In this week's Freedom Friday blog and email newsletter, we're continuing in the series on the Top Ten Topics in 2024. Every year, at least two or three times a year, I get inquiries and sometimes clients who need advice and assistance in possibly forming a PLLC, which is a professional limited liability company. This is a very popular topic, and so in this week's Freedom Friday blog and email newsletter, I'm answering the question, “LLC or PLLC? That is the question.”
PLLC stands for “professional limited liability company” and if you're a professional, e.g., attorneys, accountants, architects, etc., forming a PLLC is not a requirement, but in some situations, it is better to form a PLLC rather than a regular LLC. There are also some differences between an LLC and a PLLC. In today's Freedom Friday blog and email newsletter, I want to share three (3) key differences between an LLC and a PLLC:
1. Who Can Form a PLLC
The first key difference between an LLC and a PLLC is who can form a PLLC. A professional limited liability company (PLLC) can only be formed by licensed professionals in the State of Oklahoma. While it's not required to form a PLLC, all the “members” (owners) of the PLLC must be of the same profession. For instance, all the “members” must be lawyers OR doctors OR architects OR another profession listed in Oklahoma law. You cannot form a PLLC with two lawyers and a doctor, or some other combination. This requirement also limits the type of businesses or services performed by the PLLC. For instance, a PLLC formed by lawyers can only perform legal services, and a PLLC formed by accountants can only provide accounting services.
2. Oklahoma Requirements to Form a PLLC
The second key difference between an LLC and a PLLC is the requirements to form a PLLC. First of all, in Oklahoma, there is no requirement for one or a group of certain professionals to form a PLLC instead of an LLC. However, there are additional requirements to form a PLLC compared with the LLC. The primary additional requirement is that you must provide to the Oklahoma Secretary of State a certificate from the regulating board of the profession that each person who will be an owner or “member,” or manager of the of the professional entity, and who are to engage in the practice of the profession, is duly licensed according to the provisions of Oklahoma's licensing laws for the profession to practice the profession. “Regulating board” means the board which is charged with the licensing and regulation of the practice of the profession which the professional entity is organized to render. For example, if a group of lawyers wishes to form a PLLC, then they need certificates of good standing from the Oklahoma Bar Association. Also, the Oklahoma Secretary of State has distinct Articles of Organization which must be signed in order to form a PLLC. This form requires the organizers of the PLLC to state the profession to be practiced through the PLLC because Oklahoma law requires that a PLLC be formed only for the purpose of providing a specific type of professional services to the exclusion of others.
3. Liability Protection
The third key difference between an LLC and a PLLC is the scope of liability protection. A PLLC will not protect its members from malpractice claims related to their own professional actions. However, PLLC members are protected from malpractice claims alleged against other PLLC members. For instance, if you're a doctor in a medical PLLC, and a patient sues a different doctor in your practice, then your personal finances will be protected. Your liability will also be limited to the percentage that you own of the finances in the business. Nevertheless, PLLC members should always carry malpractice insurance to cover claims made against them personally. Another issue involving liability protection in PLLCs (and LLCs and other business entities) is the possibility of a personal guaranty. Due to increased risks that lenders face with PLLCs, some lenders will require a personal guaranty before approving a loan made to the PLLC. If a PLLC member gives a personal guaranty on a loan or even a lease, that PLLC member will become personally liable for the debt or the lease obligation.
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