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I'm a licensed professional. Do I need to start a limited liability company (LLC) or a corporation?

Below, we outline the key considerations to help you decide between forming a Limited Liability Company (LLC) or a Corporation.

Key Considerations for Licensed Professionals

  1. Check State Regulations

    • Many states have specific rules for licensed professionals. In some cases, you may be required to form a Professional LLC (PLLC) or a Professional Corporation (PC) instead of a standard LLC or Corporation.

    • Verify your state’s requirements for your profession before proceeding.

  2. Liability Protection

    • Both LLCs and Corporations offer liability protection for your personal assets. However, this protection does not extend to malpractice claims.

    • Licensed professionals are typically required to carry malpractice insurance to cover professional liability.

  3. Tax Considerations

    • LLC: Offers flexible taxation options. You can choose to be taxed as a sole proprietor, partnership, or corporation.

    • Corporation: May provide tax advantages, such as the ability to retain earnings within the business, but is subject to corporate tax rates.

    • Consult a tax professional to determine which structure offers the best tax benefits for your situation.

  4. Management and Ownership

    • LLC: Offers a simpler management structure with fewer formalities. Ideal for professionals who want flexibility in running their business.

    • Corporation: Requires a more formal structure, including a board of directors, annual meetings, and detailed record-keeping. This may be better suited for professionals planning to scale or attract investors.

Common Scenarios

  • Solo Practitioners: An LLC or PLLC is often the preferred choice due to its simplicity and flexibility.

  • Group Practices: A Corporation or PC may be more appropriate for larger practices with multiple owners or shareholders.

  • Expanding Businesses: If you plan to grow your business significantly or seek outside investment, a Corporation may offer more advantages.

Common Questions

What is a PLLC or PC?

  • A Professional LLC (PLLC) or Professional Corporation (PC) is a business structure specifically designed for licensed professionals. These entities comply with state regulations and often require proof of licensure to form.

Can I form a standard LLC or Corporation as a licensed professional?

  • In many states, licensed professionals are required to form a PLLC or PC instead of a standard LLC or Corporation. Check your state’s rules to ensure compliance.

Which structure is better for tax purposes?

  • The best structure depends on your income, business goals, and tax strategy. Consult a tax professional to determine the most advantageous option for your situation.

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