Quite often, licensed professionals in Pennsylvania find it more legally and financially viable to form a restricted professional company, also referred to as PLLC in other states, in order to provide services related to their area of expertise skills.
What makes this model so attractive to so many specialists from various professional fields is the insulated nature of its limited liability structure reinforced by certain operational advantages that a typical PLLC brings to the table.
In case you want to find more about the ways to create a PLLC in Pennsylvania with other colleagues in your specific field, this article will be a good starting point for getting relevant information that may prove to be vital for the establishment of an entity that is lawful on local and federal levels.
At its core, a PLLC is not too dissimilar to a standard LLCs in terms of legal mechanisms behind its formation and potential independence of operation that come with it.
Those familiar with the PLLC designation will notice that this state describes this model as a ‘restricted professional company,’ and since the names belong to functionally identical entity types, the article will treat the terms synonymously.
A regular LLC is, above all, valued for the relative independence of its business operations seen in other entities while functioning within the framework of a corporate entity without actually being incorporated. Broadly speaking, an LLC allows for greater adaptability and personalization in line with its respective ownership or partnership model and can be run by one owner or a group of partners with shared interests and responsibilities.
What separates a PLLC as an entity from a regular LLC is the restricted nature of its ownership, meaning that only people whose occupational titles have undergone licensure are authorized to form and run such an entity.
The state allows certain professionals to establish such entities, with recommendations including surgeons, doctors, osteopaths, optometrists, veterinarians, psychologists, podiatrists, dentists, chiropractors, public accountants, and lawyers.
Formation guidelines in Pennsylvania are firmly outlined and require all members or managers of a restricted professional company to be licensed for operation in a single occupational field denoted upon the establishment of the entity as its primary and only area of occupation.
There are more elements intrinsic to the PLLC and just as many options for the entrepreneurs interested in creating one, so let’s take a closer look at the key aspects of this business model.
Similar to a traditional limited liability company, a PLLC is explicitly designed to protect the personal assets of the partnership group. And unlike the general partnership model that obligates each member to claim the transactions conducted by the business on their personal tax returns, a PLLC separates the two and prevents the targeting of personal assets in a suit brought against the partnership as a business entity.
Naturally, it’s preferable to never get tangled in a costly lawsuit, but in the event of it happening, PLLC members will only face the legal actions relating to the business assets of the company. Debt collection and civil lawsuits are one thing though, but malpractice is a bit more serious and can involve personal assets when an owner/member is sued for misconduct/negligence/malpractice by a client.
The taxation process involved in operating a PLLC is inherently more fluid to accommodate the owner’s needs. Even though some corporate entities can give you more taxation options to operate with as well, PLLCs are a bit more accommodating.
Most notably, it is possible to submit the mandatory business tax in several ways in line with the company’s goals and partnership’s modus operandi.
One of the most common PLLC taxation practices is filing it as a flow-through or pass-through business tax which is often the case with LLCs, S-corporations, partnerships, and sole proprietorships.
True to its name, this type of tax avoids the typical steps involved with CIT and instead flows through to the personal income tax of each of the LLC members. All profit shares fall within the margins of taxable income as filed in individual tax returns of the company’s owners, meaning that the PLLC itself is exempt from tax, as it were.
There is another step to this process, though: when a PLLC member files their return as a “disregarded entity,” they are also required to pay the Self-Employment Contributions Act tax deducted from the total revenue. As such, the SECA tax rate is set at 15.3% calculated from individual net earnings.
An entity with the S-corporation designation is eligible for taxation similar to that of a flow-through business. Due to the nature of its IRS election (Form 2553), an S-corporation is still exempt from CIT much like a general partnership. Net earnings are filed using the Supplemental Earnings and Loss IRS form, also called Schedule E form used by business owners as a part of their individual tax filing.
Unlike what we see with pass-throughs, owners of an S-corporation entity are exempt from the SECA tax. Instead, their taxation process includes the FICA tax that supports the Social Security program.
This business model is what most people think of when referring to a corporation as an entity and it’s also the most widespread form of corporation in the US. One of the major differences between C-corps and flow-throughs or S-corporations is the taxation process. All members/owners/shareholders of a C-corp are subject to individual taxation in addition to the CIT placed on the entity as a whole. This so-called double taxation is often what makes it less attractive to PLLC owners who avoid choosing it as their corporate structure.
