A Professional Limited Liability Company (PLLC) is a business structure created for licensed professionals, including physicians, dentists, and therapists. Think of it as a hybrid entity. It gives you the personal liability protection of a corporation while allowing profits to be taxed with the flexibility of a partnership. This “pass-through taxation” means the practice itself doesn’t pay income tax; instead, profits and losses are passed directly to the owners’ personal tax returns, avoiding the double taxation common with traditional corporations.
Importantly, the availability and rules for PLLCs change from state to state. Some states, like Texas and New York, permit them for medical practices, while others, like California, prohibit them and require a Professional Corporation (PC) instead.
Why This Matters to Healthcare Providers
A PLLC creates a financial wall between your practice’s business obligations and your personal assets. If the practice is sued for a business-related issue or defaults on a loan, your home, personal savings, and investments are generally protected.
One common point of confusion is malpractice. A PLLC protects you from the malpractice of your partners, but it does not shield you from a claim arising from your own professional actions. You still need robust malpractice insurance for your own clinical work.
Example in Healthcare M&A
Scenario: Four orthopedic surgeons want to leave their hospital jobs and start their own private practice. Their state allows for the formation of a PLLC.
Application: They form “Ortho Partners PLLC.” Each of the four surgeons is an owner, or “member.” This structure shields each surgeon’s personal assets from business debts, like the lease on their new office space or loans for surgical equipment. If one partner is sued for malpractice, the personal assets of the other three partners are protected from that specific claim.
Outcome: The physicians can operate their practice with greater personal financial security. When they eventually decide to sell the practice, the PLLC structure gives them and their buyer flexibility. They can negotiate either an asset sale or a sale of their membership interests, each with different and significant tax results for the selling doctors.
Related Terms
- Professional Corporation (PC)
- Corporate Practice of Medicine (CPOM)
- MSO (Management Services Organization)
The structure of your practice sale has major implications for your after-tax proceeds. Learn about our Tax-Efficient Sale Structures →
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Frequently Asked Questions
What is a Professional Limited Liability Company (PLLC)?
A PLLC is a business structure designed for licensed professionals like physicians and dentists. It combines the personal liability protection of a corporation with the tax benefits of a partnership, allowing profits to pass through to owners’ personal tax returns without double taxation.
How does a PLLC protect healthcare providers financially?
A PLLC shields personal assets like homes and savings from business liabilities such as lawsuits or business debts. However, it does not protect a member from malpractice claims related to their own professional actions, which still require malpractice insurance.
Can all states form a PLLC for medical practices?
No, PLLC rules vary by state. For example, Texas and New York allow PLLCs for medical practices, while California does not and requires formation as a Professional Corporation (PC) instead.
What is “pass-through taxation” in the context of a PLLC?
Pass-through taxation means that the PLLC itself does not pay income taxes. Instead, profits and losses are reported on the individual owners’ personal tax returns, thereby avoiding the double taxation that traditional corporations face.
How does forming a PLLC benefit physicians starting their own practice?
Forming a PLLC helps physicians protect their personal assets from business debts and liabilities. It also offers flexibility for selling the practice in the future, allowing either an asset sale or membership interest sale with different tax implications.