When starting a new niche practice or expanding your current one into another state, it is important to choose the right legal entity for your practice. For those in certain professions, such as doctors, nurse practitioners, lawyers, and accountants, this decision becomes more complicated because they have the option of forming a professional limited liability company (PLLC) instead of a regular limited liability company (LLC) in some states. And in some states, you are required to form a PLLC (like New York). There is confusion surrounding this when a new nurse practitioner entrepreneur is getting started, so I thought it was necessary to have an article going over the differences and some various considerations you need to take when picking an LLC or a PLLC.
A limited liability company (LLC) is a popular business structure that offers limited liability protection to its owners (known as members) while also being flexible in terms of taxation and management. An LLC can have one or more members, and it is taxed as a pass-through entity, meaning that the profits and losses of the business are reported on the members’ personal tax returns. This means that the LLC itself does not pay federal income tax, but the members are responsible for paying taxes on their share of the profits. Basically, the profits just get passed onto your personal return, and you pay your normal income taxes on it, unless you have elected as an S-Corp.
One of the primary benefits of forming an LLC is that the members are protected from personal liability for the company’s debts and obligations. This means that if the company is sued or goes bankrupt, the members’ personal assets are generally not at risk. Additionally, LLCs have fewer formal requirements than other business structures, such as corporations, which makes them easier to manage and operate. For corporations and even some PLLCs, you must submit yearly reports to the state, which can make your life more of a pain. Generally speaking, you do not need to do this with an LLC, which is a reason why I like them.
Additionally, an LLC can allow you to remain anonymous as I have discussed in many of the courses. You can consider forming an LLC in Wyoming that will be the member (owner) of your operating LLC that you will run your practice through in your state. This essentially makes your operating LLC anonymous and protects your privacy, if this is something you care about.
A professional limited liability company (PLLC) is a type of LLC that is specifically designed for certain licensed professionals, such as doctors, nurse practitioners, lawyers, and accountants. In some states, these professionals are required to form a PLLC instead of an LLC in order to practice their profession. The main difference between an LLC and a PLLC is that a PLLC provides limited liability protection to the individual members for their own malpractice or negligence, as well as the malpractice or negligence of other members of the PLLC. But don’t worry too much about this, as you should still be protected even through an LLC. It is debatable if a PLLC protects you more than an LLC from malpractice. Especially when you consider that your malpractice insurance should cover you and your entity as long as you name it as an endorsement on your malpractice policy (ALWAYS DO THIS!).
One example that you will see online sometimes is of a doctor being sued for malpractice, and the judgment exceeds the insurance coverage, which means the doctor’s personal assets could be at risk in a regular LLC (keyword “could”). However, if the doctor is a member of a PLLC, his or her personal assets would generally be protected from the malpractice or negligence of the other members of the PLLC (keyword “generally”). This really shouldn’t be much of a concern because, generally speaking, malpractice amounts are capped in most states, and the vast majority of malpractice cases are settled out of court by the malpractice company. Additionally, if you have a robust asset protection strategy (like discussed in the asset protection course), then it is a moot point because you shouldn’t own anything personally as a nurse practitioner business owner… But that is another topic discussed in this article.
Another key difference between an LLC and a PLLC is that in some states, PLLCs are subject to additional regulations and restrictions. For example, some states require that all members of a PLLC be licensed in the same profession, or that the name of the PLLC includes the name of one or more of its licensed members. In fact, in most states, the name of the professional is included in the name of the PLLC. This essentially makes safeguarding your privacy IMPOSSIBLE. This is one of the main reasons I do not like PLLCs.
So, which one is right for you?
The decision of whether to form an LLC or a PLLC will depend on a variety of factors, including the nature of your business, the level of risk involved, and the regulations in your state. If you are a nurse practitioner and your state requires you to form a PLLC, then that decision has been made for you. There is really nothing you can do about it unless you want to operate under an out-of-state LLC, but once the Secretary of State finds out, you could be fined and would need to form the PLLC. However, if you have the option of forming either an LLC or a PLLC, I would recommend forming an LLC and having the member be a Wyoming LLC that you own which safeguards your privacy and gives you another layer of protection.
Generally speaking, an LLC may be a better choice for businesses that do not face a high risk of liability or malpractice claims, while a PLLC may be a better choice for licensed professionals who want the added protection of limited liability for malpractice or negligence claims. But again, this is state specific and is debatable. Most lawyers I have spoken with have told me that an LLC will provide you with the same protections as a PLLC when it comes down to it. If you want to down another rabbit hole, look into limited liability partnerships and family partnerships as they provide even more protection and are harder to pierce in the event of a lawsuit (again, discussed in the asset protection course).
Choosing the right legal structure for your nurse practitioner business is a crucial decision that can have a significant impact on your success, mostly from a liability and tax perspective. While both LLCs and PLLCs offer limited liability protection, there are important differences between the two that should be considered, especially when it comes down to your state requiring it or not. This can be found on your Secretary of States’ website, just FYI.