PLLC vs LLC: Differences for Licensed Professionals

If you’re a licensed professional like a doctor, lawyer, accountant, or architect, you’ve probably heard you need a PLLC instead of a regular LLC. But what’s the actual difference, and does it really matter for your business?

Here’s the short answer: If you’re a licensed professional (doctor, lawyer, CPA, architect, engineer, etc.) and your state requires it, you must form a PLLC. If you’re in any other type of business, stick with a regular LLC — it’s simpler and more flexible.

Quick Comparison: PLLC vs LLC

LLC Explained

An LLC (Limited Liability Company) is the most popular business structure in America, and for good reason. It’s simple to set up, protects your personal assets from business problems, and doesn’t create extra tax headaches.

How LLCs Are Taxed

LLCs use “pass-through taxation” — the business itself doesn’t pay taxes. Instead, all profits and losses pass through to your personal tax return. If your LLC makes $80,000 profit, you report that $80,000 as income on your Form 1040.

You’ll also pay self-employment tax (15.3%) on LLC profits, which covers Social Security and Medicare. This is often the biggest tax surprise for new LLC owners.

Real Pros and Cons

Pros:

Your personal assets (house, car, savings) are protected from business lawsuits and debts
No corporate tax return required — everything goes on your personal return
Complete flexibility in profit sharing among owners
No restrictions on who can invest or own the business
Easy to convert to other entity types later

Cons:

You pay self-employment tax on all profits
Some banks and investors prefer corporations
Less formal structure can create confusion about roles and responsibilities

Best For: Almost every small business — freelancers, consultants, online stores, restaurants, retail shops, service businesses. If you’re earning under $60,000 net profit, an LLC is almost always your best choice.

PLLC Explained

A PLLC (Professional Limited Liability Company) is essentially an LLC with special rules for licensed professionals. Think of it as LLC’s more restricted cousin.

How PLLCs Are Taxed

Exactly the same as an LLC — pass-through taxation with self-employment tax on profits. The tax treatment is identical.

Real Pros and Cons

Pros:

Allows licensed professionals to get liability protection where regular LLCs aren’t permitted
Pass-through taxation avoids double taxation
More flexible than professional corporations in most states

Cons:

Only available to licensed professionals
Cannot protect you from malpractice claims related to your professional services
All owners must be licensed in the same profession (you can’t have a lawyer and doctor as co-owners)
More paperwork and ongoing compliance requirements
Some states require professional liability insurance

Best For: Licensed professionals who are required by their state to use this structure, or who prefer LLC-style management over corporate formality.

The Tax Difference — This Is the Big One

Here’s where it gets interesting: there’s no tax difference between PLLCs and LLCs. Both use pass-through taxation, and both hit you with self-employment tax on profits.

Let’s walk through an example. Say you’re a CPA with a practice that nets $120,000 per year:

As an LLC or PLLC:

Income tax: $120,000 × your marginal rate (let’s say 24% = $28,800)
Self-employment tax: $120,000 × 15.3% = $18,360
Total tax burden: $47,160

The self-employment tax is the killer here — it’s $18,360 you wouldn’t pay as a W-2 employee.

The S-Corp Election Strategy

Both LLCs and PLLCs can elect S-Corp tax status to reduce self-employment tax. Here’s how it works:

You pay yourself a “reasonable salary” as an employee, then take additional profits as distributions (which aren’t subject to self-employment tax).

Using our $120,000 CPA example with S-Corp election:

Reasonable salary: $60,000
Self-employment tax: $60,000 × 15.3% = $9,180
Distribution: $60,000 (no self-employment tax)
Tax savings: About $9,180 per year

When S-Corp Election Makes Sense:

You’re netting more than $60,000 annually
You have predictable income
You don’t mind the extra paperwork (payroll, separate tax return)

When to Talk to a CPA:

Your business nets more than $50,000 annually
You’re considering the S-Corp election
You have multiple owners with different income levels
You’re in a high-tax state with special professional requirements

Ownership, Management & Raising Money

This is where LLCs have a clear advantage over PLLCs.

Ownership Flexibility

LLCs can have any type of owner — individuals, other companies, foreign investors, even other LLCs. You can also create different classes of ownership with different profit sharing and voting rights.

PLLCs are restricted to licensed professionals in the same field. A law firm PLLC can only have licensed attorneys as owners. A medical practice PLLC can only have licensed physicians.

Raising Capital

If you want to bring on investors, LLCs are far more flexible. You can offer investor members a percentage of profits without giving them management control.