As the PLLC creation process is not standardized on the national level, the intricacies of formation vary from state to state. The formation of Pennsylvania PLLCs is not too dissimilar from that of regular LLCs with a few key distinctions in the process.
Finding an appropriate name for a new company is always a good place to start. Legally, a Pennsylvania PLLC adheres to the naming rules of standard LLCs, meaning that an entity of this type should include its business designation in the actual name, for instance: [Name of the Entity] + Limited or [Name of the Entity] + Company or any variation of such in full or abbreviated form.
There is also the question of clarity i.e. selecting a name that would describe the purpose of your entity and the type of services it offers. As such, a healthcare-related PLLC may include certain words associated with such services like “medical,” “primary care,” “family medical care” etc.
The list of potential names should always be referenced against the existing entities in Pennsylvania through the search tool found on the Department of State website. For more help in naming an LLC, feel free to check out our guide.
Every Pennsylvania limited liability entity, professional types included, is obligated to hire the services of a registered agent to facilitate the legal correspondence and communication between state authorities and the company. As a third-party mediator, the registered agent is meant to handle important paperwork from the state, including documents involved in potential legal action against the company.
It is possible to designate yourself or any other natural person (also referred to as a physical person) to operate as a registered agent as opposed to a legal person/entity, though it is generally not recommended doing so yourself as a private individual due to availability requirements placed upon a registered agent by the state i.e. be available during required business hours to handle documentation.
Perhaps a more preferable course of action is enlisting the help of a reputable registered agent service. Some formation agencies also offer the services of a registered agent, often without charge for a limited amount of time.
Among the best formation agencies offering registered agent services in the state are Northwest Registered Agent or IncFile that come highly recommended by industry specialists.
The mandatory documentation involved in the legitimate establishment of a Pennsylvania PLLC is called the Certificate of Organization.
Certain guidelines are provided by the state to optimize the filling-out process:
Upon the completion of the form, it should be directed to the Department of State by post, in person, or online with the standard submission fee of $125.
Normal processing period takes between seven and ten days though there are ways to speed up the review time for an additional fee: $100 for a same-day review, $300 for a three-hour review, and $1,000 for a one-hour review.
Pennsylvania does not obligate the PLLC organizers to provide an operating agreement, nevertheless, drafting one for internal purposes is highly advised.
At its core, the document is designed to establish ground rules of internal operations, managerial structure, financial details such as allocated profit shares among members et al.
A Pennsylvania operating agreement could be as detailed as your LLC partnership wants it to be, though it’s best to cover these topics:
An Employer Identification Number functions similarly to a personal SSN except this nine-digit code is assigned to a legal entity conducting any form of business.
No business bank account can be tied to an entity without the personalised EIN. A PLLC cannot provide services, issue payments (salaries or one-time compensation), or file tax returns without one.
It might sound intimidating, but receiving an EIN is not terribly complicated. The IRS supports online submissions via EIN Assistant which are exempt from fees. All there is left to do is wait for the IRS to issue your EIN which is almost immediate.
Completing the entity organization documentation is not the final step. The next one involves relevant licensing provided it’s required by the state for your PLLC to legally operate in the chosen professional field.
Certain professional areas in Pennsylvania require special licenses that allow you to provide goods and services legally. To see if a company is in need of licensing, be sure to look through the official business licensing website to get a more detailed picture.
An entity of this type is typically subject to an unemployment compensation tax, retention tax, and sales and use tax, the registration for all of which can be done through the Department of Revenue website.
Maintenance of restricted professional companies in Pennsylvania is more demanding than that of regular entities, requiring the submission of the Certificate of Annual Registration starting after the first year of the entity’s operation has come to an end.
The process of creating a Pennsylvania restricted professional company involves quite a lot of paperwork and a certain degree of legal knowledge, but overall it’s considerably less messy than dealing with PSCs.
If you prefer to rely on your own abilities, it is entirely permissible to handle the formation by yourself, though seeking qualified help to assist you with this endeavour is bound to be more reliable.
Even so, you can most likely handle it on your own with the help of a reliable corporate attorney who can oversee that each step of the process complies with state law, allowing your restricted professional company to operate legally and securely.