California PLLC: Everything You Need to Know

What Is an LLC?

To learn more about a PLLC, it’s important to understand what a limited liability company (LLC) is. In California, an LLC is a business entity that combines elements of a partnership with a corporation. They also provide protection liabilities to protect you in the event of a lawsuit. What’s more, an LLC is designed to keep your personal credit and funds separate from the LLC. For this reason, an LLC is advantageous for many professionals and individuals who want to start a business in California.

What Is a PLLC?

There are many types of California LLCs, each serving a unique purpose. A professional limited liability company (PLLC) is a unique type of LLC. Its purpose is to shield people with specialized licenses from liabilities in the same way that a regular LLC protects a business owner.

While they have a different name, most of the same rules that apply to LLCs apply to PLLCs. In fact, they’re taxed the same, and many of the fees associated with the business are the same. The main difference is that PLLCs must check with each owner of the company to ensure that they have the appropriate professional license.

What’s the Difference Between a PLLC and an LLC?

An LLC and PLLC are similar entities, but there are a few key differences. The biggest difference is that a PLLC is only available for licensed professionals. Some examples of professionals that can form a PLLC include doctors, lawyers, accountants, and architects. Ultimately, any profession that requires a license to start is suitable to become a PLLC.

Another key difference between a PLLC and an LLC is that every state might have a different definition or laws surrounding PLLCs. For example, some states might allow you to form a limited liability partnership (LLP) or a professional corporation (PC). These entities may have some subtle differences, but they serve the same purposes.

The most notable key difference relates to how a specific type of liability is handled. While liability is shielded in the same way as other businesses, this does not apply to malpractice. In these cases, a doctor’s patient can go after the doctor’s personal and professional assets due to the nature of the crime.

What Professionals can form a Professional Limited Liability Company?

Almost any professional who needs a license can form a PLLC or a similar business structure. Some of the most common businesses that are best suited for a PLLC include:

• Doctors
• Lawyers
• Accountants
• Chiropractors
• Dentists
• Life insurance agents
• Surgeons
• Optometrists
• Land surveyors
• Engineers
• Architects

Does California Allow PLLCs?

California does not allow you to start a PLLC. You can’t form a professional limited liability company (PLLC) in California because it’s against the law to do so. Unfortunately, the state doesn’t allow you to do so. What’s more, you can’t form a PLLC in another state and offer professional services in California according to California Corporations Code Section 17701.04(e).

While the state doesn’t allow you to create a PLLC, that doesn’t mean that professionals who want to start an LLC are out of luck. You just need to focus on forming a different type of legal entity. California allows professionals to start a limited liability partnership (LLP) or a professional corporation (PC). For professionals looking for a structure similar to an LLC for tax purposes, a PC is a good option because it can be taxed as an S-corp.

What’s the Difference Between a PLLC and a PC in California?

There are a handful of differences between a PC and a PLLC. First and foremost, you can’t start a PLLC in California and have to form a PC instead. Understanding how they differ can help you determine if they’re the right course of action for your business.

The main difference is how taxation and compliance are handled. PLLCs don’t have to maintain stock or pay taxes at the corporate rate, which is 21%. However, PCs have to pay tax at the 21% corporate rate because they’re considered C-corps. Additionally, forming a PC is more complex than forming a PLLC and may require you to submit additional information to California’s Secretary of State.

PCs do have some unique benefits that PLLCs don’t have. For example, you can continue a PC easily, even after the owner dies, and shareholders can be added and removed with ease instead of going through the process that PLLCs have to go through. Therefore, there can be less paperwork and waiting periods for some actions related to a PC.

What’s the Difference Between a PLLC and a Limited Liability Partnership?

PLLCs and LLPs are more similar than they are different, even if California doesn’t allow the former. Ultimately, an LLP is a limited liability partnership that allows more than one person to own an LLC-like entity. Depending on the nature of your profession, this can be available in California for professionals who want to go into business together. For example, many law firms or accounting firms might be set up as an LLP for tax benefits and liability protection.

Additionally, LLPs aren’t reserved for professionals like a PC or PLLC. Instead, anyone can form an LLP. This means that people who don’t need a specialist license can use this type of entity to create a limited liability company owned by more than one person.

How to Form a Professional Corporation in California

Forming a professional corporation isn’t challenging when you take the right steps. However, there are some key differences between starting a professional corporation and a PLLC in California. Corporations have a different business structure compared to LLCs, and you’ll have to provide specific paperwork to get started. Follow the steps below to form a professional corporation in California.

Step 1: Create a Business Plan

First and foremost, every business needs a solid plan to get off the ground. Creating a business plan will give you a better idea of how the company will operate and what you need to provide to the state to remain in compliance. A business plan for a professional corporation should include some information about yourself and your profession, any partners you plan on working with, along with an Executive Summary.

Additionally, it’s a good idea to include information about your target market, ideal customer, and profit margins. This information can help you develop a marketing plan and stick to it. A good business plan can even attract investors and help you secure funding for your business.

Step 2: Choose a Name

When creating a business, another important bit of information you need to include is the name of the company. Check with the California Secretary of State to find information about available names and make a selection based on what’s available. When looking for a name, we also recommend searching for one that can be matched with an online domain. This will help you round out your marketing and ensure that you can secure the domain in the future if you plan on having a website.

