February 11, 2020
A professional entity is a special type of business structure that allows individuals in professional occupations to incorporate their practice. The benefits of incorporation are manifold, however, the foremost reason why owners seek incorporation is limited liability protection. When a business is properly incorporated, any liabilities associated with the business are the responsibility of the business itself, not necessarily the obligation of the owners.
In other words, an incorporated business is treated as its own legal entity, with assets, debts, and responsibilities separate from that of its owners. This is an incredibly attract facet of incorporated businesses; it essentially means that legal action taken against a properly formed business typically doesn’t threaten the personal assets of the owners.
However, there’s a key distinction between traditional incorporated structures and professional entities. States allow most business owners to form the traditional types of incorporated businesses, such as Corporations and Limited Liability Companies (LLCs). The notable exception is careers which are considered “professional” occupations. The “professional” designation varies state-by-state, but it commonly includes licensed occupations, like doctors, lawyers, accountants, and architects.
Individuals that belong to “professional” occupations generally cannot form the traditional incorporated structures discussed earlier, and instead must form “professional entities”, such as professional LLCs (PLLCs), professional corporations (PCs), and professional associations (PAs). The main difference between professional entities and their non-professional counterparts has to do with liability protections. Namely, while PLLCs and PCs offer many of the same protections as normal incorporated entities, they cannot shield an owner from their own professional negligence.
Which Types of Professional Entities can be Formed in Texas?
From a regulatory standpoint, laws regarding professional entities vary dramatically state-by-state. Thus, it’s incredibly important to familiarize yourself with your state’s current regulations before trying to incorporate your practice. Even better, it’s generally advised to seek assistance from an experienced attorney in these situations. Not only will a qualified professional help disentangle the state-specific nuances of professional incorporation, they’ll also provide guidance throughout the process in its entirety. This is of particular relevance for business owners in the state of Texas, where rules regarding professional incorporation are somewhat unusual.
For one, not only does Texas permit the formation of PCs and PLLCs, but it also allows certain professions to form professional associations or PAs. PAs are tricky; some states use the phrases professional association and professional corporation interchangeably (thus, in most states, when a business forms a PA, they’re in-fact only forming a PC). However, Texas has a unique usage of the PA designation. According to the Texas Business Organizations Code (BOC), a PA is discrete type of professional entity, similar to professional corporations but, from a legal perspective, different. Only certain kinds of medical professionals can form PAs, such as doctors of medicine, mental health professionals, dentists, and veterinarians. In all, the BOC explicitly lists 22 occupations that are able to form PAs in Texas.
Individuals of these professions have the option to incorporate their practice as either a PA or a PLLC. The differences between the two may seem subtle but choosing one over the other can have major implications in the short- and long-term. Again, these decisions should be made only after consulting a qualified professional.
Notably, PAs only apply to these 22 types of medial professions. On the other hand, PCs and PLLCs are a bit more inclusive. As of 2017, 60 different types of occupations can form PCs, and 70 occupations can form PLLCs. This leaves 10 types of occupations that can only form PLLCs and are barred from PC formation. These include sports medicine professionals, radiologists, and geoscientists (the complete list can be found on the Texas Secretary of State’s website).
Once you know exactly which professional entity options are available to you, the next step is choosing the most appropriate structure for your practice. In any case, forming a professional entity in Texas (whether it be a PC, PLLC, or PA) will require certain documentation be submitted to the Secretary of State. Likewise, businesses will need a registered agent to facilitate the process.
Getting a Registered Agent
Some states, such as Texas, require a registered agent to act on behalf of a filing business entity. According to the BOC, this agent is a representative of the entity and may be served any process, notice, or demand that would otherwise be sent to the business. The representative is thus responsible for receiving, processing, and/or forwarding any official notices that are directed toward the business. Furthermore, this agent must have a physical office (with a legitimate Texas-based address) located somewhere within the state. Unfortunately, state bodies—including the Secretary of State—cannot act as a business’s registered agent.
If you’re a BizCounsel member, you can get a registered agent for free as a part of your membership.
