You may have decided that you are going to form an LLC to start your business, but have you considered that you may qualify for a “Professional” Limited Liability Company? Some professionals in Texas can use the PLLC entity structure to take advantage of key benefits. But what exactly is the difference between an LLC and a PLLC and why should you care?
PLLC vs LLC Texas: Who Can Form A PLLC?
Professional limited liability companies are limited to those individuals who qualify per the Texas Statute on PLLCs. Only a “Professional Individual” or “Professional Organization,” may be an owner of a Professional Limited Liability Company. A Professional Individual is someone who is licensed to “provide in this state or another juisdiction the same professional service as is rendered by that professional entity.” The statute specifically lists attorneys, doctors, and architects. So, a doctor licensed by the State of Texas may be an owner of a PLLC providing medical services for which that doctor is licensed to provide.
Similarly, a Professional Organization is an entity that “renders the same professional service as the professional limited liability company only through owners, members, managerial officials, employees, or agents, each of whom is a professional individual or professional organization.” From our earlier example, the doctor’s PLLC could be an owner of another PLLC.
PLLC Malpractice Liability
For professions that are eligible to form a PLLC, malpractice and malpractice liability are usually a major concern because of the type of work that they perform: lawyers, doctors, dentists, etc. In the same way that any person may look to an LLC for liability protection, professionals look to the PLLC for malpractice liability protection.
LLC and PLLC structures offer the same kind of liability protection in that they shield the members or managers from the debts and liabilities of the entity. Generally speaking, the main reason that Texas residents look to form LLCs of any form is for the liability protection. The business is structured to absorb the debts and liabilities, shielding the owners, members, and managers from personal liability.
Texas PLLC vs LLC Malpractice Protection
A PLLC functions this way in the form of malpractice protection—the malpractice debts of one professional in the group may impart onto the PLLC (as provided specifically by Texas PLLC statute) but those debts of the PLLC are not then imparted onto the other members. This structure for professionals is more distinct from a General Partnership, a common entity choice for medical professionals, where the debts of one partner will impart on the other partners.
Other Texas PLLC Benefits
There are reasons beyond the obvious, however, that professionals in Texas may look to the PLLC instead of the LLC. One of the more subtle reasons a PLLC can be a lucrative choice for groups of professionals, is that the business the PLLC is authorized to conduct is strictly limited to that professional service it reports to provide. This can be a great way to prevent the “rogue member” from binding and engaging the PLLC in any contracts or obligations outside the scope of the service, such as risky investments or unfavorable business arrangements. Consider a PLLC made up of attorneys that provides attorney services. Having a strictly limited purpose spelled out in the operating agreement of the business can help the members in a lawsuit against a rogue member who attempted to bind the PLLC in a contract to buy a professional sports team (that’s the wrong kind of professional!).
Additionally, some business owners report that they like having the word “Professional” in their entity name, as it conveys a certain message about the structure of their company and gives a good first impression to prospective clients or patients. From a legal standpoint, your attorney can’t necessarily give you this kind of advice, but nonetheless, there it is.
Joint Practice: PLLC vs LLC
The Texas PLLC Statute specifically lays out some interesting ideas on “joint practices,” where different kinds of professionals may be owners of the same PLLC. The Statute authorizes the following kind of joint practice:
- Doctors of medicine and persons licensed as doctors of osteopathy by the Texas Medical Board, podiatrists licensed by the Texas Department of Licensing and Regulation, and chiropractors licensed by the Texas Board of Chiropractic Examiners.
- Professionals, other than physicians, engaged in related mental health fields may form a professional entity that is jointly owned by those practitioners to perform professional services.
- Doctors of medicine and doctors of osteopathy, and licensed optometrists or therapeutic optometrists. (Only a physician, optometrist, or therapeutic optometrist may have an ownership interest here).
Interestingly, the statute authorizing these joint practices also states that no one professional may have any kind of authority over the clinical authority of the other practitioner. So, in essence as a professional in a joint practice, you would maintain complete integrity over your clinical decision-making, regardless of your ownership stake in the joint professional practice, i.e., the other practitioners could never vote to overrule a patient care decision made by you.
If you are considering a Texas PLLC, San Antonio LLC Formation Attorney Nathaniel Gilbert can help answer your questions and get you started in the right direction. If you would like to schedule your free 15 minute consultation, click here. If you would like to read more about PLLC vs LLC structures in Texas, click here.