Step 3: File Articles of Incorporation

The next step to form a PC is to file your Articles of Incorporation. This information needs to include detailed information about your business and how you plan to operate. Some examples of what you need to include are:

• Name
• Business address
• The name of your registered agent; this can be you, a partner, or someone else
• Your corporate mailing address and the locations of any offices
• The number of stocks or shares
• A purpose statement

If you create a comprehensive business plan, you can use most of the information from it to help you file your Articles of Incorporation. You also have to pay the filing fee of $100.

Step 4: File a Statement of Information

A Statement of Information is required for a professional corporation, and you need to file this information within 90 days of forming the PC. The good news is that most of the information included in a Statement of Information is the same information that you include in your Articles of Incorporation. That said, there are a few differences that you need to be aware of, including your email address (for email reminders) and a brief statement about whether or not there’s a judgment against your PC.

Step 5: Pay Necessary Fees

There are a handful of fees you have to pay when creating a PC in California. These fees vary based on your company, but the most substantial fee is the $800 franchise tax that California requires you to pay each year. Additionally, you have to pay $100 to file your Articles of Organization and some smaller fees, like a $10 fee to reserve your business name, to remain a company and form your professional corporation in California.

How to Form a Limited Liability Partnership (LLP) in California

Limited partnerships aren’t available for everyone, so make sure they apply to your profession before you get started. Once you know that you can create a limited liability partnership, you can follow the steps we cover below to get started. These steps may vary based on the nature of your business and how many partners you plan on having, so keep this in mind before you get started.

1. Meet Limited Liability Partnership Requirements

When forming a limited liability partnership (LLP), you need to meet all of the requirements. California has specific rules in place about who can form an LLP, so it’s a good idea to make sure you meet those requirements before forming partner agreements. One such requirement, for example, is that lawyers who want to start an LLP must register their LLP with the California State Bar once they’re approved by the Secretary of State. If you haven’t passed the bar yet, you can begin the formation process of an LLP.

You also have to have one of the business types that California allows to become an LLP. As of 2024, these businesses include lawyers, accountants, and architects.

2. Make an LLP Agreement with All Partners

An LLP agreement is the first thing you should make when forming an LLP. This agreement will outline the structure of the business, the partners’ responsibilities, and who the partners are. It needs to be legal, and it’s often used to reference parts of the business formation as the company grows. You can also include this information in your business plan or draft your LLP agreement during the planning process.

3. Choose a Name for Your Limited Liability Partnership

Next, it’s time to come up with a name for your limited liability partnership. Since this is often used for lawyers and accountants, or other similar firms, it’s common for owners to use their last names as the company name. This also ensures that the name is available and that both partners are represented in the business. Some common variations include the initials of the partners or their full names. We also recommend registering any online domains associated with your name before you launch the business to avoid any problems securing it in the future.

4. Fill Out the Necessary Limited Liability Partnership Forms

In California, limited liability partnerships have to fill out specific forms to be approved. This process can take between 10 and 14 days and you should make sure of the information. One of the specific forms that you need to file is the Partnership Return of Income form. Aside from this form, you also have to provide information about each partner’s share of income and other information about their holdings or income, including investment accounts.

5. Pay Necessary Fees

To remain compliant you have to pay the necessary fees. For a limited liability partnership, you need to pay the franchise tax of $800. This tax is the same tax that most LLCs in California have to pay. You also need to pay for your business licenses and anything you need to remain compliant.

PLLC in California FAQ

Have more questions about a PLLC in California? Find answers to the most common questions featured below.

Is It Better to be an S-corp or LLC in California?

You can be an S-corp and an LLC in California because an S-corp is a way for a business to be taxed, while an LLC is a legal entity that a business can use. For this reason, an LLC can be an S-corp if that’s how you choose to file and if you meet the requirements. Ultimately, it’s not a question about whether or not it’s better to be an S-corp or an LLC and more of a question about whether it’s right for your business.

Who Is Required to Be a Professional Corporation in California?

California requires all professionals who want to provide their services in a corporate structure to form a professional corporation or limited liability partnership. While an LLP is limited to lawyers, accountants, and architects, PCs have more flexibility. The following industries are required to operate as a PC:

• Engineers
• Lawyers
• Doctors
• Accountants
• Insurance agents
• Financial advisors
• Chiropractors
• Dentists

These are only a few examples of licensed professionals who have to start a PC. Always check the licensing requirements in your industry for more information.

Get Started with a PLLC in California Today

A professional limited liability company is a great way to operate your profession without having to worry about liability. While California doesn’t allow you to create a PLLC that doesn’t mean you can’t form a company that shields you from the liabilities that come with being a professional. In fact, you have plenty of options at your disposal between a professional corporation (PC) and a limited liability partnership (LLP).

These legal entities are simple to establish once you know which route you want to take as long as you follow the steps we provided in this article. If you plan on working with a partner, make sure you cover all of your bases to avoid any conflicts that may arise later. Otherwise, create a PC or LLP in California today to start providing your services to those who need them.