Last updated: January 8, 2023

The type of limited liability company (LLC) you need as a mental health professional will depend on your state's licensing or certification requirements.

If you are a licensed mental health professional, you may want to consider forming a professional liability company (PLC). A PLC is a limited liability company that protects professionals from malpractice lawsuits.

If you are not licensed, you may want to consider forming an LLC with a general partner who is licensed. This will provide limited liability protection for you and your business.

In this article, we provide all the first-hand information from some of the top legal advisors to help you choose the best LLC type if you are a mental health professional.

What Are Professional LLCs?

An LLC owner who is a professional

A professional LLC (PLC) is a limited liability company specifically designed to protect professionals from malpractice claims. PLCs are formed by licensed professionals, such as doctors, lawyers, and accountants.

PLCs offer limited liability protection for the business and the professionals who own it.

This means that business owners are protected from personal financial losses if a malpractice claim is filed against the company.

PLCs offer several benefits, including:

  • Limited liability protection for the business and its owners
  • Tax advantages
  • Ease of formation and more.

Before forming limited liability companies or soile proprietorship, it is essential to consult with an attorney who is familiar with the licensing requirements in your state. An attorney can help you determine the type of LLC best suited for your business.

It is also important to make sure that you follow all state business formation rules and regulations.

Tell Me the Difference between a PLLC and an LLC?

A PLLC or Professional limited liability company is a kind of LLC specifically for licensed professionals. Professionals such as business consultants, doctors, and attorneys can form a PLLC because holding these professions requires the business owner to have a license.

The business itself is considered personal property because personal liability may be involved in business transactions.

An LLC is an entity business structure that allows business owners and investors certain protections or benefits for owning and operating a business outside of themselves.

This may lead to personal liability because business owners and investors legally customize their business entity as a business structure that protects them personally.

Differences between an LLC and PLLC are specific per state law but generally have the following protections in their business structures:

  • Limited Liability for business owners and business investors.
  • Separation of business property from personal property.
  • Ease of operational procedures (such as annual business filing, and business operating).

An LLC is not limited to licensed professionals; it can be used for any business that does not want the business liability or the business owner's personal assets to go into business operations.

Do I Need an LLC for a Counseling Center?

A woman holding a piece of paper

This is a question that many private practice professionals may ask themselves when starting their counseling center.

The answer, unfortunately, is not always straightforward and depends on a variety of factors.

There's a lot of options for private practice professionals. One is to form a professional corporation.

This type of business entity can provide limited liability protection for the owners or shareholders of the company.

Another option for private practice professionals is to form a limited liability company or LLC. An LLC provides more liability protection than a professional corporation and is a good option for professionals who provide counseling, therapy, or the law.

However, the best option for private practice professionals depends on the specific circumstances of their business.

Will an LLC Lower My Taxes?

As professional services are the bulk of many small businesses, tax planning plays a critical role—the self-employed face two major tax issues: income taxes and self-employment taxes. LLCs can help with both.

Income taxes are paid on the business's profits. These taxes are usually lower for businesses than for individuals because companies can take deductions that individuals cannot.

Self-employment taxes are paid on the business's profits, including Social Security and Medicare taxes.

The self-employed pay both the employee and employer portions of these taxes. LLCs can help reduce the self-employment tax bill by creating a company classified as a corporation.

An LLC can be taxed as a corporation. You'll want to check with your state's filing requirements, but most professional service corporations are professional limited liability companies (PLLC) or professional corporations.

As a Corporation, an LLC will pay fewer taxes than taxed as a sole-proprietorship or partnership.

Man staring seriously on a legal paper

One of the key benefits of forming a Limited Liability Company (LLC) is the ability to limit your legal liability for the debts and actions of the LLC.

This means that if the LLC runs into financial trouble or gets sued for wrongful action, you as an individual are not held liable for those debts or actions.

This can be a key benefit for business owners looking to limit their personal financial risk.

There are a few things to note when it comes to the ability of an LLC to limit your legal liability:

  • The LLC must be properly formed and registered with the state in which it resides.
  • You as an individual must not be personally liable for the actions of the LLC.
  • You as an individual must not be directly involved in the legal action against the LLC (i.e., you cannot sign an agreement that would put your personal assets at risk).

For professional businesses, this is typically done by including a clause in our contracts that clearly states that you are not responsible for the actions of our services company, thus protecting your personal assets.

How to form an LLC?

Forming an LLC is a relatively simple process. The steps involved in forming an LLC depend on the state in which you reside.

However, the following general steps are usually involved:

  1. Choose a name for your LLC. The name must be unique and cannot include words restricted by your state.
  2. File articles of organization with the Secretary of State (SOS) in your state of residence. If you would like, you can contact an attorney to help you through this process.
  3. Obtain licenses and permits required by both federal and local authorities (e.g., employment license, business license). Some states may require that you post a bond.
  4. Draft an operating agreement. This document will outline the rights and responsibilities of the members of your LLC.
  5. Publish a notice of formation in a local newspaper.
  6. Start doing business! You can begin using your LLC's name once you have registered it with the SOS and received your Certificate of Organization.

If you would like more detailed information on how to form an LLC, please visit the website of your state Secretary of State. You can also find helpful resources and templates for creating an LLC operating agreement online.


Can an LLC Provide Professional Services?

Yes, an LLC can provide professional services.

For example, if the members of the LLC are doctors and nurses, they will operate under their LLC to offer medical and mental health services. Another example would be a consulting firm that has formed an LLC.

This company's members may consist of accountants, engineers, and architects who offer consulting services under their company name.

Does a PLLC Need an EIN?

An EIN (employer identification number) is not required for a PLLC.

However, if your PLLC will have employees, you will need to apply for an EIN. You will also need an EIN if your PLLC is taxed as a corporation. For more information on whether or not your PLLC needs an EIN, don't hesitate to get in touch with the Internal Revenue Service (IRS).

What Is the Best LLC Type for a Mental Health Professional?

Well, it depends on whether you are a licensed medical professional or not. If you are not yet fully licensed, it will be best to consider starting an LLC in partnership with a colleague of yours that is already licensed.

But if you are, it might be better to form a professional liability company (PLC). It is a great option for anyone looking to protect themselves from malpractice lawsuits.

Plus, forming a PLC is generally considered less complicated than forming an LLC. And on top of everything, you will also be eligible for tax advantages.

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