PC vs. LLC

Both professional corporations (PC) and limited liability companies (LLCs) are incorporated legal entities business owners can form. Both offer personal liability protection for the owners to an extent, but one needs to consider the differences in those protections as well as tax considerations when analyzing PC vs LLC. 

What is a professional corporation (PC)?

You may be wondering, “What does PC stand for in business?” A professional corporation is a legal entity created by professionals like doctors, architects, engineers, veterinarians, and other types of licensed professionals. Shareholders in a PC must follow the regulations of the state where the PC was formed and, in most states, must all be in the same profession.

Like other corporations, PCs are formed at the state level, so requirements such as which professions can form a PC will vary from state to state. In most cases, a PC will need approval from the state’s governing board for that profession, in addition to the usual state requirements for forming a corporation.

Advantages of a PC

Although neither PCs nor LLCs can protect a professional business owner from liability for their own malpractice or negligence, both usually protect the owners from personal liability for the business’s other debts. The difference is that most PCs will protect a business owner from the negligence or malpractice of the other business owners if they’re sued. This isn’t a huge factor if you are evaluating an LLC vs PC solo practice, though it’s good to keep in mind because you might decide to expand later. 

Another factor is that if a shareholder of the PC retires or leaves the corporation, their ownership share is easily transferable. Transferring all or part of an LLC is usually more complicated because LLCs don’t have shares.

Disadvantages of a PC

Professional corporations are still corporations, meaning that they’re more difficult to set up and have stricter requirements than LLCs. For example, PCs must elect a board of directors, hold annual meetings, and keep meticulous records. You can learn more about the differences on our LLC vs. corporation page.

What is a limited liability company (LLC)?

Limited liability companies are another type of formal business entity that protects owners (called “members” in an LLC) from personal liability. It’s a popular business structure because it provides limited liability protection for the members without the double taxation and formalities of a corporation. 

Advantages of an LLC

An LLC can be created for any type or combination of services. Compared to a corporation, they’re easier to start, have more flexibility in how they’re organized and run, and have fewer legal requirements. LLCs also benefit from pass-through taxation, which means the business’s profits are only taxed at the personal income level of the owners. A standard corporation has “double taxation,” meaning profits are taxed at both the business level and again at the personal level. 

Disadvantages of an LLC 

Some states may require that professionals form a PC or professional limited liability company (PLLC). Unlike corporations, LLCs aren’t recognized outside of the U.S. Also, it’s more difficult to sell ownership portions of an LLC, whereas a PC can sell shares to transfer ownership.

Difference Between an LLC and a Professional Corporation

There are a number of similarities and differences between a professional corporation vs LLC. 

Personal Liability

Professional corporations and limited liability companies both limit an owner’s personal liability for the business, although this doesn’t extend to the malpractice or negligence of an owner who’s a licensed professional. However, a PC protects an owner from the malpractice/negligence of the other business owners.  

Taxation

There are significant differences in taxation with an LLC vs PC. 

LLCs use pass-through taxation by default. The business itself doesn’t pay federal income on the profits, just the individual shareholders. In addition, LLCs have the option to be taxed as a C corporation or an S corporation, which can sometimes be advantageous for larger companies.

A PC is taxed like a traditional corporation, which means they are subject to double taxation. The business is taxed at the corporate level, and then shareholders are taxed at the individual income level. 

Formation Costs

Both professional corporations and limited liability companies must submit filings to the appropriate state business regulatory agency to be formed. For the majority of states, you would file formation documents with the Secretary of State, but some states use other agencies. In most states, you’ll also have to pay a filing fee.

Depending on your state and your circumstances, you may have other government fees to pay, including fees for business licenses and permits. Because a PC is owned by licensed professionals, it’s likely that there may be more licensing fees for it than a standard LLC.

We can help you start your limited liability company for as little as $0 plus the state filing fees. It doesn’t get much easier than that.

Choosing Between a Professional Corporation and LLC

You may also want to compare an LLC vs LLP vs PC. An LLP is a limited liability partnership. LLP regulations differ from state to state, but generally, in this type of partnership, each partner is shielded from the negligence or misconduct of the other partners. In some cases (depending on the jurisdiction), the partners also have limited personal liability protection from the debts of the business. 

When choosing between a PC vs LLC, there’s a lot to take into consideration. Overall, LLCs are still the most popular type of entity because they’re relatively inexpensive and easy to form if you have the right guidance. 

How ZenBusiness Can Help

We make it easy for you to get your limited liability company up and running with our LLC formation service. We can provide you with additional resources, tools, and services to answer your questions and keep your business compliant. 

Running a business should be fun and exciting. Let us take care of the paperwork so that you can focus on getting your new business up and running.