How to Form a Professional LLC in Texas

Here are the basic rules for forming professional limited liability companies in Texas.

By , Attorney

As a licensed professional in Texas, you can structure your business as a Texas professional limited liability company (PLLC). This will give you protection from several important types of liability. It also may provide certain tax advantages compared to other ways of structuring your business.

What Is a Texas PLLC?

A Texas PLLC is a limited liability company (LLC) formed specifically by people who will provide Texas-licensed professional services. LLCs in general are businesses registered with the state that consist of one or more people—called LLC members—who own the business. Like other LLCs, PLLCs protect their individual members from people with claims for many (but not all) types of financial debts or personal injuries.

What Is a Professional Service?

Under Texas's professional entities law, a professional service is a service provided by:

  • architects
  • attorneys
  • certified public accountants
  • dentists
  • physicians
  • public accountants,
  • or veterinarians.

More generally, the law defines a professional service as any type of a service where you are required to obtain a Texas state license before rendering the service. Anyone who is licensed to render a professional service can form a Texas PLLC. If you're unsure whether your Texas-licensed profession is considered a professional service for the purpose of forming a PLLC, check with a local business attorney.

How Do I Form a Texas PLLC?

To form your Texas PLLC you'll need to:

  • have the state license for each professional who will be a member of the company
  • check with the state licensing board for your profession to see if its prior approval is required, (and, if so, obtain the necessary documentation showing that approval), and
  • file a certificate of formation with the Texas Secretary of State (SOS).

You can download a blank certificate of organization form (Form 206) by going to the SOS website. The form—which includes helpful instructions—is specifically for PLLCs (as opposed to regular LLCs). You can also file online at the Secretary of State's SOSDirect website. The current filing fee is $300.

Naming Restrictions

A Texas PLLC must contain the phrase "professional limited liability company" or an abbreviation of that phrase. For additional important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Membership and Service Restrictions

All members of a Texas PLLC must be licensed to provide the professional services offered by the PLLC. The default rule is that a PLLC will provide only one kind of professional service. However, Texas law allows PLLCs to provide certain specified combinations of professional services. This includes an array of health care professions. For more details on combining professional services, check Title 7, Chapter 301 of Texas's Business Organizations Code (covering professional entities) or talk with a local business attorney. And, finally, remember that Texas PLLCs and/or their members are subject to the regulation of the relevant state professional licensing authorities.

Operating Agreement (Company Agreement)

You should make sure you have an operating agreement for your PLLC. (Unlike most other states, Texas statutes refer to this document as a "company agreement.") Unlike professional licenses, articles of organization, naming restrictions, and service restrictions, this is not a state requirement. However, it is important to have an operating agreement so that other members of the PLLC (if any), as well as outside companies and businesses (for example banks), know what the internal rules are for the company. Depending on your own level of knowledge and expertise, you should consider having a lawyer assist you in preparing this document.

A PLLC Will Not Protect You From All Liability

Forming your professional service business as a PLLC will protect you personally from:

  • creditors seeking to collect unpaid debts owed solely by the PLLC
  • liability for the malpractice of other PLLC members (technically known as "vicarious liability"), and
  • people who are personally injured in connection with your PLLC because of things having nothing to do with your own professional malpractice or torts (for example, if someone slips and falls in your PLLC's offices).

Regarding protection from liability for the malpractice of fellow PLLC members, be aware that, for some professions in some states, PLLC members are required to have a minimum amount of malpractice insurance before they are eligible for such protection. Therefore, it's always a good idea to double-check your state's PLLC laws, as well as your state's rules for your particular profession, regarding minimum insurance requirements.

Meanwhile, you are personally responsible if:

  • you personally guarantee repayment of a business loan
  • you engage in professional malpractice (such as completely botching a patient's treatment or egregiously mishandling a client's case), or
  • you intentionally or negligently commit a tort (such as assaulting someone).

Because you are not protected from your own malpractice, you should make sure you have professional liability insurance—and, if applicable, that your coverage meets any minimum insurance requirements.

A PLLC is Different From a Professional Corporation

A PLLC is not the same thing as a professional corporation (PC). A PLLC is a newer type of business entity than a PC. Here are some of the key differences:

  • a PLLC, like other LLCs, is comprised of members, but a PC, like other corporations, is comprised of shareholders
  • following from the previous point, PLLC ownership consists of so-called membership interests in the business, but PC ownership is based on shares of stock; and
  • a PLLC, like other LLCs, is a so-called pass-through tax entity, meaning that in most states (though not Texas) only the individual members have income tax obligations, while a PC, like other corporations, usually has its own income tax obligations.

The tax differences between PLLCs and PCs can become complicated. Unlike most other states, Texas imposes a franchise tax on most LLCs. (More information on this tax is available in other Nolo LLC articles.) Moreover, a PC can elect a special tax status (S corporation status) that effectively makes it a pass-through tax entity like a PLLC. And, meanwhile, PCs that don't elect special status may be subject to double taxation—in other words, both the PC itself and its shareholders may have to pay taxes on business income.

Texas allows professionals to form both PLLCs and PCs, and both PLLCs and PCs provide liability protection for, respectively, their members or shareholders. Because the protection is essentially the same for both PLLCs and PCs, but PLLCs are simpler to create and operate, many professionals prefer the PLLC structure.

Additional Information

For more information on the requirements for forming and operating an LLC in Texas, such as those relating to annual reports and taxes, see Nolo's articles in 50-State Guide to Forming an LLC and 50-State Guide to Annual Report and Tax Filing Requirements for LLCs, along with the other articles on LLCs in the LLC section of the Nolo website.

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