LLC vs PLLC for Therapists: Choose Right

You have your therapy license, your clinical skills, and maybe even your first few clients. But there is one decision that keeps nagging at you: should you form an LLC or a PLLC for your practice? And honestly, what is the difference?

Here is the reality: this choice matters for your liability protection, your taxes, and your professional standing. But it does not have to be complicated. Once you understand how each structure works and what your state actually requires, the right answer becomes clear.

This guide breaks down everything you need to know about LLC vs PLLC for therapists. You will learn the key differences, state-by-state requirements, tax implications, and how to make the smartest choice for your specific situation.

30+

States Require PLLC

$50-$500

Typical Filing Fees

1-2

Weeks to Form

100%

Asset Protection Goal

What Is an LLC (and Why Therapists Use Them)

An LLC, or Limited Liability Company, creates a legal separation between you as an individual and your therapy practice as a business. Think of it as building a wall between your personal checking account, your home, and your retirement savings on one side, and your business obligations on the other.

If your practice faces a lawsuit or accumulates business debt, that wall protects your personal assets. Creditors can go after what the business owns, but they typically cannot touch what you personally own outside the business.

LLCs became popular because they combine the liability protection of a corporation with the simplicity and tax flexibility of a sole proprietorship. You do not need a board of directors, you do not need to hold annual meetings, and you get to choose how the IRS taxes your income.

Why Therapists Love LLCs

The flexibility is the big draw. You can be a solo practitioner, bring on contractors, or eventually hire employees. You can elect S-corp taxation when your income grows. And the paperwork stays minimal compared to a full corporation. For many therapists, an LLC hits the sweet spot between protection and simplicity.

What Is a PLLC (and How It Differs)

A PLLC, or Professional Limited Liability Company, is essentially an LLC designed specifically for licensed professionals. This includes therapists, psychologists, doctors, lawyers, accountants, architects, and engineers.

The key distinction? A PLLC acknowledges that you provide professional services requiring state licensure. Many states created the PLLC structure because they wanted licensed professionals to have liability protection while maintaining accountability for their professional conduct.

In practical terms, a PLLC operates almost identically to a regular LLC. The formation paperwork is similar, the tax treatment options are the same, and the day-to-day business operations work the same way. The difference lies in who can form one and what professional oversight applies.

The Professional Accountability Factor

Here is something important to understand: a PLLC protects you from general business liabilities, but it does not shield you from malpractice claims arising from your own professional conduct. If you make a clinical error, the PLLC structure will not prevent a client from holding you personally accountable. This is by design. States want licensed professionals to remain responsible for their professional actions.

LLC vs PLLC: Side-by-Side Comparison

Let us put these two structures next to each other so you can see exactly where they overlap and where they differ.

Standard LLC

+ Available to any business type
+ No license verification required
+ Members can be licensed or unlicensed
+ Flexible ownership structure
+ Pass-through taxation by default
- Not allowed for therapists in many states

Professional LLC (PLLC)

+ Designed for licensed professionals
+ State licensing board oversight
+ All members must hold valid licenses
+ Required in 30+ states for therapists
+ Same tax flexibility as standard LLC
- Does not protect against malpractice

State-by-State Requirements for Therapists

This is where things get specific. Your state determines whether you need a PLLC, can choose a standard LLC, or must use an entirely different structure like a Professional Corporation.

States generally fall into three categories:

PLLC Required States

These states mandate that licensed therapists form a PLLC (not a standard LLC) for their practice:

Texas, New York, New Jersey, Michigan, Minnesota, Pennsylvania, Virginia, Tennessee, North Carolina, Kentucky, Oregon, Washington, Utah, Nevada, Arizona, Colorado, and others. Always verify with your state licensing board.

LLC Permitted States

These states allow therapists to form either an LLC or PLLC:

Florida, Ohio, Illinois, Georgia, and several others give therapists flexibility to choose. Some therapists prefer the PLLC designation for professional credibility even when not required.

Special Structure States

These states do not offer PLLCs and require alternative structures:

California requires a Professional Corporation (PC) for therapists. Some states may require specific professional corporation structures. Check your state licensing board requirements before filing any paperwork.

Understanding Liability Protection

Let us be crystal clear about what protection you actually get from an LLC or PLLC, because there are common misconceptions that can leave therapists dangerously underinsured.

Both structures protect you from general business liabilities. This includes:

Protected by LLC/PLLC

✓ Business debts and loans
✓ Lease obligations if practice closes
✓ Vendor contracts and disputes
✓ Slip-and-fall accidents at your office
✓ Employee-related lawsuits
✓ General negligence claims against business

NOT Protected by LLC/PLLC

✗ Your own professional malpractice
✗ Clinical errors or negligence
✗ HIPAA violations you personally commit
✗ Boundary violations
✗ Fraud or intentional misconduct
✗ Personal guarantees you signed

Critical Reminder: You Still Need Malpractice Insurance

Your LLC or PLLC does not replace professional liability insurance. It complements it. Think of the business structure as protecting your personal assets from business problems, while malpractice insurance protects you from claims related to your professional services. You need both layers of protection.

Tax Implications and Strategies

Both LLCs and PLLCs offer identical tax treatment options. By default, both are taxed as "pass-through" entities, meaning profits pass through to your personal tax return and you pay self-employment tax (15.3%) plus income tax on your earnings.

Here is where it gets interesting. Once your practice earns enough, you can elect S-corporation taxation. This lets you split your income into a "reasonable salary" (subject to employment taxes) and distributions (not subject to self-employment tax).

