Texas Business Entities for Attorneys
With so many different business entities in Texas, it can be difficult finding the right one for your law practice. This article builds off the Primer on Texas Business Entities, which provides a brief introduction to the most common types of business entities in Texas. While the same principles generally apply to business entities for attorneys, attorneys practice under certain entities in Texas. Johnsen Law can help you decide which type of business entity to select for your practice and assist in preparing the governing documents.
Professional Corporation (PC)
Professional corporations are corporations that are formed to provide professional services other than the practice of medicine (not for doctors, physicians, or surgeons) meaning they’re appropriate for an attorney providing legal services. Professional corporations are taxed like corporations, whereby C corporations are subject to double taxation and S corporations (no more than 100 shareholders) pass through income directly to the shareholders. Professional corporations limit personal liability for claims other than an attorney’s own malpractice. While professional corporations may be owned by either a professional individual or a professional organization, the officers and governing persons may only be professional individuals.
Professional Limited Liability Company (PLLC)
Professional limited liability companies are simply limited liability companies formed to provide professional services. They are taxed as limited liability companies, whereby they generally pass through income directly to the members but can elect to be taxed as a corporation instead. Unlike professional corporations, which cannot pass through income when there are more than 100 shareholders, professional limited liability companies can pass through income even when there are more than 100 members. Professional limited liability companies limit personal liability for claims other than an attorney’s own malpractice; however, the law regarding personal liability is less developed with limited liability companies than it is with corporations. The tradeoff is that there is more flexibility in how professional limited liability companies are structured and managed. While professional limited liability companies may be owned or governed by either a professional individual or a professional organization, the officers may only be professional individuals.
Limited Liability Partnership (LLP)
Unlike professional corporations and professional limited liability companies, which can both have only one shareholder/member, limited liability partnerships must have two partners. Thus, a solo practitioner cannot form a limited liability partnership. Limited liability partnerships limit personal liability for claims other than an attorney’s own malpractice, and income is taxed directly to the partners. The partnership must pay $200 per partner per year. The partners can be either attorneys or entities owned by attorneys.