Many states allow for a variety of professional service providers to form what is known as a PLLC, or Professional Limited Liability Company, but this is not an option in California. Instead, licensed professionals may choose to form a Professional Limited Liability Partnership (PLLP) or a Professional Corporation (PC), depending on their type of business they conduct.
What is a Professional LLP?
A professional limited liability partnership is a business structure that must be registered with the state and is only available to attorneys and public accountants. It is regarded as California’s equivalent of the PLLC. A PLLP offers a pass-through taxation structure for its partners, just like sole proprietorships and LLCs do for their owners and members.
A partner in a California PLLP is usually not obligated to cover the professional liability of another partner, including malpractice. The PLLP structure also generally shields individual partners from having their personal bank accounts raided to satisfy debts and lawsuits brought against the partnership.
Exceptions for when you may be held personally liable for actions related to the partnership’s business operations include:
- Committing an intentional tort on the job, or
- Committing malpractice (e.g. by providing egregiously ineffective counsel).
To form a PLLP, you must carry a minimum amount of professional liability insurance coverage. This amount will vary based on the number of licensed service providers in your partnership.
How Do PLLPs Differ from PCs?
PCs are open to a wider variety of professions than PLLPs. Until recently, architects, engineers, and land surveyors were allowed to form a PLLP, but now they are restricted. A PC is still an option for these professionals, however, as it is for chiropractors, dentists, optometrists, doctors, psychologists, and other service providers licensed to practice in California. PCs are not covered by pass-through taxation, but PLLPs must pay an annual fee that PCs do not have to pay.
Conclusion
If you are a licensed professional, you have lots of options to consider when choosing an entity structure. If you have questions, give IGC a call or visit our website to schedule an appointment. Our experienced business attorneys will help you make the right choice for your business.
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