A PA, or professional association, is a business entity that is limited to specific professions. In contrast, an LLC, or limited liability company, is a hybrid between a corporation and a partnership. Each state has specific regulations for each type of business entity. Understanding the difference between these two entities will help you to determine the best way to register and organize your company.
Professional Association
A PA is a professional entity formed for the purpose of providing a professional service. Some states limit the availability of this business entity to very specific professions, such as medical doctors, veterinarians and architects. Typically, the people who own and govern the PA must be licensed in the profession in which the business is engaged. Further, in some states, a PA will look like and be formed similar to a corporation in that it will have a board of directors, and a PA is an independent legal entity that will outlive its members.
Limited Liability Company
An LLC is a more common and flexible business entity that is not restricted to any specific profession. In an LLC, the owners are not personally liable for the debts of the business, much like a corporation. However, LLCs do not require a board of directors or shareholders. Income for an LLC "passes through" to the owners, meaning that there is no corporate tax, and the income is taxed only once. In most states, an LLC may be created and operated by one or more individuals.
Professional Limited Liability Company
Some states have no option to form a professional association. However, if you are forming a professional business, you may pursue a professional limited liability company. PLLCs are essentially the same as LLCs, but require additional documentation to verify proper licensing. Some states require licensed professionals to form PLLCs rather than LLCs. Again, you must check with your state's business division to determine if you are required or allowed to register your business as a PLLC.
Registering Your Business
For any of these business structures, you must take several steps to formally register the company. You must first select a name for the organization, and then register the company with your state's business division. LLCs and PLLCs should draft an operating agreement to determine how profits will be distributed among the members. You must obtain the proper licenses and permits to open your business. Finally, once your business is formed, you must research what state and federal taxes you are liable for.
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About the Author
Elizabeth Rayne earned her J.D. from Penn State University and has been practicing law since 2009, advising clients on issues ranging from employment law to nonprofit management. For two years, she served as a contributing editor for the "Vermont Environmental Monitor."
