Many health and wellness practitioners running their own business opt to become a Limited Liability Company, LLC. An LLC is a specific type of legal entity that grants you limited liability and makes you, as an owner, not personally liable for the debts or liabilities of your practice.
A Professional Limited Liability Company, PLLC, is a specific type of LLC for professionals licensed by a state board, such as therapists. It provides liability protection similar to that of an LLC but with additional regulations and requirements. Sometimes, it is required for occupations in which a person is licensed by the state to provide the services they offer.
Each state has its own requirements and designations and may require you to form a PLLC in lieu of an LLC, depending on where you live and work. You'll need to research and work with the state you operate out of in order to determine which entity is best for you and required of you.
Differences between LLC and PPLC
LLC
- It can be owned by individuals, corporations, or other LLCs.
- No professional licensing is required for ownership.
- Offers greater flexibility in operations and management structure.
PLLC
- It must be owned by a licensed professional.
- Requires at least one owner to be a licensed professional in the specific field.
- Often subject to specific regulations and ethical guidelines related to the profession.
However, when it comes to taxes, both LLCs and PLLCs are considered pass-through entities, meaning they don't pay corporate income tax. Instead, profits and losses are passed through to the owners' personal tax returns.
For example, Therapists residing in California must be a sole proprietor or a professional corporation elected as an S Corp, never an LLC. An LLC is disallowed for individuals within the mental health field of business in California. According to the CA guidelines, mental health professionals, including therapists, must either form a professional corporation or remain a sole proprietor due to state regulations that prohibit the practice of therapy under an LLC structure.