Should Those In Professional Services File As A PC Or PLLC?

Does your business provide services that are considered “Professional?” If so, they state may require the company to register as a Professional Corporation (PC) or Professional Limited Liability Company (PLLC).

Should Those In Professional Services File As A PC Or PLLC?

When it comes to choosing the correct business structure, much of the decision is dependent on the industry in which the business will be most involved. For example, many entrepreneurs who have come up with the next revolutionary product or service choose to register as sole proprietors or as limited liability companies. Those working as professionals are often faced with choosing between a professional corporation (PC) and a professional limited liability company (PLLC). Professionals can include

  • Lawyers
  • Doctors
  • Accountants

So, imagine anyone working in these industries who is set to open their own practice. Both PCs and PLLCs offer protection against acts of malpractice by themselves, their employees, and their colleagues. Professionals should strongly consider choosing to file as a PC or a PLLC as opposed to the more-common sole proprietorship, partnership, corporation, or LLC. But of the two, which option should professionals choose?

State Requirements May Vary

Before considering the option between filing as a PC or a PLLC, it’s worth remembering that state requirements can vary significantly. The filing requirements in one state can be drastically different than the filing requirements in another. Professionals who are looking to conduct business in more than one state are required to register their company in every state in which business is transacted. Professionals will likely select one state to serve as their “home state,” where they will file as a domestic PC or PLLC. Then, subsequent filings in other states will be as a foreign PC or PLLC.

Additionally, professionals also must be mindful of the fact that they must acquire licenses in every state in which they wish to conduct business. For example, lawyers must pass the bar examination to become licensed to practice law in a particular state. Thus, the requirements for professionals to conduct business in any given state are significantly more stringent than the requirements for an entrepreneur to sell goods or services in a state.

Professional Corporations

Professional corporations exist just as standard corporations, in that they provide liability and debt protection. They also give owners the option to produce stock options at some point in time. However, one of the most significant differences between corporations and professional corporations is the fact that the shareholders in a professional corporation must all be licensed members of the profession in which the company is authorized to conduct business. Imagine a doctor and a lawyer have wedded, and they each wish to open a professional corporation. The doctor cannot serve as a shareholder in her husband’s law practice, and vice versa.

Additionally, many states do not allow members of different professions to own shares of the same PC. Because of these regulations, the corporate structure of a PC is significantly more streamlined than that of a standard corporation. As a result, professionals have more control over corporate operations. This is for the best, as professionals are highly-trained in their respective fields.

Professional Limited Liability Companies

LLCs have become more popular over the past few years, so it’s no surprise that PLLCs have also begun to gain popularity amongst professionals. Unfortunately, PLLCs are not available to professionals in every state. Thus, it’s vital that professionals research whether a PLLC is permitted in the state in which they plan to conduct business. Otherwise, they may be limited to filing as a PC.

This could also create some difficulties during expansion. Since every state permits PCs, it could be easy to expand across state lines while maintaining the same corporate structure. However, since not every state permits PLLCs, professionals may run into some difficulties when trying to conduct business in another state. Not only should professionals look into the state they wish to operate now, but they should also look into whether surrounding states permit PLLCs if they believe they’ll expand in the future.

If a PLLC is available, professionals may want to consider this option compared to a PC. That’s because it’s generally easier to establish a PLLC than it is a PC. Furthermore, the operational requirements of a PLLC are considerably more relaxed than those of a PC. PCs are required to hold annual board meetings with a majority of their shareholders present, for instance. PLLCs do not operate under such guidelines.

Much like PCs, states may offer stringent requirements over who can make up a PLLCs membership or ownership group. States may not allow non-professionals to serve as owners or members of the business entity. Much like a PC, this could be for the best as it ensures that highly-qualified professionals are the ones making critical decisions.

Liability Protection

Anyone working in a professional industry exposes themselves to tremendous risk. Whether it’s a lawyer who gives incorrect legal advice or a doctor who has an operation go awry, professionals expose themselves to risk on a constant basis. Although there are dozens of steps to take that help mitigate risk, they are still susceptible to liabilities and debts.

This is one of the primary reasons why professionals should consider filing as an PC or PLLC. Both establish entities separate from the ownership group. This means that were the company ever to be sued, the owner’s personal assets are safe from litigation. The plaintiff will only be able to recoup damages from the company and not the individuals who make up the membership group. This is not the case with sole proprietorships or partnerships. Considering that professionals work in high-risk industries, they should take every measure possible to protect themselves from liabilities.

Trouble Registering The Business?

Professionals forming their first business may likely be overwhelmed when attempting to register as a PC or PLLC. They should invest in their company and reach out to a third-party company like DoMyLLC. At DoMyLLC, we have years of experience dealing with state compliance requirements. We can help ensure that professionals registering as a business for the first time do not miss any essential paperwork or filings. Hiring us is a small investment that could go a long way.

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