If you’re a professional looking to start your own business in Texas, you may be wondering what type of entity to form. But with so many types of business entities to choose from, it can be difficult to know which entity type will work best for your business needs and goals.
If the purpose of your proposed business is to provide professional services, a Texas professional limited liability company (PLLC) might be a great option for you.
Before starting a Texas PLLC, however, there are a number of things that you need to know. Let’s take a closer look at the different aspects of professional limited liability companies, and how to form one in Texas.
Who can form a PLLC in Texas?
Under Texas law, a PLLC is a particular type of limited liability company (LLC) that is formed by one or more professional individuals for the purpose of providing a professional service. Specifically, a “professional individual” is defined as one who is “licensed to provide in this state or another jurisdiction the same professional service as is rendered by that professional entity.”
A professional service is one that requires obtaining a license in the State of Texas before services can be rendered. Examples of professional services include those provided by:
- Certified public accountants
- Public accountants
Only licensed professionals who provide professional services may own and operate a Texas PLLC. However, this does not prohibit PLLCs from employing non-licensed individuals, such as nurses, clerks, secretaries, technicians, bookkeepers, or assistants, who may provide services in connection with the PLLC.
If you are not a professional looking to form a standard LLC, check out our Texas LLC formation service.
Choose a name for your Texas PLLC
According to state law, the name of a Texas professional limited liability company doing business within the state must contain one of the following phrases or abbreviations:
- Professional limited liability company
Complying with this requirement is crucial, as doing so puts consumers on notice that the business provides professional services.
Additionally, it’s important to note that you can’t select a name that is similar to or already in use by another business entity currently operating in Texas. If your preferred name is already being used by another business entity, you will have to think of potential alternatives. However, if your name is available, you’re ready to move forward.
As you prepare to take the next steps, you can use ZenBusiness’s name reservation service to help reserve your preferred business name with the state to prevent another entity from taking it in the meantime.
We also offer domain name registration services to help you secure and register your desired domain name. That way, you can establish a website, email address, or advertisements to start promoting your business while you get everything else sorted out.
Select a Texas registered agent
Texas law requires all Texas business entities, including PLLCs, to designate and maintain a registered agent within the state. This registered agent can be an individual or an entity and must be available at the registered office address during normal business hours to accept service of process, notice, or demand on behalf of the business.
Because registered agents are so vital to keeping your business compliant, you should designate someone trustworthy and reliable as your Texas registered agent. ZenBusiness offers a registered agent service and can connect you with a qualified Texas registered agent. Now, you can stay focused on running and managing your business.
Complete and file a Certificate of Formation for your Texas PLLC
The Certificate of Formation is the document you will file that formally creates your Texas PLLC. The Certificate of Formation is referred to in some jurisdictions as the Articles of Organization, and in fact, Texas law previously referred to the certificate of formation as the Articles of Organization as well.
According to Texas law, these terms are synonymous, and a reference to “Articles of Organization” in an entity’s governing documents in place of “Certificate of Formation” will still comply with Texas law. Nevertheless, it’s still best to use the most current terminology as you form your Texas PLLC.
A Certificate of Formation for a Texas PLLC must contain:
- The entity name and type
- The registered agent name and address
- The names and addresses of all initial members and any managers if the PLLC will be manager-managed rather than member-managed
- The type of professional service to be provided by the entity
The Certificate of Formation becomes effective when accepted by the Secretary of State. Once you complete and file your Certificate of Formation, you’re ready to take the next step with your Texas PLLC.
Create a Texas company agreement for the PLLC
Now you’re ready to complete your company agreement, sometimes referred to in other jurisdictions as an “operating agreement.” This document governs things such as:
- The relations among members, managers, and employees of the company
- Assigning membership interests in the company
- How the company functions
- Instructions for resolving conflicts between members
- Buy-sell clauses for the partial or wholesale transfer of LLC membership rights
- Actions that trigger dissolution of the PLLC
- Dissolution instructions
Texas does not require PLLCs to have a company agreement. Nevertheless, having one is almost always recommended.
Handle your Texas PLLC tax obligations
Texas PLLCs have to stay up to date on their taxes to maintain good standing with the state and the IRS.