PLLCs face significant restrictions. Since all owners must be licensed professionals, you can’t bring on outside investors unless they’re also licensed in your profession.

Selling the Business

LLCs can be sold to anyone. PLLCs can typically only be sold to other licensed professionals in the same field, which limits your buyer pool and potentially reduces the sale value.

Which One Should You Pick?

Here’s my specific recommendation framework:

Choose a PLLC if:

You’re a licensed professional (doctor, lawyer, CPA, architect, engineer, etc.)
Your state requires PLLCs for your profession
You want liability protection but can’t use a regular LLC

Choose an LLC if:

You’re in any other type of business
You want maximum flexibility for owners and investors
You might want to sell to non-professionals later
Your state allows licensed professionals to use regular LLCs

Decision by situation:

Licensed professional earning under $60K: PLLC (if required) or LLC, no S-Corp election
Licensed professional earning $60K-150K: PLLC with S-Corp election
Licensed professional earning $150K+: PLLC with S-Corp election, definitely consult a CPA
Any other business: LLC for simplicity and flexibility

The key question: check your state’s requirements. Some states require certain licensed professionals to use PLLCs, while others allow regular LLCs. Don’t assume — verify with your state’s professional licensing board.

Can You Switch Later?

Yes, but it’s more complicated with PLLCs.

PLLC to LLC: Usually not allowed if you’re still practicing as a licensed professional. You’d typically need to dissolve the PLLC and form a new LLC.

LLC to PLLC: Generally possible, but requires meeting all professional licensing requirements and may trigger tax consequences.

Adding S-Corp Election: Both LLCs and PLLCs can elect S-Corp tax status by filing Form 2553 with the IRS. This doesn’t change your entity type — just how you’re taxed.

The easiest switches involve tax elections rather than changing entity types. Start with the right structure from the beginning.

For International Founders

If you’re not a U.S. resident, LLCs are generally better than PLLCs for several reasons:

LLC advantages for international founders:

No restrictions on foreign ownership
Simpler compliance requirements
Better for international tax planning
Easier to convert to C-Corp later if raising venture capital

PLLC complications:

Professional licensing requirements may be more complex for foreign nationals
Some states have additional requirements for foreign-owned professional practices
Limited flexibility for international tax planning

If you’re a licensed professional moving to the U.S., consult both an immigration attorney and a CPA familiar with international tax issues before choosing your business structure.

FAQ

Can I have a business partner in a PLLC if they’re not licensed?
No. All PLLC owners must be licensed professionals in the same field. Your business partner would need the same professional license you have.

Do PLLCs protect me from malpractice lawsuits?
No. PLLCs (and LLCs) cannot protect you from claims related to your professional services. They only protect your personal assets from general business debts and non-professional liability.

Is professional liability insurance required for PLLCs?
It depends on your state and profession. Many states require licensed professionals to carry malpractice insurance regardless of business structure.

Can I convert my sole proprietorship to a PLLC?
Yes, but you’ll need to form the PLLC, transfer assets, get a new EIN, and update all business registrations. It’s not automatic like an S-Corp election.

Which costs more to maintain — LLC or PLLC?
PLLCs typically cost more due to additional compliance requirements, mandatory insurance in some states, and professional licensing fees. Annual costs vary significantly by state.

Can a PLLC elect C-Corp taxation?
Generally no. Most states restrict PLLCs to pass-through taxation (default LLC treatment or S-Corp election). C-Corp taxation usually isn’t available.

What happens if I lose my professional license?
The PLLC may be required to dissolve, depending on your state’s laws. Some states allow a grace period to regain your license or convert to a different entity type.

Can I practice in multiple states with a PLLC?
You’ll need to register in each state where you practice and meet each state’s professional licensing requirements. Some states have reciprocity agreements that make this easier.

Conclusion

The choice between PLLC and LLC comes down to whether you’re a licensed professional and what your state requires. For most licensed professionals, the decision is made for you — use a PLLC if required, otherwise stick with an LLC for maximum flexibility.

Both structures offer the same tax benefits and similar liability protection for business activities. The key differences are ownership restrictions and raising capital — areas where LLCs have significant advantages.

If you’re ready to get started, we walk you through entity selection, handle the state filing paperwork, help you get your EIN, and provide ongoing compliance support in all 50 states. Whether you need an LLC, PLLC, or corporation, we’ll make sure you’re set up correctly from day one. [Get started here](https://www.businessformations.com/get-started/) and we’ll help you choose the right structure for your specific situation.