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Which is Better for your Business “PLLC or LLC”

Posted by Doris Dike | Mar 10, 2022 | 0 Comments

Importance of PLLC

The term "PLLC" stands for "professional limited liability company," a corporate structure designed for licensed professionals in specialized professions such as medicine or law.

Professionals such as physicians, attorneys, chiropractors, and real estate agents might use this corporate structure to restrict their exposure for debts, taxes, and judgments against the company.

A professional limited liability corporation is the ideal business type for many people who want to start a medical practice. A Texas professional limited liability corporation, or PLLC for short, can provide various benefits to practitioners.

PLLC in Texas

In Texas, a PLLC is essentially equivalent to an LLC. The PLLC designation is for entities that provide professional services from practitioners required by law to be licensed by the state. Medical practices, legal companies, and accounting firms, for example, are all examples of businesses that can be created as PLLCs in Texas.

So, what makes a PLLC better than, say, a general partnership or a corporation? LLCs, and by extension PLLCs, were developed to bring together the finest elements of different company structures into a single organization.

One of the most significant benefits of a PLLC is that members have limited liability. Members of a PLLC, like shareholders of a corporation, are not personally accountable for the PLLC's debts and other responsibilities. For example, if one of the owners of a PLLC is sued, the other cannot be held liable for any court decision that results. On the other hand, in a general partnership, partners share joint liability and may be personally accountable for the partnership's financial obligations.

Under Texas law, a PLLC and an LLC are almost similar. The PLLC designation is for entities that provide professional services from practitioners required by the state to be licensed. Medical practices, legal companies, and accounting firms, for example, are all examples of businesses that can be created as PLLCs in Texas.

Finally, a PLLC's management structure may be adjusted to match the requirements of the persons who comprise it. There are no fixed management formalities to follow. Corporations and members of a PLLC have more discretion to contract their allotted duties and obligations than those operating under another company structure. However, keep in mind that establishing a PLLC for a medical practice in Texas requires a few different processes, such as obtaining clearance from the Texas Medical Board.

There are also 2 (Two) Types of structure to consider for your business: “PLLC and LLC.”

The primary distinction between an LLC and a PLLC is that PLLC members must hold a professional license. Professionals are not permitted to create a typical LLC in several states. Individuals with professional rights must create a PLLC to function in that state with limited liability protection.

Both LLCs and PLLCs must register with a state licensing body, usually the secretary of state, in a procedure known as "organization," however, founding a PLLC needs proof of licensure for each member because PLLCs are licensed professionals only. At least one licensed member must also sign the registration forms, often known as "articles of organization," before they may be submitted to the licensing board.

Limited liability companies (LLCs) and limited liability partnerships (PLLCs) provide little liability protection to their members. This implies that individual members are not individually liable for any judgments against the company, its debts, or its taxes.

However, keep in mind that members of PLLCs are not immune from malpractice actions or lawsuits alleging professional negligence. Even if you are a member of a PLLC, you must have your malpractice insurance in case you have to defend against malpractice allegations.

Insights on PLLC

Members of PLLCs are not individually liable for any business obligations or taxes owed by their PLLC.

Individual members of a PLLC form a distinct business entity called a PLLC. This implies that if a PLLC is sued, the proprietors' assets will not be utilized to pay a judgment. It also means that if the PLLC fails on a debt, the individual members are exempt from repayment. The same is typically accurate for any tax liability owed by a firm.

However, there are circumstances when members of a PLLC are personally liable for business obligations and taxes. When business owners combine personal and business finances, the court is forced to recognize the firm and the owner as of the same entity, known as "piercing the corporate veil."

You may avoid this by keeping meticulous records of your finances and adhering to commonly accepted accounting principles, such as having separate accounts.

Insights on LLC

Many states recognize the limited liability corporation as a legal entity (LLC). The LLC was born out of the need for company owners to have a corporate structure that allowed them to act as a conventional partnership. As with the corporate business structure, their purpose was to transfer money to the partners (who reported it on their individual income tax returns) while simultaneously protecting themselves from personal accountability for the firm's obligations. Unless the business owner forms a separate corporation, the owner and any partners (if any) accept full responsibility for the company's obligations. However, under LLC laws, an individual isn't liable for the firm's debts if they didn't personally guarantee them, such as a second mortgage, personal credit card, or putting personal assets on the line.

In comparison to subchapter S companies, the LLC has several benefits. S companies, for example, may only issue one class of firm stock, but LLCs can provide many types with differing rights. Furthermore, S companies are restricted to 75 individual shareholders (all of whom must be U.S. residents), but LLCs may have an unlimited number of persons, corporations, and partnerships.

In comparison to a limited partnership, the LLC offers considerable tax benefits. For example, unless a limited partnership partner takes an active role in the business, their losses are deemed passive and cannot offset the functional gain. However, if a partner actively participates in the firm's administration, they become accountable for the debt. It's a no-win scenario. An LLC's owners, on the other hand, are not responsible for the company's obligations, and any losses the LLC incurs may be deducted from its income.

However, in return for these two significant advantages, LLC shareholders must pass the "transferability restriction test," which implies that the LLC's ownership interests are not freely transferable. Because of this limitation, the LLC form is unsuitable for large enterprises. Corporations must quickly transfer their corporate shares to stock markets to attract significant quantities of cash. On the other hand, this limitation is less of a concern for smaller businesses because stock ownership transactions are pretty rare.

Because the LLC is such a new legal entity for enterprises, the federal and state governments are currently tightening restrictions. Unfortunately, some investment promoters utilize limited liability companies (LLCs) to avoid securities rules. That's why, before settling on a corporate structure for your company, you should contact an attorney and a CPA.

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