Federal Tax Requirements
Typically, PLLCs benefit from what is referred to as “pass-through” taxation. This means that the business entity itself does not pay taxes to the federal government. Rather, income for the business is taxed at the individual level and paid on the tax returns of the PLLC members.
State and Local Tax Requirements
At the state level, Texas PLLCs are subject to a state franchise tax. Additionally, depending on the specific location of your PLLC, your business may be subject to certain taxes at the local municipality and county level.
Obtain Texas business licenses and permits
Due to the nature of professional limited liability companies, it’s imperative that every member of your PLLC stays up to date on their professional licenses.
There is no general business license required by the state to operate a PLLC in Texas. Nevertheless, certain regulatory or industry-specific licenses and permits may be required at the federal, state, and/or local level depending on the type of services you intend to provide.
Because there is no central database available to help you determine what permits and licenses you may need to run your business, it’s ultimately your responsibility to know and obtain any such licenses or permits that may be necessary.
However, ZenBusiness can help you get started. Based on your activities, industry, and business location, we can provide you with a report listing the licenses and permits your business may need to operate.
Acquire insurance for your Texas PLLC
Before you engage in business operations, it’s highly recommended that you obtain insurance for your Texas PLLC.
Most states require all businesses with employees to carry workers’ compensation insurance coverage. The State of Texas, however, does not require employers to carry workers’ compensation coverage in most cases. Nevertheless, obtaining such insurance is strongly recommended to cover medical expenses, lost wages, and disability compensation for employees who are injured on the job.
Other types of insurance coverage you might consider obtaining include:
- General business liability insurance
- Malpractice insurance
- Other industry-specific insurance that may exist
These types of insurance may not be required by law. However, obtaining such coverage can be a great way to better protect your Texas PLLC from various types of claims and legal disputes that can put your business and its assets at risk.
Open a bank account for your Texas PLLC
Finally, you’re ready to open a business bank account for your Texas PLLC. Importantly, this business bank account needs to be separate and distinct from any personal bank accounts you or any other PLLC members have.
To open a business bank account, you will need to obtain what is called an employer identification number (EIN) from the IRS. An EIN is similar to a social security number for individuals. Having your EIN allows the IRS to more easily identify your business entity and will permit you to complete important tasks for your business like opening bank accounts.
Need help securing an EIN for your Texas PLLC? ZenBusiness can help you obtain an EIN and take another tedious task off of your plate.
Need someone to take care of more items on your already lengthy to-do list?
At ZenBusiness, we offer a number of valuable services to assist you in running and maintaining your Texas business entity. For example, ZenBusiness can help you:
- Reserve a business name
- Find a registered agent
- Apply for an EIN
- Secure a business domain name
- Stay compliant with state filing requirements
Don’t get bogged down in the many details of starting and growing a business. ZenBusiness can provide you with the assistance you need so that you can get back to what you do best — running your business.
Texas PLLC FAQs
- What are the filing fees for a Texas PLLC?
There are various fees that may be required to form and maintain a Texas PLLC. These fees are subject to change, so visit the Texas Secretary of State fee schedule for the most up-to-date fee information.
- Do I need a lawyer to form a Texas PLLC?
There is no legal requirement stating that you must have a lawyer to form a Texas PLLC. Nevertheless, it’s a good idea to discuss any questions you may have about legal obligations or consequences with a licensed Texas attorney.
- Does Texas have a professional corporation (PC) entity?
Texas does allow the formation of a professional corporation (PC), which is another type of professional entity. Texas also permits the formation of a professional association (PA) entity.
- Can professionals from different fields form a Texas PLLC together?
Many states don’t permit professionals from different fields to form a professional LLC together. However, Texas does permit joining practice by certain professionals. For example, doctors of medicine and doctors of osteopathy may jointly form and own a PLLC. For a full list of permissible joint practices, visit sos.state.tx.us.
- How will I be taxed as a Texas PLLC?
The default taxation format for a Texas PLLC is pass-through taxation. That means that the business itself will not be taxed, but the profits of the business are taxed on the members’ individual income tax returns. You can elect to change the default, but don’t do so without first speaking with a certified tax professional.