For most licensed professionals, an LLC is the better default: it taxes profits once instead of twice, does a better job of insulating you from a partner’s malpractice, and carries a lighter administrative load than a Professional Corporation. The PC still has a place when your state’s licensing statutes require it, when you want C-corporation tax treatment on purpose, or when the practice’s structure fits the corporate model more naturally than the LLC model. The comparison of a PC vs. an LLC really comes down to four things: who’s allowed to own the entity, what happens when a co-owner commits malpractice, how the default tax treatment lines up with how you actually take money out of the practice, and how much governance paperwork you’re willing to keep up with.
Who Is Allowed to Own Each
A Professional Corporation is reserved for individuals who hold a current state license in a designated profession. State statutes define which professions qualify; the list almost always includes physicians, attorneys, certified public accountants, engineers, architects, and dentists. Every shareholder must be licensed in that same profession, and if a shareholder loses their license, most states require the PC to redeem their shares within a set time frame.
Formation involves two filings, not one. You file Articles of Incorporation with the Secretary of State and get approval from your state’s professional licensing board. The board confirms every proposed shareholder is currently authorized to practice; the corporate filing office handles the standard incorporation paperwork. That dual review is where the extra friction lives.
An LLC has no ownership restriction of its own. Members can be individuals, corporations, or other LLCs, and no professional license is required.1Internal Revenue Service. Limited Liability Company (LLC) You file Articles of Organization, designate a registered agent, and you’re operating. Some states do require licensed professionals to form a Professional LLC (PLLC) rather than a standard LLC, but the PLLC process is still typically a single filing rather than the dual-approval track a PC has to run. The PLLC label mostly reinforces that the entity does not shield an individual from their own malpractice; formation cost and complexity are otherwise close to a regular LLC.
Before you get further into the comparison, check what your state actually allows. Some jurisdictions require certain professions to use a PC (or PLLC) and take the other option off the table entirely.
What Happens When a Co-Owner Commits Malpractice
Both structures shield your personal assets from ordinary business debts. If the practice falls behind on an office lease, an equipment loan, or a vendor invoice, creditors can reach the entity’s assets but not your personal bank account, home, or investments. Neither structure protects you from your own professional mistakes: if you commit malpractice, the injured party can pursue your personal assets regardless of which entity you use. That’s a bedrock principle in every state.
The real difference shows up when your partner is the one who commits malpractice. In a PC, the corporation itself is generally liable for the professional negligence of any shareholder or employee acting within the scope of employment. A successful malpractice judgment can force the sale of corporate assets to satisfy the claim. Your personal assets as an innocent shareholder are technically protected, but your equity stake in the practice takes the hit. If the judgment is large enough, the practice may need to liquidate, and your investment goes with it.
The LLC does a better job of insulating innocent members. In most states, a malpractice claim against one member is limited to that member’s personal assets and whatever the LLC itself owns. The other members’ personal assets and membership interests are off-limits. That structural insulation is one of the strongest arguments for the LLC in a multi-owner professional practice.
The specifics are genuinely state-dependent. Some courts have wrestled with the scope of LLC member protection in malpractice cases, and the outcomes aren’t uniform. Don’t assume the LLC shield is ironclad without checking your state’s case law.
One more thing worth noting: either entity can lose its liability shield if the owners treat it as a personal piggy bank. Courts look at commingled funds, ignored corporate formalities, undercapitalization, and use of the entity as a shell. PCs face a higher practical veil-piercing risk because they have more formalities to neglect. Every missed board meeting, every undocumented decision, every stock transfer that skips statutory procedure chips away at the shield. LLCs have fewer formal requirements to fail at.
Whichever entity you pick, malpractice insurance is doing most of the actual protecting. If you’re on a claims-made policy and later dissolve the practice or leave the firm, you’ll need an extended reporting period endorsement (usually called “tail coverage”) for claims filed after the policy ends. Tail coverage typically costs between 0.75 and 3.5 times your last annual premium depending on the length of coverage purchased, and once in force it’s fully earned and non-cancellable.
