A professional limited liability company, or PLLC, is the entity most physicians use to operate a medical practice in states that allow it. Forming a PLLC for a medical practice gives you the pass-through tax treatment and business-liability protection of a standard LLC while satisfying state licensing rules that limit ownership of medical practices to licensed clinicians. Every owner must hold a current medical license in the state where the practice operates, and the entity itself has to be recognized by that state — which, as you’ll see, is not a given everywhere.
What Makes a PLLC Different From a Regular LLC
The defining feature is who can own it. A standard LLC can be formed by almost anyone for almost any lawful purpose. A PLLC restricts ownership to people licensed to perform the services the entity provides. For a medical PLLC, that means every member holds a current medical license in the state of operation. If someone acquires an interest without proper licensure, most states require them to give it up.
This restriction exists because a majority of states follow the corporate practice of medicine doctrine, which prohibits non-physicians from owning or controlling medical practices. The PLLC structure satisfies the doctrine by ensuring only licensed clinicians hold ownership stakes and make decisions about patient care.
Beyond that ownership rule, a PLLC runs like any other LLC. Management is flexible, profit distributions follow whatever the members agree to in an operating agreement, and the entity can choose among several federal tax classifications. The “professional” label controls who owns the entity, not how it operates day to day.
What the Liability Shield Actually Covers
The shield is the main reason most physicians choose a PLLC. If the practice takes on debt, signs a lease it can’t pay, or gets sued over a contract dispute, creditors generally cannot reach your personal bank accounts, home, or assets outside the business.
Here is where physicians sometimes get the wrong idea. A PLLC does not protect you from your own malpractice. If you personally commit a clinical error that injures a patient, the entity will not shield your personal assets from that claim. What it does protect is the other members: if your partner in the same PLLC is sued for malpractice, your personal assets are generally off limits for that claim. Each clinician carries personal liability for their own clinical work.
That’s why malpractice insurance stays non-negotiable for every member of a medical PLLC. The entity handles business-level liability; insurance handles the clinical exposure the PLLC deliberately doesn’t cover. Skipping adequate coverage because you formed a PLLC is one of the more expensive misunderstandings in practice management. Hospital credentialing committees and insurance panels also generally require proof of coverage before granting privileges or network participation, so operating without it would effectively prevent you from seeing patients in most settings.
How a Medical PLLC Is Taxed
By default, the IRS does not treat a PLLC as a separate taxpaying entity. A single-member PLLC is a disregarded entity — all income and expenses flow directly onto the owner’s personal return via Schedule C.1Internal Revenue Service. Single Member Limited Liability Companies A PLLC with two or more members is treated as a partnership, filing Form 1065 and issuing a Schedule K-1 to each member showing their share of income, deductions, and credits.2Internal Revenue Service. LLC Filing as a Corporation or Partnership In either case, the business itself pays no federal income tax. Profits pass through to the members, who report them on their personal returns.
Partnership returns are due March 15 of the following year. Disregarded entities follow the owner’s personal filing deadline, typically April 15. State tax obligations vary and may include franchise taxes, gross receipts taxes, or state-level entity income taxes even when the PLLC is a pass-through federally.
The S-Corporation Election
Members can elect to have the PLLC taxed as an S-corporation by filing Form 2553.3Internal Revenue Service. Entities 3 The election generally must be filed within two months and 15 days of the start of the tax year in which you want it to take effect — meaning by March 15 for a calendar-year entity — or anytime during the preceding tax year.
The appeal comes down to self-employment taxes. Without the election, every dollar of PLLC profit flowing to a member is subject to self-employment tax at 15.3% (12.4% for Social Security plus 2.9% for Medicare).4Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) With the S-corp election, only the salary you pay yourself is subject to employment taxes. Profits distributed above that salary are subject to ordinary income tax but not the additional 15.3%.
The catch: the IRS requires S-corporation shareholder-employees to receive reasonable compensation before taking any distributions.5Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues “Reasonable” means what someone with your specialty, experience, and workload would earn as an employee. If the IRS decides your salary is too low, it can reclassify distributions as wages, and you owe back employment taxes plus penalties. For a physician earning substantial income, the savings from a properly structured election can be significant. Setting the salary too aggressively low is where the strategy falls apart.
PLLC vs. Professional Corporation
The other common entity for medical practices is the professional corporation, or PC. Both require licensed owners and both provide liability protection. They differ in how much structure the state imposes on you. A PC operates under corporate formality rules: you issue shares, adopt bylaws, elect a board of directors, and hold meetings. A PLLC skips most of that. Its governance is defined by an operating agreement the members write themselves, and most states impose fewer ongoing procedural requirements than they do on corporations.
Flexibility matters most for smaller practices. A two-physician group that wants to split profits unevenly, change management roles, or admit a new partner can usually do so by amending the operating agreement. A PC would need board resolutions and potentially amended articles of incorporation. For larger groups with complex ownership tiers, a PC’s rigid structure can actually be an advantage because it forces governance discipline. Neither entity is categorically better. The right choice depends on practice size, state rules, and how much administrative overhead you’re willing to tolerate.
