Sole Proprietor, LLC, PLLC, or PC? What is the difference?

Uncategorized Oct 25, 2019

By Alicia Kollmar MS, OTR/L

Next Level OT Visionary Mentor and pediatric OT

[email protected]

 

This article is intended to give you some basic information about possible ways to establish your business and what they mean to give you a starting point when you are considering starting a business. The entities discussed in this article are the ones people most commonly use when starting out, but there are other options that may be a better fit for you. I am an occupational therapist, not an attorney or accountant. Make sure you consult legal and accounting professionals in your state to advise you.

 There are so many things to think about when you are starting your business! One of the first things you should consider is what entity to use for your business: sole proprietor, LLC, PLLC or PC.

 First, what do these things mean?

 Sole proprietor: you work for yourself

LLC: Limited Liability Company (can be a solo practitioner or work in a partnership)

PLLC: Professional Limited Liability Company (typically for people who hold a professional license like therapists, dentists, veterinarians, this varies by state. You can be a solo practitioner or work in a partnership)

PC: Professional Service Corporation. Similar to a PLLC, but some states require this for some professionals instead of a PLLC.

 LLCs, PCs and PLLCs provide additional legal protection compared to a sole proprietorship by separating personal assets from your business assets in the case you were to get sued.

 While legally a sole proprietorship and an LLC/PLLC/PC are different, for tax purposes you may choose to set up your LLC so that it is the same as a sole proprietorship, or you may set it up as a corporation. Consult an accountant to decide what is best for you.

 How do you decide which entity is right for you?

 Some factors that may influence what you choose:

     Your state licensure requirements

  1.     Your state laws
  2.     Your personal tax situation
  3.     Whether you have a partner and if that partner is in the same profession
  4.     Your willingness to have your personal assets at risk

Your state may have made the decision for you, so the first thing you should do is go through your state’s licensure regulations. Read it carefully. Not only will you find out if there are expectations about setting up a business/corporation, you will find any other regulations they have about running your business. For instance, here in North Carolina we must have our OT license number on our marketing materials. There may be other regulations that are not necessarily intuitive and you may not have paid attention to them when you were originally licensed because they were not relevant at the time.

 Other things that may factor into your decision:

 

  1.     LLC and PLLC may have different costs. For instance, here in North Carolina we pay $25/year to maintain our PLLCs through the state OT board. LLCs are $200/year.
  2.     If you want to hire professionals who are not OTs.
  3.     If you are going to be offering services or goods that may not be directly related to providing services to clients.

 Do you have to have an LLC in place right away?

In most places you can work as a sole proprietor without having an LLC/PLLC/PC. I did not set up my PLLC until I was in practice for a while. With the PLLC I had to change my federal tax ID # (EIN) and had to switch to a new bank account associated with that new EIN. It would have been easier to have it setup from the beginning, but it wasn’t necessary.

 Can you set up your LLC yourself?

It depends on your comfort level and the time you have to research your options. Some states make this more complicated than it needs to be also. It took me a long time to find the PLLC paperwork on the NC Secretary of State website, but once I did it was straightforward to do it all myself. Some people prefer to use an attorney to avoid doing something incorrectly.

 I hope this has been helpful! If you have set up your business in a different state and have things to add that people will find helpful, send me an email and I’ll update the blog. 

 

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