LLC vs. PLLC Business Structures for Healthcare Professionals

Choosing the right business structure is one of the first steps when starting a healthcare practice. Doctors, dentists, chiropractors, and other licensed professionals face rules that differ from those for general business owners. Picking between a Limited Liability Company (LLC) and a Professional Limited Liability Company (PLLC) affects liability protection, taxes, ownership, and compliance with state laws.

LLCs and PLLCs both provide personal asset protection from business debts and lawsuits, but there are important differences. This guide explains how each structure works and what healthcare professionals should consider when forming a practice.

Understanding LLCs

A Limited Liability Company, or LLC, is a type of business entity that protects owners from being personally responsible for business debts. Members of an LLC are separate from the business, so personal savings, property, and other assets are usually shielded if the business faces financial trouble or legal claims.

LLCs also offer a flexible management structure. Members can run the business themselves or hire managers. Taxes are simple too. By default, profits pass through to the owners and are reported on individual tax returns. LLCs can also choose to be taxed as an S Corporation or C Corporation, which may reduce self-employment taxes depending on income.

Forming an LLC is relatively straightforward. You file Articles of Organization with your state, pick a registered agent to receive legal documents, and, in some states, draft an operating agreement to explain management rules. Because LLCs are flexible and easy to set up, they are often used by business owners across industries.

Understanding PLLCs

A Professional Limited Liability Company, or PLLC, is similar to an LLC but is specifically for licensed professionals. Doctors, dentists, lawyers, accountants, and other licensed professionals may be required to form a PLLC instead of a standard LLC, depending on state law.

PLLCs protect personal assets from business debts like an LLC. However, each member is still responsible for their own malpractice claims. This means if a healthcare provider makes a mistake, their personal insurance covers it, not the PLLC itself.

Forming a PLLC requires extra steps. Members must provide proof of their professional license, file Articles of Organization, and get approval from the state licensing board. These requirements ensure that only qualified professionals own and operate the PLLC. Many states do not allow licensed professionals to form a standard LLC, so a PLLC is often the required option.

Key Differences Between LLCs and PLLCs

The main difference between an LLC and a PLLC comes down to ownership eligibility and formation rules. Anyone can form an LLC, including individuals, corporations, or foreign entities. A PLLC is limited to licensed professionals, and in many cases, all members must have the same license. Some states may allow a small number of non-professional members, but that usually comes with additional requirements.

Liability protection works differently too. Both LLCs and PLLCs protect personal assets from business debts. But in a PLLC, each member is personally responsible for their own professional negligence or malpractice. Members are not responsible for the malpractice of others, which adds a layer of accountability and protection.

Formation Requirements

LLCs are easier to set up. You file Articles of Organization, choose a registered agent, and obtain a federal tax ID number. Drafting an operating agreement is optional but recommended.

PLLC formation is more complex. In addition to the steps above, every member must show proof of their professional license. State licensing board approval is often required before filing. The process can take longer and cost more because of these extra steps. Failing to meet these requirements can result in penalties or loss of liability protection.

Ownership Eligibility

LLCs can be owned by almost anyone. Individuals, corporations, other LLCs, and foreign entities are allowed to invest or operate in an LLC. This makes LLCs appealing for partnerships, multiple investors, or businesses seeking outside funding.

PLLC ownership is restricted. Only licensed professionals in the same field can usually be members. Some states allow limited participation from non-licensed members, but that comes with more rules and documentation. This ensures the business remains compliant and that clients are served by qualified professionals.

Liability Protection

Both LLCs and PLLCs provide personal asset protection against business debts. This means personal savings, homes, and other property are generally safe if the business faces financial trouble.

PLLCs add a professional layer to liability. Members are protected from lawsuits involving their colleagues, but each member is personally liable for their own malpractice. This encourages accountability while keeping other members safe from individual mistakes.

Tax Considerations

Taxes for LLCs and PLLCs are flexible. By default, single-member LLCs or PLLCs are taxed like a sole proprietorship, and multi-member entities are taxed like a partnership. Profits pass through to members’ personal tax returns, avoiding double taxation.

Both LLCs and PLLCs can elect S Corporation or C Corporation status, which may reduce self-employment taxes on part of the income. Filing the correct IRS forms is important, because incorrect classification can lead to higher taxes or penalties.

Benefits and Drawbacks

LLCs are simple, low-cost, and flexible. They provide liability protection, easy profit distribution, and fewer compliance requirements than corporations. Formation is straightforward, making LLCs ideal for general business owners.

PLLCs provide similar liability protection plus safeguards against malpractice claims from other members. They ensure professional compliance but can be more complex and expensive to set up. Members remain responsible for their own professional mistakes, so carrying insurance is necessary. The choice depends on your profession, state laws, and business goals.

Making the Right Choice

The decision between an LLC and a PLLC depends on your profession, licensing requirements, and long-term plans. If you are a licensed healthcare professional, a PLLC may be required by state law. If not, an LLC may provide enough protection and flexibility.

Consulting with a healthcare lawyer is a smart step. They can help you choose the right entity, ensure compliance with state regulations, and guide you through formation. Setting up your business properly from the start helps protect your personal assets, manage taxes efficiently, and give your practice a solid foundation.

For professional help in forming your LLC or PLLC and handling healthcare business regulations, call our healthcare lawyers at Dike Law Group at (972) 290-1031. We can answer your questions and help you get your practice set up correctly.