Professional LLCs Finally Available in California


A recent law change in California has finally made the PLLC, or Professional Limited Liability Company available to business owners.

PLLCs are most often used in professional situations. They’re designed specifically for licensed professionals, and are usually mandated by law for doctors, lawyers, accountants, engineers, and some other groups. In most states ONLY those people who are licensed may own the business. So if you’re a doctor, and your spouse is a chef, he or she couldn’t necessarily own part of your business, unless you lived in a state that allowed family members to also own part of the PLLC.

From a legal perspective, there’s not much difference between one and the other. They still have Managers and Members, and you can still make any tax election you wish, meaning your PLLC could choose S or C Corporation taxation.

The biggest difference has to do with the ability of partners to protect themselves from liability within the structure itself. Part of life as a professional (in many cases) is the need to maintain malpractice insurance. For a doctor, operating in an entity doesn’t give him or her extra liability protection from a patient. Make a mistake, and you’ll still be sued personally, or at the very least have a malpractice insurance claim made against you. With a PLLC, though, that the same claim cannot also be brought against your co-owners.

On the face of it, you’d almost be tempted to think, “Why bother? If you’re liable for malpractice anyway, why not save the money and operate as a Schedule C, or Sole Proprietorship?” And that’s partially true. But here are two other things to consider:

  1. Operating through an entity does give you liability protection over other things that happen in the business, which have nothing to do with your profession. The person who slips in the parking lot, for example, doesn’t have the same legal position as someone who has a malpractice claim. Yes, that person can still bring a lawsuit, but not a malpractice suit. So the entity will give you protection.
  2. Operating through an entity allows you to make a more proactive tax election. The Schedule C, Sole Proprietorship businesses have self-employment tax assessed over all of the income. Moving into a C or an S Corporation (preferably an S Corporation) tax structure will help to reduce the amount of self-employment tax significantly. And when you think about how much 15.3% of your income is, being able to cut that number back by 40% or so is a pretty powerful incentive to make the switch.

If you’d like to learn more, or are wondering how you may be able to convert your existing California P.C. into a PLLC, drop us a line at megan@smartbusinessincorporation.com. We can go through your options and see if this is a strategy that makes sense for you.

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