PLLC stands for “Professional Limited Liability Company.” Some states require licensed professionals to form a PLLC rather than a LLC. PLLCs have additional requirements and restrictions so always check with your state on your state’s rules.
Both an LLC and an S corporation are considered “pass-through” tax entities. That means the company does not pay any tax on its taxable income. Instead, the income, losses, and tax items (such as depreciation deductions) are passed through to the members or shareholders, who report these items on their personal tax returns. One significant difference is that all of the LLC’s profits are considered the self-employment income of the members—and the members are liable for self-employment tax on their shares. In contrast, an S corporation can pay a salary to the owners who operate the business and pay the remainder of the profits to them as dividends. This greatly reduces the amount of employment tax liability and can result in substantial savings. Another difference between an S Corp and LLC is that an LLC can allocate profits, losses, and tax items however the members agree. A corporation must allocate these items based strictly on the number of shares owned.
There is no “one best state” to form an LLC. In general, most small businesses opt to form the LLC in the state where the owners reside or where the company is doing business. This cuts down on the initial costs, as well as on-going costs and compliance responsibilities. If you form your company in a state other than the one where you are doing business, you will immediately need to apply for a certificate of authority to operate in that state. And, going forward, you will have to file annual reports (and pay the annual report filing fees) in both the formation state and the state where you are registered to do business. However, if you know that you will be operating in multiple states immediately, or if you plan on utilizing specialized tax or asset protection structures, such as a series LLC, then you may wish to form your company in a business-friendly state, such as Delaware or Nevada.
A limited liability company (LLC) is a hybrid, combining the most sought after characteristics of a corporation (credibility and limited liability) with those of a partnership (flexibility and pass-through taxation). Plus, an LLC is not saddled with many of the reporting and documentation formalities that a corporation faces. For example, an LLC does not have to hold regular, annual meetings. These characteristics make it an extremely popular business structure.
