A professional limited liability company, also known as a PLLC, is a specific type of LLC that enjoys both pass-through taxation and limited liability protection. The main distinction between the two is that only licensed professionals can form PLLCs.
The PLLC structure can offer your business and its members important protection from a variety of liability issues. In some cases, it also offers tax advantages over other business structure options.
For starters, the PLLC and LLC structures are very similar in nature. When it comes to PLLCs, it’s only licensed professionals that have the option of forming one. These professionals might include physicians, surgeons, dentists, lawyers, CPAs, insurance agents, and more.
Another distinction comes in the form of liability. While both structures offer a number of liability protections to owners, when it comes to malpractice or negligence, members can still be found liable. With a PLLC, however, note that any member can be found personally liable for malpractice or negligence but not for the malpractice or negligence of another member.
So, while the two structures do have some key differences, PLLCs still enjoy the same standard LLC benefits. Beyond the liability protection offered to owners, LLCs provide flexibility in terms of management structure, as well as a pass-through taxation classification. This classification means that LLC profits and losses are passed through to the members who then report them on their own tax returns. In this way, LLCs avoid the dreaded double taxation that corporations experience.
When it comes to PLLCs, it’s important to note that not every state offers the option of forming one. New Mexico, for example, does not have the option to form a PLLC. As we noted earlier, licensed professionals form PLLCs for the benefit of certain liability protections, but a PLLC is not a requirement for licensed professional services.
So, even though New Mexico does not offer the PLLC structure, there are other options available to you. For example, in a state like New Mexico that does not have a PLLC option, it’s common for licensed professionals to form a standard LLC or a professional corporation.
Due to the fact that New Mexico’s LLC law does not specify professional services or PLLCs, we’ll guide you through the formation process for a New Mexico LLC. New Mexico law does specify professionals for professional corporations, which is a similar entity structure to the PLLC, and has already allowed professionals to form LLCs in the state.
Note that if you’re in a state that offers the PLLC option, the formation process for PLLCs and LLCs is very similar. The PLLC only has a few additional requirements relating to professional licensing and state licensing board approval.
Forming your New Mexico LLC for professional services will require that you have the up-to-date state licensing requirements of each professional member, as well as any other documentation specific to a certain profession that the state licensing board deems necessary.
Additionally, you will need to file your articles of organization with the New Mexico Secretary of State, which can be found on their website. The filing fee for LLC articles of organization is currently $50.
When you pick a name for your company, you must be aware of a few restrictions. For example, your name must include an LLC indicator, such as the words “limited company” or “limited liability company,” or an abbreviation like LLC, L.L.C., L.C., or LC. While not a requirement, it’s also a smart idea to have an operating agreement in place. This can be a helpful governing document for your company.
Choosing the LLC entity structure is a great way to limit the liability of your company’s owners. Note, however, that while it will shield you from certain liabilities, there are some that will go uncovered.
The LLC structure will protect you from creditors that are looking to collect on unpaid debts owed by the LLC, personal injury connected to the LLC (though unconnected to the professional service you offer), and malpractice associated with another member of the LLC. Regardless of this malpractice protection, you may be required to have malpractice insurance in order to be eligible for the protection, depending on state law and professional requirements.
Liabilities the LLC structure won’t protect you from, however, is malpractice, negligence, or a personally guaranteed business loan. With this in mind, it’s a smart idea to have professional liability insurance in place.
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