A PLLC, or professional limited liability company, is a special type of LLC that may only be formed by licensed professionals for the purpose of rendering professional services. While this is not required, doing so can be beneficial for tax, liability, financing, and other reasons.
However, a PLLC is not an option in New Mexico.
The good news is that you have other options. For instance, in states that don’t have PLLCs, sometimes licensed professionals can form standard LLCs instead. This guide will give you a better look at some PLLC alternatives in the state of New Mexico.
Should You Just Form an LLC?
PLLCs and LLCs are very similar entity types. The main difference is that only licensed professionals may form PLLCs.
In states that offer both entity types, the formation process is largely the same. Forming a PLLC simply requires a few additional steps, such as providing evidence of professional licensure or obtaining approval by the applicable state licensing board.
The LLC is a popular business type for licensed professionals because it offers the following benefits:
It’s relatively easy to form and maintain. It’s also suitable for a variety of ownership structures, from one-person businesses to multiple classes of owners.
How the business is managed is flexible as well — your LLC can be managed by the owners (which are called the “members” of the your LLC), or the members can appoint managers (much like the board of directors of a corporation). The members can agree to govern the LLC however they’d like by preparing and signing an operating agreement.
Limited liability companies are designed to protect the personal assets of their owners. This means if your business is sued, creditors can only go after the assets of the company. Your personal assets as a member — such as your personal bank accounts, home, and other property — can’t be seized to pay liabilities or debts of the company.
One important exception is that each member is personally liable for their own malpractice, and no member is liable for the malpractice of any other member. For this reason, it’s wise for each member to maintain their own professional liability insurance.
Many business owners like the LLC structure because these types of companies are generally classified as “pass through” entities for tax purposes. This means that the income and losses of the LLC are “passed through” to the members, and the members report the income and losses on their personal tax returns. In other words, any income tax is paid by the members, and not the entity itself.
A corporation’s income, on the other hand, is generally subject to “double taxation”. The corporation pays taxes on its income on the entity level, and if the corporation distributes profits to shareholders by paying a dividend, the shareholders must pay taxes on the dividend as well.
If you decide the LLC is the right structure for your New Mexico business, the formation process is relatively straightforward. To form an LLC, you can complete the six-step process outlined in our step-by-step guide yourself, enlist the help of an attorney, or use an LLC formation service.
Your Other Options
Other business options are available in New Mexico as well. One such option is a professional corporation, which you can learn more about in our How to Form a Professional Corporation in New Mexico guide.
Keep in mind, however, that corporations are not as flexible as LLCs, so you’ll need to be sure you understand and follow all legal requirements for management, governance, and reporting.
If you have a one-person business, you may also choose to just operate as a sole proprietorship. A sole proprietorship is not a legal business entity formed with the state, and there’s no distinction between the business and the sole owner for legal or tax purposes. This is the simplest form of operating a one-person business and gives the owner complete control. However, a major disadvantage is that the owner of a sole proprietorship is subject to unlimited liability for all of the liabilities and debts of the business.
If your business has more than one owner, you can also form a partnership. There are three partnership variations available in New Mexico:
General Partnership: A general partnership, or GP, consists of at least two owners, which can be either individuals or entities. Like a sole proprietorship, a GP is not a legal business entity that is formed with the state. Who controls the GP and how it’s managed can be outlined in a partnership agreement, but if there’s no partnership agreement, the partners generally share equal control and management rights. As with a sole proprietorship, the owners are subject to unlimited personal liability, meaning that their personal property can be seized to pay the liabilities and debts of the GP.
Limited Liability Limited Partnership: A limited liability limited partnership, or LLLP, is a type of limited partnership, or LP. An LP consists of at least one general partner and one limited partner. In most LPs, the general partners control and manage the LP, while the limited partners have very minimal control in running the business. In most states, the liability of the limited partners is limited to their financial investment in the LP, while the general partners are responsible for all of the liabilities and debt of the LP. However, all LPs formed in New Mexico are treated as LLLPs, meaning the liability of all partners, including general partners, can be limited.
Limited Liability Partnership: A limited liability partnership, or LLP, is a business entity that is a legal “person” separate from its partners. Each partner of the LLP is an individual or entity admitted to the LLP. All partners can actively manage the LLP, but the LLP should have a limited liability partnership agreement that defines the role of each partner. The liability of each partner can be limited to his or her respective financial contribution.
Many professional businesses with two or more owners choose to form an LLP or LLLP because like an LLC, they offer limited liability, “pass through taxation,” and flexibility. Each type of entity has legal and tax implications, so if possible, you should consult with an attorney and accountant to discuss your specific situation.
Resources for New Mexico Professional Business Owners
We also recommend contacting your profession’s state licensing board to discuss their requirements before forming an entity for the purpose of rendering professional services.
You can find information about many of New Mexico’s professional boards on the New Mexico Regulation and Licensing Department’s website. Contact information for some common professional regulatory boards in New Mexico is below.
|State Bar of New Mexico||5121 Masthead St NE|
Albuquerque, NM 87109
|New Mexico Medical Board||2055 S. Pacheco St.|
Santa Fe, NM 87505
|NM Board of Dental Health Care||Toney Anaya Building|
2550 Cerrillos Road, Second Floor
Santa Fe, NM 87505
|The New Mexico Public Accountancy Board||5500 San Antonio Dr. NE, Suite A|
Albuquerque, NM 87109
|New Mexico Board of Veterinary Medicine||7301 Jefferson Street NE, Ste. H|
Albuquerque, NM 87109