How to Form a Professional LLC in Texas (Simple Guide)

What Is a Professional Limited Liability Company?

For the most part, professional limited liability companies are quite similar to standard LLCs, and they share many of the same benefits.

In general, an LLC is a business entity type that brings together some of the most popular attributes of casual entities, like sole proprietorships and general partnerships, with the formality of corporations. The resulting entity is one that is highly flexible and customizable, while also providing some great benefits to its owners.

The factor that differentiates a PLLC from a standard LLC is that the PLLC is strictly for licensed professionals to operate their businesses with other licensed professionals. In most states, there is a relatively short list of professions that should form a PLLC, but Texas presents an incredibly long list that seems to encompass every profession imaginable.

In Texas, the types of professionals who form PLLCs include accountants, acupuncturists, anesthesiologists, architects, athletic trainers, attorneys, audiologists, chemical dependency counselors, chiropractors, licensed counselors, dental hygienists, dentists, embalmers, EMS personnel, engineers, equine dentists, funeral directors, geoscientists, hearing aid distributors, real estate inspectors, insurance agents, investment advisors, locksmiths, marriage and family therapists, massage therapists, medical physicists, physicians, mental health professionals, midwives, mold assessors, mold remediation professionals, mortgage brokers, nurses, occupational therapists, optometrists, orthopedics, perfusionists, pharmacists, physical therapists, physician assistants, podiatrists, polygraph examiners, private investigators, private security guards, prosthetists, psychiatrists, psychologists, psychotherapists, radiologists, medical radiology technicians, real estate agents and brokers, respiratory care therapists, professional sanitarians, securities brokers, social workers, speech pathologists, sports medicine practitioners, surveyors, and veterinarians.

The state of Texas is quite strict regarding who can be a member of a PLLC, as only professionals certified in the same professional service provided by the PLLC can own shares in the business. Some other states only require half of all members to be certified, but that’s not the case here.

Let’s discuss a couple of the attributes that make the PLLC such a popular option for these professionals.

Limited Liability

A big benefit of a professional limited liability company is its ability to provide personal asset protection to its owners/members. Let’s say you operate a general partnership instead of a PLLC. If your business is sued, your creditors can pursue your personal assets to satisfy the lawsuit. This means your house, car, personal bank accounts, and personal possessions are all fair game.

However, for PLLC owners, this isn’t the case. Instead, creditors can only pursue the assets of your actual business. It’s important to note that this doesn’t defend your PLLC from malpractice suits. For example, if you are a member of a PLLC for doctors and you botch a surgery, the PLLC will not protect you from the patient filing a malpractice suit.

Taxation

One of the main benefits of the PLLC is the fact that it gives its owners some options regarding how they want to be taxed. While a professional corporation also gives you choices regarding taxation, to an extent, the PLLC is much more flexible in this regard.

You can choose to have your PLLC taxed as a pass-through entity (similar to sole proprietorships or general partnerships), which means that your PLLC itself will not owe taxes. Instead, your profits and/or losses will “pass through” your PLLC to your owners, who will then pay taxes on that money on their own personal returns.

Another option is to be taxed like a C corporation or an S corporation. C corporation taxation is the most common form of taxation for corporations, but as this tax structure leaves its owners subject to double taxation (wherein the same money is taxed both at the corporate level and the individual level), it’s not a popular option for PLLCs.

The S corporation is a similar form of taxation to the pass-through method but avoids the self-employment taxes that come with partnership or sole proprietorship-style taxes. While this can save you some money because you won’t have to pay both the employer and employee portions of Medicare and Social Security, people who choose this form of taxation should be careful to ensure they’re still paying enough into Social Security to be able to draw from this entitlement when they retire.

How to Form a Texas Professional Limited Liability Company

Each state has its own method for forming PLLCs, as there is no uniform nationwide formation process. In Texas, the formation process for a PLLC is similar to the process for a standard LLC, but there are some crucial differences.

Step 1 – Name Your PLLC

The first step is to choose a business name. Texas requires that the name of every PLLC registered in this state must contain the words “Professional Limited Liability Company” or the abbreviations “P.L.L.C.” or “PLLC.” There are also some additional naming requirements for certain types of businesses, like dentists, accountants, attorneys, engineers, architects, and surveyors. Learn more about those rules here.

