- Identify your professionally licensed founding members.
- Draft your Operating Agreement
- File your Articles of Organization and Professional Licenses
- Obtain your EIN and open your accounts
Formation for Professional Limited Liability Companies in Texas is much the same as the Formation of a regular LLC. There a couple of requirements that stand out for those that looking to form PLLCs, however, and we’ll make sure to cover those specifically.
1. Identify your professionally licensed founding members and managers.
The founding member of a PLLC in Texas must be a professional licensed to perform the “professional services” that the PLLC offers. In fact, all members and managers of the PLLC MUST be licensed to perform those professional services. This does not prevent the business from later employing individuals in their practice that may not be licensed to perform those services, but they may never actually become members without being licensed.
Your PLLC may start as a single member and grow from there; adding members or managers later on is not a difficult process to undertake once you decide to take on additional partners in your practice.
2. Draft your Operating Agreement
Your Operating Agreement is a contract between you and your business— You are making certain promises to run, maintain, and operate your business in compliance with the rules in your Agreement. This is why consulting an attorney to draft your PLLC Operating Agreement is so crucial.
Your operating agreement is the contract between the members and the PLLC. In essence, it is a list of obligations and promises that the members and managers make to the business about how the business will be run. I often advise my clients to think of the operating agreement like a contract, and that if they were to fail to follow the operating agreement, they would be in breach of that contract and could be held liable.
Proper adherence to whatever operating agreement you use is absolutely crucial to maintaining the limited liability status that your PLLC will afford you. This is why most attorneys will advise against just using an operating agreement from your friend or brother in law or even from some form site on the internet—You need to fully understand the obligations you are undertaking and the promises you are making if you are going to run your business correctly and within the applicable law.
Your operating agreement will spell out the processes and guidelines for taking certain actions, how many of the members must vote on changes to the business, and the procedure for distributions of profit, or when distributions of funds are prohibited. The guidelines in the operating agreement exist to protect the business from owners that may put the PLLC at risk, and exist as a check on the membership.
3. File your Articles of Organization
Filing your Articles of Organization is actually fairly simple: using the Secretary of State’s website, you will inform the SoS of Texas that you are forming a PLLC and give them the required information: the name of the company, the names and address of the members and managers, the name and address of the registered agent, the business the PLLC will be conducting, etc. Once the form is filed, it is usually about 10 days before the Certificate of Good Standing is sent back to the person who filed the Articles of Organization.
4. Obtain your EIN and open your accounts
The final step in formation of your PLLC is to obtain an Employer Identification Number. The EIN is like the social security number for your business and will be essential in the conduct of business and opening bank accounts. This number is obtained from the IRS using an online process where you will receive your EIN the same day.
Forming a PLLC is altogether a straightforward process, but can have many pitfalls if you are not familiar with the common issues facing PLLC owners in Texas. This is the foundation of your business and you don’t want to find out there’s a problem five years down the road. Texas Business Formation Attorney Nathaniel Gilbert assists professionals in starting and running their PLLCs in an efficient and effective manner, setting them up for success for years to come. To learn more about PLLCs and Business Law in Texas, Click Here. To contact Nate directly, Click Here.