States That Don’t Allow PLLCs
This trips up more people than you’d expect. Roughly a dozen states either don’t authorize PLLCs at all or don’t have specific statutes creating them. California is the most notable example: physicians there must form a professional corporation, and PLLCs are simply not an option. Other states without PLLC statutes include Alaska, Delaware, Hawaii, and Wisconsin. A few states like New Jersey and Wyoming lack a PLLC designation but allow professionals to form a standard LLC instead.
Before spending money on formation documents, confirm with your state’s secretary of state and your medical licensing board that a PLLC is a recognized entity type for physicians in that jurisdiction. If it isn’t, you’ll typically need a professional corporation or, in some states, a standard LLC with professional designations.
How to Form a Medical PLLC
Formation rules vary by state, but the general sequence is consistent. Some steps can happen in parallel.
Verify Eligibility and Licensing
Confirm your state authorizes physician PLLCs, then confirm every prospective member holds a current, valid medical license in the state where the practice will operate. Most states require proof of licensure to be submitted to the licensing board or secretary of state before registration is approved. If even one proposed member lacks proper credentials, the filing will be rejected.
Choose a Name and Registered Agent
Most states require “PLLC” or “Professional Limited Liability Company” in the entity name, and the name cannot be confusingly similar to an existing business registered in the state. You’ll also need a registered agent — a person or business with a physical street address in the formation state who will accept legal and tax documents. A P.O. box will not work.
File Articles of Organization
This document formally creates the PLLC. It typically includes the entity’s name, principal address, registered agent information, and a statement that the PLLC is being formed to provide professional medical services. Filing fees generally run from $50 to $500 depending on the state. A small number of states, notably New York and Arizona in some counties, also require you to publish notice of formation in local newspapers, which adds cost and time.
Draft an Operating Agreement
Not always required by state law, but skipping it is a mistake. The operating agreement spells out ownership percentages, how profits and losses are divided, who manages daily operations, voting rights, how new members are admitted, and what happens when a member leaves or the practice dissolves. Without one, state default rules govern, and those defaults rarely match what the members actually intended. The agreement should also specify whether the PLLC is member-managed (all owners share decision-making) or manager-managed (designated managers handle operations while other members function more like passive investors).
Obtain an Employer Identification Number
You’ll need a federal EIN before opening a business bank account, hiring employees, or filing tax returns for the PLLC. The IRS issues EINs for free through its online application, and you typically receive the number immediately. Form the entity with your state before applying. Third-party websites that charge for this service are unnecessary — the IRS never charges a fee.6Internal Revenue Service. Get an Employer Identification Number
Keeping the PLLC in Good Standing
Formation is the easy part. Several obligations recur.
Annual Reports and Fees
Most states require annual or biennial reports updating basic information like the registered agent, principal address, and current members. Filing fees range from nothing in a few states to several hundred dollars. Missing the deadline can result in late fees, loss of good standing, or administrative dissolution, meaning the state simply cancels your PLLC. Set a calendar reminder well before the due date.
Members’ License Status
The PLLC’s existence depends on its members holding valid licenses. If a member’s license is revoked, suspended, or lapses, that person is generally prohibited from practicing through the PLLC and most states require them to divest their ownership interest. In a two-member PLLC, one member losing their license can trigger dissolution of the entire entity if no other licensed professional remains. Your operating agreement should address this explicitly: how the departing member’s interest is valued, how quickly they must transfer it, and whether remaining members have a right to purchase it.
Practicing Across State Lines
If your PLLC plans to operate in a state other than where it was formed, you’ll likely need to “foreign qualify.” That process registers your existing PLLC to do business in the new state, typically by filing an application for a certificate of authority, appointing a registered agent there, and paying additional filing fees. Each member practicing in the new state will also need a medical license there. Operating across state lines without foreign qualification can result in fines and the inability to enforce contracts or file lawsuits in that state’s courts.
Medicare Enrollment for the Entity
If the practice will treat Medicare patients, the PLLC itself must enroll as a provider, separate from the individual physicians’ enrollments. The practice needs a Type 2 (organizational) National Provider Identifier from the National Plan and Provider Enumeration System, in addition to each physician’s individual Type 1 NPI.7Centers for Medicare & Medicaid Services. Apply for an NPI
Group practices enroll through the internet-based Provider Enrollment, Chain, and Ownership System (PECOS) or by submitting Form CMS-855B.8Centers for Medicare & Medicaid Services. 855B Enrollment and Policy Overview Enrollment requires disclosure of all owners and managing employees, and CMS uses that information to screen for program integrity issues. Allow several weeks for processing. Delays in Medicare enrollment mean delays in getting paid, which strains new practices’ cash flow more than most physicians anticipate.