Texas Professional Corporation: Everything You Need to Know
A Texas professional corporation is a standard corporation, but it consists of a group of a specific type of professionals, and it uses PC after the name.3 min read
2. Steps for forming a PLLC include:
3. Differences Between PCs and PLLCs
Updated July 29, 2020:
A Texas professional corporation is a standard corporation, but it consists of a group of specific types of professionals, and it uses the PC after the name. Law firms commonly form professional corporations. Owners have to be licensed in the same profession, and the State requires that members get the approval of the governing organization for the specific profession, like the state bar or state medical licensing board, in order to form a professional corporation.
Some states do not allow certain professionals to form an LLC. Texas doesn't allow patent agents, landscape architects, or financial planners to form professional corporations.
Owners have limits on personal liability for business claims and debts of professional corporations. Incorporating won't protect you as a professional from your own negligence or malpractice, but it will protect you against liability for the malpractice or negligence of a colleague in the corporation. If your profession falls under the ones not allowed by Texas law, you can form an LLC as an alternative, which will also provide some limited liability protection.
A PLLC is a limited liability company that is formed by a specific group of people who will provide licensed professional services in Texas. In Texas, professional service is offered by:
- Certified Public Accountants (CPAs)
- Public Accountants
Under Texas law, professional service is defined as any service that requires the provider to have a license prior to rendering the service. Any licensed professional in Texas can form a PLLC.
Steps for forming a PLLC include:
- Get a copy of the state license for each professional who will be part of the company
- Verify with the Texas licensing board for your profession on whether prior approval is required. If so, you will need documentation showing you received the approval.
- You need to file a certification of formation, which is done with the Texas Secretary of State.
A PLLC in Texas must include the phrase “professional limited liability company” or an abbreviation like PLLC after its name. PLLCs can only have professionals who render one type of professional service. To understand more about PLLCs in Texas, look at Texas's Business Organizations Code Title 7, Chapter 301, or speak with a Texas business attorney.
Professionals who form a PLLC will receive some personal liability protection from:
- Liability for the malpractice of another PLLC member, which is known as ‘vicarious liability'
- Creditors who are looking to collect unpaid debts that are the sole responsibility of the PLLC
- Anyone who is personally injured associated with your PLLC because of circumstances that have nothing to do with professional malpractice or some other tort, like a slip and fall at your office.
Verify whether you need a minimum amount of malpractice insurance before you are protected under a PLLC. PLLCs do not protect you personally from:
- Guaranteeing repayment of business debts or loans
- Engaging in professional malpractice
- Intentionally or negligently committing a tort, like assault or battery
The PC is jointly and severally liable — not the individual officers, directors, and shareholders —along with the employee, officer, or agent who is rendering professional services and commits an act of negligence, malfeasance, or professional error, provided this individual was acting in the course and scope of his employment for the PC.
Texas has both a Professional Corporation Act and a Business Corporation Act. In the event they are in conflict when a PC is involved, the Professional Corporation Act is the controlling law.
Differences Between PCs and PLLCs
PLLCs and professional corporations are different in many ways:
- Like other LLCs, PLLCs have members whereas PCs are like corporations with shareholders. PLLCs have membership interests in the company, and PC ownership is based on how many shares of stock each person owns.
- PLLCs are pass-through tax entities like LLCs, so in most states (Texas excluded) only individual members pay income tax. PCs pay income tax at the corporate level.
Differentiating between a PC and PLLC for tax purposes can be complicated in Texas. Texas is one of only a handful of states that requires most LLCs to pay a franchise tax. In addition, a PC has to option to elect S corporation status that also makes it a pass-through entity, similar to a PLLC. A PC who doesn't elect S corporation status will pay tax on business income at the business and personal levels, which is known as double taxation.
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