LLCs are becoming, far and wide, the most common business structure for startups. However, in many states, companies that act as automotive repair dealers are included on a list of businesses that need to be licenced, certified or registered by law in order to be able to provide these services legally. This means they cannot provide their services through an LLC, and must use a PLLC instead.
A professional limited liability company (PLLC) is a variant of an LLC designed for businesses that provide professional services. For a car dealership to be obliged to register as a PLLC it would also have to offer some forms of vehicle repair, for the sake of being considered an ‘automotive repair dealer’, but how is a PLLC formed, and is it worth the hassle in comparison to an LLC?
How to Form a PLLC
A PLLC is the structure that businesses offering professional services must use. The process of formation for a PLLC is almost identical to the way in which LLCs are formed, namely, the must:
- Choose a business name
- Complete the Articles of Organisation
- Create an Operating Agreement
- Publish a “notice of intent”
- Obtain licences and permits
- Register the PLLC with the state
- Set up a business bank account to keep the funds separate
The only real differences that occur in the formation process of PLLCs are that there are some additional steps involved. For example, in order for a PLLC to be granted its status by the Secretary of State, it must submit its Articles of Organisation to be checked, which is not always present for LLCs.
The requirements for these documents to be approved vary from state to state but there is a single, overarching rule that always seems to be present: that all the PLLC’s members must be able to provide some proof that they are a licenced professional in their business’s industry. For the sake of a car dealership, they would have to provide relevant evidence to suggest this.
PLLC Benefits for a Car Dealership
The general benefit of PLLCs, that could apply to a car dealership but also any other industry, is that because this structure can identify as a ‘pass-through’ entity for the sake of the Internal Revenue Service (IRS), the business will not be liable to pay as much in tax as other businesses that are incorporated.
PLLCs pay less tax because their income is not ‘double-taxed’ like that of corporations. Moreover, in PLLCs, the wealth ‘passes through’ the company to the members’ salaries (i.e. the share of the company’s profits they pay themselves for the year), where it is only taxed once as income. Corporations, on the other hand, have the business’s profits taxed before they can issue themselves a salary, and then must pay income tax as well.
One thing to bear in mind is that passthrough taxation benefits businesses with less profit, whereas those with more should look at incorporating and classifying as an S-Corp. So if the car dealership is very successful, do the latter, if not – the former.
A benefit of PLLC formation that is specific to car dealerships is the limited liability that the structure provides. Car dealerships face many risks, ranging from product liability and workplace accidents to property damage and financial data breach. As with any business that carries significant enough risk, it needs to be legally separated from its owner.
PLLCs allow this separation of personal assets from the business’s ones through liability. This means that if the car dealership were ever to be involved in a legal case, the personal assets of the dealership owner would be protected, and liability would only extend to the business’s assets alone.
Thus there is much to consider when deciding to start a PLLC for car dealerships. The dealership might be able to form as an LLC as long as it does not intend to offer ‘automotive repairs’ as part of its service. If it does, a PLLC will be required by law as this activity must be licenced according to statute. This is a good thing however, as it is fairly simple to establish a PLLC, and there are many benefits to them.