How Each Entity Is Taxed by Default
This is where the two structures create the biggest day-to-day financial difference. A PC is taxed as a C-corporation by default. An LLC defaults to pass-through taxation. That one distinction can swing your annual tax bill by tens of thousands of dollars.
The PC as a C-Corporation
A PC files Form 1120 and pays corporate income tax at a flat 21% rate on all taxable income under IRC Section 11.2GovInfo. 26 USC 11 – Tax Imposed After the corporation pays that tax, any remaining profits distributed to shareholders are taxed again as dividends on the shareholders’ personal returns. That’s the classic double taxation problem, and it’s the central disadvantage of running a small practice as a default PC.
PCs are no longer penalized with a higher rate than other C-corporations, but the double taxation is still there for profits you actually distribute. If your practice pays out most of what it earns each year, the PC default is working against you.
The LLC as a Pass-Through
A single-member LLC is treated as a disregarded entity for federal tax purposes; you report income and expenses on Schedule C of your Form 1040.3Internal Revenue Service. Single Member Limited Liability Companies A multi-member LLC defaults to partnership taxation, filing Form 1065 and issuing Schedule K-1s.4Internal Revenue Service. LLC Filing as a Corporation or Partnership Either way, profits are taxed once at the owners’ individual rates. No entity-level tax.
The tradeoff is self-employment tax. Under IRC Section 1402, a general partner’s distributive share of partnership income (including an LLC member’s share) counts as net earnings from self-employment.5Office of the Law Revision Counsel. 26 USC 1402 – Definitions That’s the 12.4% Social Security tax up to the wage base ($184,500 in 2026) plus the 2.9% Medicare tax with no cap, for a combined 15.3% on earnings below the ceiling.6Social Security Administration. Contribution and Benefit Base Above the ceiling, only the 2.9% Medicare tax applies, plus an additional 0.9% Medicare surtax on earnings above $200,000 for single filers or $250,000 for joint filers.
The S-Corp Election Both Entities Can Make
Here’s the equalizer. Both the PC and the LLC can elect S-corporation tax treatment by filing Form 2553.7Internal Revenue Service. About Form 2553 The election has to be filed no later than two months and 15 days after the beginning of the tax year you want it to apply, or at any time during the preceding tax year.8Internal Revenue Service. Instructions for Form 2553 Miss that window and you’re stuck with the default classification for the year.
The election converts either entity to pass-through taxation on Form 1120-S, which eliminates the PC’s double taxation and gives an LLC a way to cut employment taxes.9Internal Revenue Service. About Form 1120-S U.S. Income Tax Return for an S Corporation As a shareholder-employee, you pay yourself a salary that’s subject to Social Security and Medicare taxes on Form 941. Any remaining profit distributed to you as a shareholder is not subject to those employment taxes. If your practice earns $400,000 and you take a $200,000 salary, only the salary triggers payroll taxes. The remaining $200,000 passes through as a distribution, saving roughly $15,000 to $30,000 per year in employment taxes depending on your income level.
The IRS watches this closely. Your salary has to be “reasonable” for the work you actually perform, which generally means comparable to what someone in your profession, geographic area, and experience level would earn as an employee.10Internal Revenue Service. FS-2008-25 – Wage Compensation for S Corporation Officers A solo attorney paying themselves $40,000 while taking $300,000 in distributions is going to have a problem. The Tax Court has repeatedly held that distributions dressed up as non-wage compensation are actually wages subject to employment taxes.11Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
The election has restrictions worth knowing. S-corporations can’t have more than 100 shareholders, can’t have non-U.S. resident shareholders, and can only issue one class of stock. If you want tiered ownership with different distribution rights or plan to bring in foreign partners, the S-corp won’t accommodate that. An LLC taxed as a partnership handles those arrangements natively through its Operating Agreement.
