they would still have to check on their state. Some states might allow accountants to form standard LLCs while some might not. However, if a state allows PLLCs, accountants would have to register for their practice.

Malpractice Insurance

Even though LLCs and PLLCs offer some degree of personal liability protection, accountants and other licensed professionals will still be personally liable for malpractice and professional negligence. To help minimize their risks, licensed professionals can obtain professional liability insurance. In fact, some states even require PLLCs to have these types of malpractice insurance. While coverage may not cover criminal prosecution and other potential liabilities under the civil code, these types of insurance can help cover some defense costs.