Q: How can a PLLC protect my business? –Professional Entrepreneur
A: Dear Professional: Deciding how to form your business entity requires finding the formation that provides you with maximum benefits and minimal investment. For licensed professionals, a PLLC (Professional Limited Liability Corporation) structure can provide many advantages while limiting your liability.
Typically, any business that requires you to hold a state license can be formed as a PLLC, but all partners must hold a valid state license. Many doctors, dentists, lawyers, accountants, and similarly licensed professionals form their businesses as PLLCs. As a busy professional, your time is best spent running and growing your business, not on navigating the complex red-tape landscape of corporation structures. A PLLC can also protect your time and investment because it is relatively simple to set up. Now, let’s take a look at the protections a PLLC can provide.
PLLC owners aren’t liable for the company’s debts, which is a very important protection. If the business closes its doors, you won’t be personally responsible for its debts, other than those you have personally guaranteed. Likewise, PLLC owners can enjoy limited liability when it comes to legal claims against the business.
Business insurance is still vital, but the owner doesn’t need to worry about the business affecting his or her personal financial standing. Just make sure you keep your personal and PLLC finances entirely separate. Drawing business funds for personal uses can look bad in any number of circumstances including tax audits and legal proceedings. Likewise, make sure your operating agreements are clear about which assets are personal. Crystal-clear language can provide further legal protection of your personal assets if you are ever taken to court.
A PLLC can also protect your income come tax season. The IRS taxes PLLCs like partnerships so that you won’t be subject to double taxation. The income from the company flows through and is claimed on the owner’s Schedule C, and all LLCs have the added benefit of S Corp eligibility. LLC shareholders can elect to be treated like an S Corp by the IRS for tax purposes. With this election, you can have your PLLC pay you a salary, which protects a portion of your income from being subject self-employment taxes.
Not all states recognize PLLC entities, and the benefits and protections a PLLC formation can provide won’t help all business owners. Always consult with a lawyer when deciding how to form your business entity, so you identify the formation that is right for you. If you need help deciding how to structure your business, start by sitting down with a Creative Business Lawyer®. A Creative Business Lawyer®, can help you make strategic decisions about your business’s structure so you can maximize your tax benefits and limit your personal liability. They can help you protect your business’s financial future with careful legal planning today.