What is an s corp
A Limited Liability Company is a business structure that combines features of corporations and sole proprietorships or partnerships. The structure allows for protection against personal liability. Anyone can form an LLC. however, when it comes to the Professional LLC it can only be formed by defined professional individuals and groups.
Different states have various criteria that determine professions that can form PLLCs. Some common professions include professionals like doctors, lawyers, engineers, accountants, and the like. The state may also demand that only licensed practitioners of the service offered by the corporation may be on the board of directors or own stocks in the company. Other states may demand that at least about half of the directors and owners are licensed practitioners.
To form a PLLC you need to be aware of the various criteria that different states require. The incorporation process is a little bit similar for regular corporations and professional ones but there are a lot of differences in their operations so you need to know which one to form.
In this article, we will take a look at the differences between regular and professional LLCs as well as their similarities. That way it will be easy to know which one you should go for.
Professional corporations vs S Corporation
The similarities
Professional corporations are similar to regular corporations in terms of their daily operations. They are both owned by shareholders and a board of directors who are also called ?members?. In the case of a single-member corporation, there is just one member. These members can also appoint persons in charge running of the company, whether it is a professional or regular corporation.
Both professional and regular corporations have their processes of incorporation very much alike. You will need to get a business name that is available in your state and get a registered agent who will be responsible for receiving documents from the government on your behalf. You will also need to get the articles of incorporation, draft the corporate bylaws and assign officers and directors that will be responsible for making important decisions.
Also, both corporation types have the same formalities. The method of writing the bylaws, the way the records are kept, the annual meetings for shareholders that are held, and other necessary protocols that are required by the state
The differences
The first difference is the most obvious one. The owners of a professional corporation are professionals from professions that are supported by the state the corporation is created in while the owners of a regular corporation can be anyone who wishes to incorporate a business.
Another difference is the liability that is offered to the members of the corporations. For regular corporations, the members have total personal asset protection such that in the case of any risks, the business bears the risk, not the member(s).
In a professional corporation, only partial liability protection is available to its members. Liabilities like loan defaults and other general risks to business are covered like in the regular corporation but liabilities involving individual practices such as clients suing the company for a mistake in a procedure carried out by a doctor or an engineer in the company will not be covered. So, in a professional corporation, each shareholder is liable for his or her activity.
Professional corporation vs Professional LLC
These two groups are for licensed professionals to form businesses that protect them from liabilities. Although they seem the same they are quite different.
One of the major differences between a professional corporation and a professional LLC is the tax system. The Professional LLC has some options for how it is taxed. Just like how the regular LLC does.
In a professional LLC, you can be taxed as an S corps. This means that the business is regarded as a ?pass-through entity? and it is not taxed on the total amount of income made in a year. Instead, each member is taxed on their shares of the profit or loss.
For a professional Corporation, the business is taxed on its total income and then each member is also taxed on their dividends as well if the dividends are distributed to the members. This is referred to as ?double taxation?.
Also, there are different processes involved in the management of the two types of companies. The professional LLC has its members manage the business and they could decide to employ someone to manage the company. But for the professional corporation, the board of directors is strictly in charge of the company although there could be officers in charge of the day to day running of the company.
Another difference between the professional Corporation and the professional Limited Liability Company is seen in their compliance requirements. Professional LLCs are required to file annual reports and that is more or less the toughest requirement. On the other hand, Professional corporations have to carry out more activities such as shareholders? and directors? meetings, ensuring the proper records of meeting minutes, ensuring proper stock ledgers are kept and so many more.
Should you create a Professional LLC or a Professional corporation?
The first thing to consider is your state?s regulations as regarding the formation of professional companies. Some states may not give room for the formation of a Professional LLC so that leaves you with just one option, to form a professional Corporation. Some states may give options based on the particular profession.
Having considered that, you can look into the pros and cons of both types and then choose the one you wish to form that will be most suitable for your needs. For example, Professional Corporation allows for corporate taxes. This might be better for your company so you can choose to form a professional corporation.
Ultimately, it is advisable that you consult a professional incorporation service so you can be properly guided to choosing the right company to form.