Texas Professional LLCs (PLLCs): Forming a Company for Licensed Professionals

Certain businesses in Texas that provide professional services (services that require a state license) must form a Professional Limited Liability Company (PLLC) rather than a regular LLC. A PLLC is a special type of LLC designed for licensed professions such as medicine, law, accounting, engineering, architecture, and others. If you are a licensed professional looking to form an LLC for your practice, here’s what you need to know about Texas PLLCs:

1. Who Needs a PLLC: In Texas, if your business will offer services that require a state license (for example, you are a doctor opening a private clinic, or a licensed architect starting a firm), you generally cannot operate under a standard LLC for those services. Instead, you form a PLLC or a Professional Corporation. Texas law defines which professions fall under this requirement, including physicians, dentists, lawyers, accountants, veterinarians, and more. The rule of thumb: if your occupation has a governing state board or licensing requirement for the practitioners, you likely need a PLLC.

2. Ownership and Membership Requirements: All members (owners) of a Texas PLLC must be licensed to provide the same professional service that the PLLC is authorized for. For example, a PLLC for a medical practice can generally only have licensed physicians (or professional entities of physicians) as members. You cannot have an unlicensed investor owning part of a PLLC for a law firm, for instance. Similarly, the PLLC’s managers or governing persons must usually be licensed professionals as well. These rules ensure that control of professional entities remains with licensed individuals who are subject to the ethical rules of the profession.

3. Forming the PLLC – Certificate of Formation: The formation process is similar to a regular LLC but uses a different state form (Form 206 – Certificate of Formation for a Professional Limited Liability Company). Key steps:

• Professional Purpose: On the Certificate of Formation, you must state that the LLC is a professional LLC and specify the professional service it will provide. The purpose might be, for example, “to practice dentistry” or “to provide legal services.”
• License Information: Some formation documents may require listing the professional license numbers or confirming that all members are duly licensed in Texas.
• Name Requirements: The name of a PLLC must comply with both the general naming rules for LLCs and any rules of the licensing board. It must include an appropriate entity identifier like “Professional Limited Liability Company,” “PLLC,” or “P.L.L.C.” (for example, Smith Dental PLLC). Additionally, certain words (like “Engineering” or “Law”) may require that at least one owner is licensed in that profession to use in the name.

File the Certificate with the Texas Secretary of State along with the filing fee ($300, same as an LLC). The Secretary of State does not verify your licenses at the time of filing, but they assume compliance – and your licensing board may require you to register the entity with them after formation.

4. Additional Steps After Formation:

• Notify/Register with Licensing Board: Many Texas licensing boards require that you register your PLLC or PC with them. For instance, the State Bar of Texas expects law firms to register professional entities, and the Texas Medical Board does similar for medical PLLCs. Check with your governing board; you might need to submit a copy of your formation documents or an application to the board.
• Malpractice Insurance and Liability: Forming a PLLC does not protect you from your own professional malpractice. You are personally liable for your negligence or errors in your professional work. However, it does protect you from liability for the malpractice of other owners or employees (you won’t be personally liable for your partner’s malpractice, for instance). Because of personal liability for malpractice, professionals often carry malpractice insurance. The PLLC does provide the normal LLC protections for general business debts and liabilities unrelated to professional negligence.

5. Management and Operations: A PLLC can be member-managed or manager-managed like a regular LLC, but all managers must typically be licensed professionals as well. Day-to-day, it operates like an LLC. You should draft an Operating Agreement that covers what happens if an owner’s license is suspended, revoked, or if they leave the practice – often, PLLCs must buy out any member who can no longer legally practice the profession.

6. Taxation: A PLLC is taxed the same as a regular LLC. It’s a flow-through entity by default (profits pass to owners’ personal tax returns). You can elect S-corp status if appropriate for potential tax savings on self-employment taxes, just as any LLC might (this doesn’t affect your professional status or compliance with licensing boards).

7. Compliance: Beyond normal business compliance (franchise tax filings, etc.), a PLLC must also remain in good standing with its licensing board. This means all professional licenses must remain active and in good standing. If a member loses their license, Texas law may require that the member be divested of ownership or the PLLC could risk losing its ability to provide those services. Thus, it’s crucial to update membership if any owner can no longer legally practice.

Forming a PLLC allows Texas professionals to enjoy the benefits of the LLC structure (flexibility, liability protection for business obligations, etc.) while adhering to the regulations of their profession. It’s an essential framework if you want to shield your practice’s business assets and separate personal and business liabilities (aside from malpractice).

If you’re a licensed professional considering a PLLC, ensure you meet all requirements and follow through with any necessary board registrations. We can assist with preparing the proper formation documents and guiding you through the process. Don’t hesitate to reach out for help in setting up your Texas PLLC correctly.