What is the difference between manager-managed and member-managed LLCs?

In a member-managed LLC, all owners participate in day-to-day management. In a manager-managed LLC, designated managers (who may be non-members) handle operations. This doesn't affect liability protection but does affect operational control. Most single-owner LLCs are member-managed.

Can an LLC or LLP elect S-Corp tax treatment?

Yes. Both LLCs and LLPs can file Form 2553 to elect S-Corp tax treatment for federal purposes. This separates entity structure (LLC/LLP = liability protection) from tax treatment (S-Corp = self-employment tax savings). Many multi-member LLCs and LLPs benefit from S-Corp elections at $100K+ income.

What happens to an LLP if a partner leaves?

In a traditional partnership, departure of a partner can dissolve the firm. In an LLP, the partnership typically continues. However, the departing partner's ownership interest may be subject to buy-sell agreements and valuation disputes. Always have a written operating agreement in place.

Is a PLLC required to have professional liability insurance?

While PLLC status provides some liability protection, most professional licensing boards require errors and omissions (E&O) or malpractice insurance. A PLLC doesn't eliminate the need for insurance; it just adds a legal layer of protection. Typical E&O insurance costs $1,000–$5,000+/year depending on profession.

Can an LLP in one state operate in another state?

Yes, but you'll likely need to register as a foreign LLP in each state where you do business. This requires a separate filing, registered agent appointment, and annual compliance in each state. Multi-state LLPs can become administratively complex and expensive ($300–$1,000/year per state).

What happens if I fail to maintain the legal formalities of an LLC?

If you ignore corporate formalities (no operating agreement, commingled personal and business funds, no separate bank account), a court may "pierce the veil" and hold you personally liable for business debts. This is called disregarding the entity. Maintain proper records, hold meetings, and keep finances separate.

Is a PLLC more expensive than a regular LLC?

Formation costs are similar: $50–$300 in state filing fees. However, PLLCs typically require more insurance, additional licensing fees, and professional compliance obligations. Ongoing costs for a PLLC are usually $200–$500/year more than a standard LLC.

LLC vs LLP vs PLLC: Which Partnership Structure?

Book Your Free 30-Min Consultation

A guide by Taxstra Tax & Accounting — CPA-led tax strategy for business owners

2. Professional Practice Requirements

PLLC, LLP, and licensing board mandates

Licensed professionals have additional structural requirements imposed by state licensing boards. A lawyer, CPA, architect, or doctor cannot simply form a regular LLC and call it done. Professional licensing boards mandate PLLC (Professional Limited Liability Company) or LLP status for liability protection.

Watch Out

Professional Structure Requirements by State

Law Firms

Most states require LLP, PLLC, or PC (Professional Corporation). Some states allow Law Partnership but with reduced liability protection. Single-attorney practices typically use PLLC or LLC (where permitted).

CPA Firms & Accounting Practices

State Board of Accountancy typically requires PLLC or LLP for multi-partner practices. Solo CPAs may use PLLC, LLC (if permitted), or PC depending on state rules. AICPA recommends PLLC or LLP for liability protection.

Medical Practices & Dentistry

Medical licensing boards typically permit PLLC, LLP, or Medical Professional Service Corporation. Some states allow PLLC; others restrict to LLP or PC. Telemedicine and concierge practices may have additional restrictions.

Architecture & Engineering

Most states require PLLC or LLP for multi-partner firms. Solo architects may use PLLC, PC, or in some cases LLC. Verify with your state licensing board; rules vary significantly.

Key Insight

Action Item

3. Liability Protection & Personal Asset Shield

How LLC, LLP, and PLLC differ in protecting personal assets

All three structures (LLC, LLP, PLLC) provide liability protection, but the scope and strength vary by situation and state law. The key difference: in an LLP, general partners may retain some personal liability for the partnership's debts, while limited partners are fully protected.

LLC Liability Protection

All members have full liability protection
Personal assets shielded from business debts
Not liable for other members' malpractice
Veil-piercing if formalities not maintained

LLP Liability Protection

Limited partners: full liability protection
General partners: may retain some liability
Protected from malpractice of other partners
Limited partner passive role enforced by law

Watch Out

Important: Malpractice Liability Still Applies

Taxstra CPA Tip

Veil-Piercing Risk

4. Management & Ownership Flexibility

How control and decision-making differ across structures

Management structure affects day-to-day control and how ownership is organized. LLCs offer the most flexibility; LLPs have stricter roles for general and limited partners.

LLC: Member-Managed vs Manager-Managed

Member-Managed: All owners participate in day-to-day decisions. Flexible, no designated managers needed. Good for small teams where all partners are active.

Manager-Managed: Designated managers (who may be non-members) run the business. Owners can be passive investors. Good for real estate syndicates or group investments.

LLP: General Partners and Limited Partners

General Partners (GP): Manage the business, make decisions, have some liability exposure.

Limited Partners (LP): Passive investors, no management role, full liability protection. Cannot make decisions without violating LP status.

PLLC: Professional Management Requirements

All managers must be licensed professionals (e.g., all partners in a law PLLC must be lawyers). Some states permit non-professional staff but require licensed professional ownership and control.

Key Insight

Flexibility Winner: LLC

5. Tax Treatment & Pass-Through Options

Federal and state tax implications for each structure

For federal tax purposes, LLC and LLP default to pass-through taxation (disregarded entity for single-member LLC, partnership for multi-member). Both can elect to be taxed as C-Corp or S-Corp for self-employment tax savings.

Key Insight

S-Corp Election for Multi-Member LLCs

Taxstra CPA Tip

State-Level Complications

6. Operational Complexity & Multi-State Considerations

Compliance burden and multi-jurisdiction challenges

Operating across state lines adds complexity and cost. If you form an LLC or LLP in one state but operate in another, you typically need to register as a foreign entity in that state, incurring additional fees and compliance obligations.

Multi-State Registration: Cost & Complexity

Each Additional State: $200–$500 initial registration + $50–$300/year annual compliance
Registered Agent Required: $50–$150/year per state (or appoint yourself)
State Tax Filings: May need separate state income tax returns, franchise tax returns, or partnership returns
Professional Licensing: Lawyers, doctors, and accountants may need state-specific licensing in each jurisdiction
Total Cost for 3-State Operation: $1,000–$3,000 initial + $300–$1,500/year ongoing

Watch Out

Multi-State Professional Practices

Taxstra CPA Tip

Single-State LLC/LLP Advantage

Full Comparison: LLC vs LLP vs PLLC vs General Partnership

Frequently Asked Questions

In most states, licensed professionals (lawyers, CPAs, doctors) are required to use a PLLC (Professional Limited Liability Company) or LLP (Limited Liability Partnership) if they want liability protection. Some states allow a single licensed professional to operate as an LLC, but partnerships must use PLLC or LLP. Check your state's rules on professional restrictions.

Ready to Choose Your Entity Structure?

A Taxstra CPA will guide you through entity selection, considering liability protection, tax efficiency, and professional requirements.

Limited Availability

Find Out What You're Overpaying in Taxes

Book a free 30-minute call to walk through your situation. We'll tell you exactly how our CPA-led team can help — and whether we're the right fit.

Learn how our CPA-led team can help

30 minutes — no fluff, just answers

Zero obligation, zero pressure

Or Call (217) 788-0750

Tax Returns Filed

Years Experience

CPA-Led Service

0min

Free Consultation

What to Expect on the Call

We learn about your business and tax situation

We explain which services fit your needs

You get honest answers — no hard sell