Professional LLP

A Professional Limited Liability Partnership (PLLP) is a specialized business structure used by licensed professionals—like doctors, lawyers, or accountants—that provides liability protection to each partner. This structure allows each partner to limit their personal risk regarding the actions of other partners while still benefiting from the collaborative, flexible nature of a partnership.

• Profession-Specific: Only for certain licensed professionals (doctors, psychologists, lawyers, accountants, architects, engineers, etc.).
• Limited Liability Protection: Protects partners from liabilities related to other partners’ actions or malpractice.
• Pass-Through Taxation: PLLPs have pass-through taxation like regular LLPs, meaning profits are taxed on partners’ individual returns.
• Ideal for Firms Where Expertise Matters: Enables partners to collaborate on projects while safeguarding personal assets.

A Professional LLP is a legal entity designed specifically for partnerships of licensed professionals. Unlike a traditional LLP, where partners might not have a specific qualification or license, a PLLP can only be established by individuals within a particular profession that usually requires a license to practice. Examples include lawyers, doctors, nurses, psychiatrists, accountants, architects, and engineers. In many cases, PLLPs are required by state law to be governed by specific rules, particularly around liability for malpractice.

Key Features of a PLLP

1. Limited Liability for Partners:
   • Like an LLP, PLLPs offer limited liability protection for each partner, meaning partners aren’t personally liable for the business debts or the actions of other partners.
   • For example, if a law firm is organized as a PLLP, one attorney’s malpractice claim wouldn’t affect the personal liability of other partners, helping safeguard their assets.
2. Profession-Specific Requirement:
   • Only certain licensed professionals can establish a PLLP, which makes it different from other entities that are open to various business types and entrepreneurs. State laws determine which professions qualify for PLLP status. Review our Startup Costs to see what your state might require.
3. Flexibility in Management and Profit Sharing:
   • Like other partnerships, PLLPs allow partners to manage the business collectively and can outline how profits are shared based on each partner’s contributions, role, or client base.
4. Pass-Through Taxation:
   • PLLPs, like LLPs, are pass-through entities for tax purposes, meaning profits and losses pass through directly to partners’ individual tax returns.

Why Choose a PLLP?

• Liability Protection in High-Risk Professions:
  • Professions like medicine, law, and accounting are often exposed to malpractice claims or client disputes. A PLLP structure helps individual partners avoid personal liability for mistakes made by others.
• Maintain Professional Standards:
  • PLLPs often have professional standards to uphold. A licensed professional’s work quality is essential to the firm’s overall reputation, and having multiple qualified partners helps maintain high service quality.
• Collaboration Among Peers:
  • A PLLP allows licensed professionals to share ownership, decision-making, and profits flexibly, supporting collaboration.

Legal and Tax Implications

1. Licensing Requirements:
   • Depending on state regulations, all partners in a PLLP must typically be licensed in the same field. This ensures that partners have the expertise to operate within the profession’s standards.
2. Malpractice Protection:
   • While PLLPs shield partners from liabilities related to others’ actions, individual partners remain responsible for their own malpractice claims, meaning they must still have professional liability insurance.
3. Pass-Through Taxation:
   • Profits and losses pass through to individual partners, avoiding double taxation. However, partners are considered self-employed and are therefore responsible for self-employment taxes.

Forming a PLLP

1. Confirm Eligibility: Check with your state to ensure your profession qualifies for a PLLP structure. Our Startup Cost tool is also an excellent place to start.
2. File Necessary Documentation: File formation documents, like a certificate of registration and applicable fees, with the state’s licensing or business authority. Most states also have strict requirements on the naming of PLLPs, so verify any necessary endings and abbreviations available.
3. Draft a Partnership Agreement: Establish clear terms on management roles, profit sharing, decision-making, and handling liabilities.
4. Maintain Licensing & Compliance Standards: Ensure all partners maintain professional licenses and meet industry standards for continued operation. Also, ensure the business submits annual reports and any necessary renewal fees to the state.

States Offering PLLPs

• Arkansas
• Minnesota
• Montana
• Oklahoma
• South Carolina
• South Dakota