Tax Structure	Best For	Key Benefit
Default Pass-Through	Net income under $60K	Simplest paperwork and accounting
S-Corp Election	Net income $60K-$400K+	Reduce self-employment tax significantly
C-Corp Election	Rare for therapy practices	Retaining significant earnings in business

S-Corp Savings Example

If your practice nets $120,000 and you pay yourself a $70,000 salary, you save self-employment tax on the $50,000 distributed as profit. At 15.3%, that is roughly $7,650 in annual savings. The extra accounting costs for S-corp status run $1,000-$3,000 per year, so the net benefit is significant at higher income levels.

Formation Process and Costs

Setting up your LLC or PLLC is more straightforward than most therapists expect. Here is what to budget for:

Expense	Typical Cost	Frequency
State filing fee	$50-$500	One-time
Registered agent service	$100-$300	Annual
Operating agreement	$0-$1,500	One-time (DIY or attorney)
Annual report	$0-$800	Annual (varies by state)
Publication (NY, AZ, NE only)	$500-$2,000	One-time

For most solo therapists, expect to spend $200-$800 in the first year and $100-$500 annually thereafter. You can file directly through your state Secretary of State website or use services like ZenBusiness, Northwest Registered Agent, or Incfile that handle the paperwork for $100-$300 plus state fees.

How to Make Your Decision

Follow this step-by-step framework to determine the right structure for your practice:

Your 4-Step Decision Checklist

Step 1: Research your state requirements Contact your state licensing board or check the Secretary of State website. Does your state require therapists to form a PLLC? If yes, your decision is made. If your state does not offer PLLCs (like California), you will need a Professional Corporation or alternative structure.
Step 2: Evaluate your practice structure Are you solo or planning to bring on partners? Solo practitioners typically form a single-member LLC or PLLC. If you want partners, remember that PLLC members generally must all hold the same type of professional license.
Step 3: Consider your growth plans Planning to hire administrative staff or non-licensed contractors? A standard LLC (where permitted) offers more ownership flexibility. Planning to add licensed therapists as partners? A PLLC structure may work better long-term.
Step 4: Get professional guidance when needed Solo practice in a straightforward state? DIY is often fine. Multiple states, partner arrangements, or unusual situations? Invest $300-$500 in a consultation with a business attorney who understands healthcare practices.

5 Costly Mistakes to Avoid

After working with hundreds of therapists on practice formation, these are the errors we see repeatedly:

Mistake 1: Operating without any business entity

Practicing as a sole proprietor without an LLC or PLLC means zero separation between your personal and business assets. One lawsuit or business debt can put your home, savings, and retirement at risk. The few hundred dollars to form an entity is essential protection.

Mistake 2: Assuming the LLC replaces malpractice insurance

This misunderstanding can be devastating. Your business entity protects you from business liabilities. Malpractice insurance protects you from professional liability claims. These are different things. You need both.

Mistake 3: Mixing personal and business finances

If you treat your LLC bank account like a personal account, a court may decide your liability protection does not apply. Keep separate accounts, document business expenses properly, and pay yourself a regular salary or distribution rather than just grabbing cash when you need it.

Mistake 4: Ignoring annual compliance requirements

Most states require annual reports and fees to keep your LLC in good standing. Miss these, and your business can be administratively dissolved, leaving you personally liable. Set calendar reminders for your state filing deadlines.

Mistake 5: Choosing based on what sounds impressive

Some therapists think "PLLC" sounds more professional than "LLC." Your clients do not care about this distinction. Choose based on legal requirements and practical benefits, not marketing perception.

Frequently Asked Questions

Can I change from an LLC to a PLLC later?

Yes, but it typically requires dissolving your existing LLC and forming a new PLLC. This involves new filing fees, updating contracts, changing bank accounts, and potentially tax implications. It is easier to form the right entity type from the start.

Do I need an attorney to form my LLC or PLLC?

For a straightforward solo practice, many therapists successfully file on their own using online services. However, if you have partners, operate in multiple states, or have complex arrangements, an attorney consultation ($300-$500) is worthwhile insurance against costly mistakes.

What if I practice in multiple states?

You will likely need to "foreign qualify" your LLC or PLLC in each additional state where you practice. This means registering your existing entity in that state and paying their registration fees. Some therapists form separate entities in each state, though this adds complexity.

Can I hire employees with a single-member LLC or PLLC?

Yes. A single-member LLC or PLLC refers to ownership structure, not employment. You can hire administrative staff, billing specialists, or even other therapists as W-2 employees. However, if you want other therapists as co-owners (not employees), that changes the structure.

When should I elect S-corp taxation?

The general rule of thumb is when your net practice income exceeds $60,000-$80,000 annually. At that point, the self-employment tax savings typically outweigh the additional accounting costs. Consult with a CPA who understands therapy practices to run the numbers for your specific situation.

Key Takeaways

1. LLCs and PLLCs provide the same protection - the difference is that PLLCs are specifically for licensed professionals and required in many states for therapists.
2. Your state determines your options - check whether you must form a PLLC, can choose either structure, or need a different entity like a Professional Corporation.
3. Neither structure protects against malpractice - you still need professional liability insurance to cover claims arising from your clinical work.
4. Formation costs are manageable - expect $200-$800 in year one and $100-$500 annually thereafter for most solo practitioners.
5. Tax treatment is identical - both LLCs and PLLCs can elect pass-through, S-corp, or C-corp taxation based on what saves you the most money.

Ready to Build Your Practice?

Forming your LLC or PLLC is one of those tasks that feels overwhelming until you actually do it. The paperwork takes an afternoon. The protection lasts as long as your practice does. And once it is done, you can focus on what you became a therapist to do: help people heal.

TheraFocus helps therapists manage the business side of practice with HIPAA-compliant documentation, scheduling, billing, and client management. Spend less time on administrative work and more time with the clients who need you.

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