In addition to the legal requirements, there are also some practical applications to discuss. Generally speaking, your business name should indicate what your PLLC does. For instance, if you operate a PLLC for attorneys, you should probably have either the words “attorneys” or “lawyers,” or the phrase “law office” in your business name.

When you’ve come up with a name you like (we suggest making a list of 3-4 name ideas, in case your first choice is already taken), you should perform a name search on the Comptroller of Public Accounts website. If you’d like more information about LLC name searches in this state, check out our guide.

Step 2 – Designate a Registered Agent

Every PLLC operating in the state of Texas is required to have a registered agent who acts as a middleman between your business and the state. The registered agent’s role is to accept important document deliveries from the state — especially service of process — inform you of the delivery, and then forward the materials on to your business.

There are quite a few options when it comes to who can serve as your registered agent in this state. You can hire a registered agent service, designate a trusted friend or family member, or even serve as your PLLC’s own registered agent yourself. However, we typically advise against serving as your own registered agent because you would need to be available during all standard business hours in case the state needs to make a delivery.

If you choose to use an online formation service to create your PLLC, you may be able to get a full year of registered agent service for free. If you’re interested in this option, we recommend Northwest Registered Agent or IncFile, our two favorite services for PLLC formations.

Step 3 – File Your Certificate of Formation

Next, you’ll need to fill out a formation document known as the Certificate of Formation — Professional Limited Liability Company.

Among the information you’ll need to complete this form is the name of your PLLC, the name and address of your PLLC’s registered agent, whether your PLLC will be managed by its members or by a manager, the names and addresses of your PLLC’s members and/or managers, the type of professional service to be provided by the PLLC, the name and address of the PLLC’s organizer, the effective date of the formation, and a signature.

When you’re ready to file these forms, you can submit them to the Secretary of State by mail, by fax, online, or in person, along with your $300 filing fee. Online filings are typically processed immediately, while documents submitted any other way take at least one business day to process.

Step 4 – Create an Operating Agreement

An operating agreement is a crucial part of any PLLC, as this internal document outlines your company’s financial structure, as well as how the business will be managed. You don’t actually need to submit this document to the state, but it is still strongly recommended that you have one because it can help you avoid conflicts between your member/owners down the line.

What information should be included in your Texas operating agreement? It’s up to you to determine what you want in your company’s agreement, but we recommend the following sections:

• Ownership interests
• The rights and responsibilities of the members
• Voting rights
• Profit/loss allocation
• Management by a manager or by members
• Guidelines for voting and holding meetings
• Plans for replacing a member, if necessary

Step 5 – Obtain an EIN

A federal tax ID number — also known as an Employer Identification Number (EIN) — is essentially the business equivalent of a Social Security number. It’s a nine-digit number that serves as an identifier for your specific business entity.

If you operate a PLLC, you should absolutely get an EIN for your business, as this will help you pay taxes, hire employees, open business bank accounts, and more.

Thankfully, acquiring an EIN is a painless process, and it’s also entirely free of charge. All you need to do is head over to the EIN Assistant on the IRS website and fill out the form. It’s just that easy — once you finish the form, the IRS will provide your EIN immediately.

Step 6 – Apply for Licenses, Taxes, and Income Reports

At this point, your PLLC has been successfully created, but that doesn’t mean the process of getting your business off the ground is complete. You still need to acquire any applicable business licenses that may apply to your PLLC.

Depending on the nature of your business, your professional licenses will vary, so you should check out the state’s convenient and comprehensive guide to licenses and permits to figure out which licenses you’ll need.

You will also need to register your PLLC for franchise taxes and sales and use tax with the Comptroller’s office, as well as registering for unemployment insurance tax with the Texas Workforce Commission.

In Conclusion

Forming a professional limited liability company in the state of Texas requires quite a bit of information, and there can be a significant amount of legwork involved in forming one as well. Still, the process is certainly simpler than the process of forming a professional corporation, which is the other popular option for certified professionals in Texas.

As long as you follow the steps in this guide — and seek advice from a reputable attorney if you run into any questions or concerns — you should be able to form your new PLLC in a compliant fashion that allows your business to thrive for many years to come.