The QBI Deduction Tilts the Math Further Toward Pass-Through
The Section 199A qualified business income deduction lets owners of pass-through entities deduct up to 20% of their qualified business income on their personal returns.12Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income The deduction was originally set to expire after 2025 and was made permanent by the One Big Beautiful Bill Act. For a practice generating $500,000 in pass-through income, the deduction can be worth up to $100,000 in reduced taxable income.
The catch for professionals: most licensed practices are “specified service trades or businesses” (SSTBs). The statute specifically targets health, law, accounting, consulting, financial services, and performing arts. Engineering and architecture are excluded from the SSTB definition, so those professionals get the full deduction regardless of income.
For everyone else on the SSTB list, the deduction phases out once your taxable income clears certain thresholds. The One Big Beautiful Bill Act widened the phase-out range from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers. Once your income clears the top of the phase-out range, the QBI deduction drops to zero for SSTB owners.
This matters directly for the PC-versus-LLC decision. A PC taxed as a C-corporation doesn’t qualify for the QBI deduction at all, because the deduction only applies to pass-through income. An LLC taxed as a partnership or S-corporation does qualify, subject to the SSTB phase-out. For a professional whose income sits below the phase-out threshold, access to this deduction can save more than any other single factor in the choice of entity.
Retirement Contributions Interact With How You Pay Yourself
Both entities can sponsor a solo 401(k) or SEP IRA. For 2026, the employee 401(k) deferral limit is $24,500, with a catch-up of $8,000 for those 50 and over, or $11,250 for those between 60 and 63.13Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Total defined contribution limits reach $72,000 for 2026.14Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs)
The wrinkle if you’ve made an S-corp election: employer contributions are calculated as a percentage of your W-2 salary, not total practice income. Set your salary low to save on payroll taxes and you cap how much you can shelter for retirement at the same time. Aggressive payroll-tax planning and aggressive retirement funding pull against each other, and the sweet spot depends on your numbers.
Day-to-Day Governance
A Professional Corporation operates under traditional corporate rules: a Board of Directors, designated officers (president, secretary, treasurer), issued stock certificates, and documented meetings of both directors and shareholders. Corporate minutes go in a minute book, and significant decisions get formally recorded. Stock transfers must follow both corporate law and professional licensing requirements, since shares can only be held by licensed professionals in the same field.
Neglecting the formalities isn’t just sloppy. It’s one of the factors courts examine when they consider piercing the veil. A PC that hasn’t held a board meeting in three years and can’t produce minutes has weakened the shield it exists to provide.
The LLC operates under its Operating Agreement, which the members write themselves. An LLC can be member-managed or manager-managed. There’s no statutory requirement for a board, officer titles, or annual meetings. Ownership is tracked through the Operating Agreement rather than stock certificates, and transferring membership interests follows whatever rules the members set.
Both entities have to meet ongoing state compliance requirements like annual or biennial reports and registration or franchise taxes. But the PC’s added layer of corporate formalities and licensing-board oversight creates a meaningfully heavier administrative load. If you don’t have the discipline or the back-office help to maintain a corporate minute book and document decisions properly, the LLC is the more forgiving structure.
Switching Later Is Possible
If you pick one and later decide the other fits better, conversion is possible. Many states allow a statutory conversion: you file a Certificate of Conversion with the Secretary of State, and the state transfers all assets, liabilities, and good standing to the new form without dissolving the old entity. In states that don’t allow direct conversion, the workaround is a statutory merger; you form the new entity, merge the old one into it, and the old one ceases to exist. Either path requires you to build out the new structure’s governance afterward, and the conversion itself has tax consequences worth talking through with a tax advisor before you file.
How to Choose
Start with what your state requires. If licensing law forces you into a PC or PLLC, the decision is made. If you have a choice, the LLC will usually be the better fit: single layer of tax, cleaner protection against a co-owner’s malpractice, access to the QBI deduction, and less paperwork. Make an S-corp election on top of the LLC when your income is high enough that reasonable-compensation planning saves more in employment taxes than it costs in complexity and lost retirement-contribution room. Reach for the PC when the corporate model genuinely fits how the practice will operate or when C-corporation tax treatment is what you actually want, not just what the entity defaults to.