What is a professional corporation (PC) in Texas? A Texas professional corporation is a single entity whose owner or owners are known as “shareholders” and its managers are “directors.” The entity provides services related to the professions of its owners.
Is a Texas professional corporation structure right for you?
Only licensed professionals can form a Texas PC. Some examples include accountants, attorneys, doctors, engineers, and dentists. To find a full list of eligible professions, search for the professional entity chart on the Texas Secretary of State’s website. If you are looking to form a professional entity in Texas, answer these questions first.
- Do I want a company that’s liable as an entity, rather than me being personally liable for its actions?
- Do I want a more formal organization for operating the business?
- Do I want to easily transfer the company’s ownership without changing its structure?
If your answer to these questions is yes, then forming a Texas PC is worth considering. However, you should remember that a PC won’t protect you from all liabilities, such as fraud. You might also consider a professional limited liability company (PLLC). This structure offers more flexibility, and also offers a level of personal liability protection, just as a PC does. If you are in the healthcare field, Texas also offers a unique type of professional entity known as a professional association. However, this only applies to medical and other related healthcare practices.
If you have decided on the PC structure, it’s time to consider how to start a PC in Texas. The rest of this guide will take you through the necessary steps.
Choose a name for your Texas professional corporation
There are restrictions on company names. Firstly, it must be distinguishable from other business names filed in the state. You can check with the Texas Secretary of State to see if your desired name is available. Once you find one that fits, you have the option to reserve while you’re getting your paperwork in order by paying a fee and completing an application with the Secretary of State, or ZenBusiness can handle this task for you.
Secondly, your PC must contain “professional corporation” or its abbreviation. Texas is one of the more restrictive states when it comes to naming business entities. If your business has an assumed name, you’ll need to file it with the county clerk in each county where the PC has premises.
If you’ve found your entity name and are looking to start operations, consider a related domain name to establish an online presence. You can register your PC’s domain name for your website with help from ZenBusiness.
Select a Texas registered agent
A registered agent is a person or entity that accepts legal notices as well as correspondence from the Secretary of State on behalf of the PC. These can include things like subpoenas. The registered agent must have a physical location in Texas and must always be present there during normal business hours. Additionally, the agent must be registered with the Office of the Secretary of State.
You can be your own agent, or ZenBusiness’s registered agent services can help you locate and choose an agent to relieve you of the burden of constantly being required to be in your office.
Complete your Texas Certificate of Formation
A Certificate of Formation is a form that you must complete and file with the Texas Secretary of State. The document details the company’s structure. This will include its:
- Corporate name and organizational designation
- Name and address of the registered agent
- Names of the director or directors
- Number of shares in the PC
- The value assigned to each share
- The type of professional service the PC will offer
The form must be signed by the organizer, a person who has the capacity to act for the professionals forming the PC. The organizer doesn’t need to be a resident of Texas or licensed to perform the role.
Establish a corporate record
All PCs should establish a method to keep a complete and up-to-date library of corporate records. They can be used as supporting documents in potential legal challenges and for audits. The records typically include:
- A copy of the Certificate of Formation and bylaws
- Transaction receipts
- Bookkeeper ledgers
While you can certainly keep a physical record of all corporate documents, these days it is much easier to use a cloud-based or other digital storage system.
Designate a Texas professional corporation board of directors
Your PC will need a director or directors to govern the business and appoint corporate officers. These must include a president and a secretary to manage its day-to-day activities.
Create Texas corporate bylaws
Corporate bylaws dictate how the PC will operate, states who holds which powers and duties, details methods of conflict resolution within the company, and more. Essentially, bylaws detail the basic rules that govern how your business should be run. Typical details include:
- The times and dates of meetings
- Establishment of the board of directors
- Identification of the corporate officers and committees
- Any other services/provisions you think are necessary
You should keep the bylaws in your corporate headquarters with other business documents. There’s no requirement to file the corporate bylaws with the Secretary of State.
Hold the first board meeting
Your PC’s first board meeting should address the factors involved in establishing the PC. These typically include adopting all corporate documents, such as the bylaws and the Certificate of Formation. Additionally, the first shares should be sold and issued to the original shareholders.
The following board meeting should be used to elect and confirm the board of directors and appoint the corporate officers. The corporate secretary should record the minutes of the meeting, file them in the corporate records, and distribute them to the attendees.
Handle Texas tax obligations
A PC is normally taxed as an entity known as a C corporation. However, if it qualifies, it can elect to file as an S corporation with the IRS. This avoids the “double taxation” experienced by C corporations, which are taxed at the business level and again at the personal level when profits are distributed to shareholders.
Texas has no corporate income tax or personal income tax, but your corporation will be required to pay the Texas franchise tax. If your corporation makes less than the threshold amount ($1.18 million in 2021), no tax is due. The sales and use tax rate is 6.25%, which the PC must collect on behalf of the state.
In addition to state taxes, you may also have to collect local sales and use taxes of up to 2%. The amount is determined by where you do business.
Obtain all Texas business licenses and permits
The types of licenses and permits your business will need depends on the nature of your work and its location. If you’re worried about missing a license or permit, let us help you with our business license report service. Our partners will provide a list of every license and permit you need to operate your business legally.
Acquire insurance for your Texas professional corporation
Licensed professionals should always have liability insurance. In some professions, it’s a prerequisite to gaining a license. It’s strongly recommended that PCs carry general insurance against claims of liability. Additionally, it may choose to carry workers’ comp insurance, although the state doesn’t demand this.
Open a business bank account
One of the first acts that takes place in the initial corporate meeting is setting up a business bank account. Not only does the account add legitimacy to the business, but it also ensures separation of the PC’s income from the personal accounts of its shareholders.
Ready to kick-start your business?
At ZenBusiness, we are proud to support small businesses through a variety of different tools and services. Whether you need a registered agent service, want to reserve a business name, or are looking to register a domain, our goal is to help you stay on the road to success. Check out our services and contact us today to see how we can help you grow your company.
Texas Professional Corporation FAQs
What are the filing fees for a Texas professional corporation?
The Certificate of Formation costs $300.
Do I need a lawyer to form a Texas professional corporation?
Although it’s not a legal requirement, employing a local attorney with experience when setting up a PC is strongly recommended.
Does Texas have other professional entity types?
Yes. A professional limited liability company (PLLC) is a company formed by one or more licensed professionals. Healthcare-based professions can form a professional association (PA).
Can professionals from different fields form a Texas professional corporation together?
No. Only licensed professionals in the same profession can form a PC.