Choosing Professional Status for your LLC

We frequently receive questions pertaining to Professional LLCs (PLLCs) and whether they are appropriate business choices. In most cases the answer will be no.

Professional status is reserved for businesses where everybody involved holds onto some kind of professional license. For example attorneys, doctor, dentists, CPAs and engineers are usually required to operate through a professional business structure. In many states real estate agents are also required to operate through a professional structure.

Professional structures are specifically designed for this purpose. Ownership in these structures is usually (but not always) restricted to those professionals who are properly licensed. Some states have loosened these rules up to allow spouses of licensed professionals to also hold ownership, but don’t make any assumptions – check your state’s laws before you proceed. You can also contact your local licensing board. In many states the PLLC vs LLC requirement is left to the licensing board, rather than state legislation.

If you need a license to perform the work or service you will be offering through your business, then check with your licensing authority ahead of time as to whether or not you’ll need to set up a professional entity instead of a standard entity. The wrong choice can cost you in both time and money.

Liability rules for PLLCS are also different from regular LLC’s. Professionals remain liable for their acts and deeds, no matter what type of business structure they operate through. If your attorney or CPA does something wrong and causes you to be sued or to lose money, you have a right of action against that attorney or CPA, as well as the firm he or she belongs to. Professional structures allow these individuals to work together as a group while having some personal liability protection from each other. In other words, if one doctor is sued for malpractice it remains a personal suit against that doctor and against the medical practice. The other doctors cannot be personally named to the lawsuit.

But groups of professionals who get together to invest in real estate aren’t using their professional credentials in that capacity. They are just choosing to invest in real estate together. A regular LLC will work fine in this instance. Even though they all may be licensed doctors, there’s no requirement to use a PLLC, because the entity isn’t being used to practice medicine.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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