Are you looking to form a professional limited liability company (PLLC) in Texas, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Texas PLLC that is compliant and able to do business in the state.
What is a Texas Professional LLC?
The professional limited liability company (PLLC) is a specialized type of LLC that is intended for licensed professionals to offer their unique services. In Texas, a PLLC can be formed to render any type of service that requires a license in Texas, such as services rendered by architects, attorneys, certified public accountants, dentists, physicians, public accountants, and veterinarians.
The Texas PLLC is typically more popular than a professional corporation (PC) because it’s a more flexible business type, but it still includes the personal asset protection and professional qualifications that make the PSC valuable.
PLLCs in Texas have relatively simple formation and maintenance requirements, several options for how they want to be taxed, and flexible management. From one-person businesses to multi-member PLLCs with several owners, the PLLC is a popular choice for a reason.
An important detail of the PLLC that differs from a traditional LLC is that liability protection is not shared across all members of the company. For example, if you operate a PLLC for physicians, your business structure does not shield each individual member from malpractice suits. Instead, each member is liable for their own malpractice insurance, and no member is liable for another member’s malpractice.
Forming a PLLC in Texas (in 6 Steps)
Step One) Choose a PLLC Name
Your PLLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In Texas, the name of a professional limited liability company must contain the phrase "professional limited liability company" or an abbreviation of that phrase. The name may not contain any word or phrase that indicates or implies that the PLLC is engaged in a business that the PLLC is not authorized by law to pursue.
Another aspect to consider is including language that explains what your business does. For example, if you’re a doctor, put the word “physician” or the initials “MD” in your PLLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your PLLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming a PLLC is to not get too attached to any one business name until you know that it is available for use. To check if a name is available, you can conduct a search through the Texas Secretary of State’s SOSDirect website for a fee of $1.00, call the Secretary of State’s Corporations Section at (512) 463-5555, or e-mail your name inquiry to the Corporations Section at email@example.com. If you’ve chosen a name but aren’t yet ready to form your PLLC by filing the Certificate of Formation as described below in Step Three, you can reserve the name for 120 days through the SOSDirect website. The reservation fee is $40.
Step Two) Designate a Registered Agent
Every PLLC in Texas is required to designate a registered agent, which is the individual or business entity that receives government correspondence on behalf of your business, then forwards those documents to you.
In Texas, your PLLC’s registered agent can generally be any individual Texas resident or an organization that is registered or authorized to do business in Texas with a business office at the same address as your PLLC’s registered office. An officer, owner, or employee may serve as the registered agent, but your PLLC cannot serve as its own registered agent. The Texas Secretary of State, or other governmental agency or authority, also cannot serve as your PLLC’s registered agent.
Without a registered agent, you could lose your good standing with the state of Texas, and the state also has the right to dissolve your PLLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
At the end of the day, we recommend hiring a dedicated registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
Step Three) File Formation Documents with the State
Once you are ready to form your Texas professional limited liability company, you will fill out the Certificate of Formation.
This is THE document that will register your PLLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Name of your PLLC
- Name and business address of your PLLC’s registered agent
- Whether your PLLC will be member-managed or manager-managed, and the name and address of each governing person
- Type of professional service to be rendered by your PLLC
- Any other provisions agreed to by the members
- Name and address of the organizer
- Effectiveness of the Certificate of Formation
- Signature of the organizer
The Certificate of Formation can be filed online through SOSDirect, by mail, in person, or by fax.
Cost to Form a PLLC
The filing fee for the Certificate of Formation in Texas is $300. Expedited service is available for an additional $25 fee.
Non-expedited filings are generally processed within 5-7 business days. Expedited filings are generally processed by close of business on the first business day following the date of receipt. Note that these estimates are subject to change based on staffing, resources, and workload, and assume that your Certificate of Formation is filled out correctly at the time of submission.
Step Four) Create an Operating Agreement
After you register a PLLC in Texas, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for a copy of this document. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your operating agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your operating agreement, or you can create one from a free template online. You can read more about operating agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the PLLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
The vast majority of PLLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important PLLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
Most businesses in Texas are subject to a franchise tax for the privilege of doing business in Texas. Your PLLC may also be subject to sales tax or other state taxes based on the nature of your PLLC’s business. Information about the various state taxes in Texas is available on the Texas Comptroller’s website.
Depending on where in Texas your business is located, you may also need to pay some local taxes. You should be sure to contact your local tax authorities to confirm your PLLC’s obligations. If your PLLC does business in one of the four largest cities in Texas, the following websites may be helpful: Houston, San Antonio, Dallas, and Austin.
Step Six) Obtain Business Licenses and Permits
A general state business license is not required in Texas. However, other permits, licenses, or registrations may be required for your PLLC based on its industry or business activities. The Texas Department of Licensing and Regulation, or TDLR, oversees certain occupations and businesses in Texas.
A list of licenses regulated by TDLR is available on its website. It’s also a good idea to check with the regulatory body of your profession as well as your city and county to confirm your PLLC has obtained all necessary licenses, permits, or registrations.
Would You Prefer a Professional Form Your PLLC?
If you would prefer to have a professional handle the paperwork for you, consider hiring an online business formation service.
Because of the often-complex nature of professional limited liability companies, some of our favorite service providers don’t offer PLLC formations, but there are still plenty of quality companies that do provide this service. A couple of our favorites for PLLC formation are LegalZoom and MyCorporation.
Another option would be to hire a business attorney to handle your PLLC formation. While this is certainly a more expensive route than using an online formation service, a lawyer’s expertise could come in handy when you’re forming a specialized business structure like this.
Next Steps: What to Do After Creating a PLLC in Texas
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Texas generally does not require any type of insurance for businesses in the state. Note, however, that some private employers that contract with governmental entities must provide workers’ compensation for employees working on the project. You can learn more about workers’ compensation in Texas on the Texas Department of Insurance’s website. Though not required, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies pertaining to the profession practiced by your PLLC.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year.
You will need to report your PLLC’s income on a federal tax return, and you will also need to file an Annual Franchise Tax Report in Texas by May 15 of each year. Texas does not have an income tax, but note that if a member of your PLLC resides in another state, they may be subject to income tax and income reporting in that state as well.
Understand annual reporting
As noted above, your PLLC will need to file an Annual Franchise Tax Report. This report is similar to a tax return, but it also includes a Public Information Report, which helps keep your PLLC’s information on file with the State of Texas up-to-date. Your PLLC will not be required to file an Annual Report with the Texas Secretary of State.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to best manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.