A Professional Limited Liability Company (PLLC) and a Subchapter S Corporation (S Corp) are both popular business structures for small businesses. Both entities offer liability protection and pass-through taxation, but there are some significant differences between the two.
Tax Status and Liability Protection
A PLLC can elect to be treated as an S corporation for tax purposes by filing a Form 2553. With a PLLC, you can choose to be taxed like a C corp or an S corp, but the far more common option is taxation as a pass-through entity.
To revoke a Subchapter S election, submit a statement of revocation to the service center where you file your annual return. LLCs can have an unlimited number of members; S corps can have no more than 100 shareholders. Non-U.S. citizens/residents can be members of LLCs; S corps may not have non-U.S. citizens/residents as shareholders.
Unlike a general partnership, an owner of a PLLC is not personally liable for the negligence or malpractice of other owners. Like a PLLC, to form a PC (Professional Corporation), you must follow the rules set by the state licensing board for your profession, and it provides similar protection against liability for the negligence or malpractice of an associate.
Corporate Structure and Requirements
A PLLC is generally more flexible and less formal than a PC. Both entities can elect S Corp status, which might limit your self-employment taxes. Consulting with a Business Attorney and CPA is advised to find the best structure for your situation.
Professional corporations default as C Corps taxed at the corporate rate but can elect S Corp status as pass-through entities. However, pass-through isn’t always the better option, and an attorney can assist in choosing the best for your circumstances.
A PC has its own tax obligations and requires holding meetings and documenting minutes, whereas a PLLC has less compliance.
A PLLC is specifically for licensed professionals. Some states only allow professionals to form professional corporations or PLLCs, which offer stricter requirements and closer governance. Both shield personal assets if sued and keep business and personal assets separate.
Comparing Business Entities
The difference between an S Corp and PLLC lies primarily in their tax treatment and ownership criteria. For example, an S Corp can save taxes, while a PLLC can choose different tax treatments.
When considering a professional service corporation and its ability to elect S corp status, a PLLC can file Form 2553 for such tax treatment but must also adhere to shareholder eligibility requirements.
An attorney can provide guidance on whether a PLLC or S Corp structure—or potentially a C Corp or LLC—is most beneficial for a specific business based on tax implications, liability concerns, and operational requirements.