Starting a Professional Corporation in Texas 2024: Ultimate Guide

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How to Start a Professional Corporation in Texas

Licensed professional? Level up your business with Texas professional corporation! Enjoy unique benefits like Texas LLC, such as limited liability, tax perks, and a polished image. Our step-by-step guide unravels the essentials for smooth compliance and the right fit. LLCBase has your back with expert guidance, so make an informed decision and triumph in Texas with your professional corporation today!

This guide will review the requirements for starting a professional corporation in Texas, explore the advantages and disadvantages of this business structure, and help you determine if it is the right fit for your business goals.

What is a Professional Corporation

A Professional Corporation (P.C.) is a unique type of corporation designed for licensed professionals, such as doctors, dentists, lawyers, architects, and accountants. Forming a P.C. allows licensed professionals to offer their services through a corporate structure, providing them with the benefits of a traditional corporation, such as limited liability protection and tax advantages. Forming a professional corporation in Texas is a popular choice due to the thriving professional landscape and business-friendly environment. When starting a professional corporation, choose a reliable formation service in Texas.

The primary purpose of Texas Professional Corporation is to protect its owners from personal liability for the corporation’s actions. The shareholders’ personal assets are protected if the professional corporation faces legal issues. Moreover, Texas professional corporations can offer certain tax benefits, such as deducting employee benefits and operating expenses. These advantages make forming a professional corporation an attractive option for many professionals in Texas.

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Who Can File Under Professional Corporation Laws

Under Texas Professional Corporation laws, only certain licensed professionals are eligible to form a professional corporation. The specific professions allowed to form a P.C. may vary slightly by state, but in Texas, the following professionals can typically form a professional corporation:

  • Physicians and Surgeons
  • Dentists
  • Chiropractors
  • Optometrists
  • Podiatrists
  • Certified Public Accountants
  • Architects
  • Engineers and Land Surveyors
  • Psychologists
  • Marriage and Family Therapists
  • Clinical Social Workers
  • Professional Clinical Counselors
  • Veterinarians
  • Attorneys
  • Speech-Language Pathologists
  • Pharmacists
  • Registered Nurses
  • Physical Therapists
  • Occupational Therapists
  • Acupuncturists

Each profession has its governing licensing board, which sets specific rules and regulations for forming and operating a professional corporation. It is essential to check with the relevant board and state laws to ensure that your profession is eligible to form a professional corporation and to understand the specific requirements associated with your profession.

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Structure of a Professional Corporation

  • Shareholders: Texas Professional Corporation’s shareholders must be licensed professionals in the same field as the corporation’s purpose. For example, if a professional corporation is formed to offer legal services, all shareholders must be licensed attorneys. This requirement ensures that the professional corporation’s management comprises qualified individuals with relevant expertise.
  • Directors: The directors of a professional corporation in Texas are responsible for overseeing the corporation’s operations and making high-level decisions. The directors must also be licensed professionals in the same field as the corporation’s purpose. The number of directors required depends on the specific licensing board’s regulations, but typically a minimum of one director is needed.
  • Officers: The officers of Texas Professional Corporation manage the professional corporation. Officers typically include a President, Secretary, and Treasurer. However, additional officers can be appointed as needed. While not all officers must be licensed professionals, the President must hold a valid license in the same field as the corporation’s purpose.

Starting a Professional Corporation in Texas: A Guide

Here is a detailed guide to starting a professional corporation in Texas that you should follow.

Step 1: Appointment of Registered Agent

The first step in forming a Professional Corporation is appointing Registered Agent in Texas. This individual or company will act on behalf of the corporation, receiving official notices and legal documents. The agent must have a physical address in Texas and be available during regular business hours.

We compiled the list of the best registered agent services in Texas to help you choose the one you can rely on.

Step 2: Choosing the Name of the Corporation

Selecting a name for your Texas Professional Corporation is crucial. The name must be unique and appropriate, including the words “professional corporation” or the abbreviation “P.C.” It must also comply with the rules and regulations of the governing licensing board and should not be confusingly similar to an existing corporation’s name.

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Step 3: Drafting of By-laws

By-laws are the internal rules and regulations governing the management and operations of the professional corporation. These should include provisions related to the appointment of directors, issuance of shares, and any restrictions imposed by the licensing board.

Step 4: Appointment of Board of Directors

The board of directors oversees the management and operations of the Texas Professional Corporation. Directors must be licensed professionals in the same field as the corporation’s purpose.

Step 5: Conduction of Board Meetings

Regular board meetings are essential for maintaining the proper functioning and compliance of the professional corporation. The by-laws should specify the frequency, notice requirements, and procedures for conducting these meetings.

Step 6: Issuance of Corporate Shares

Shares represent ownership in the corporation. The professional corporation must issue shares to its shareholders, who must be licensed professionals in the same field. Share issuance should comply with the by-laws and any restrictions imposed by the licensing board.

Step 7: Comply with State Requirements

Forming Texas Professional Corporation requires compliance with specific state requirements, such as obtaining necessary permits and licenses, paying fees, and adhering to rules and regulations the governing licensing board sets forth.

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Step 8: Filing of Statement of Information

Texas professional corporations must file an annual report with the Texas Secretary of State. This document includes essential information about the corporation, including its name, address, Registered Agent, and directors.

Step 9: Getting Tax Permits from the State

The professional corporation must obtain the necessary tax permits from the Texas Comptroller of Public Accounts, such as an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).

Step 10: Opening of a Bank Account

Finally, open a separate bank account for the Texas Professional Corporation to maintain proper accounting and financial records.

Fees Associated with Professional Corporation in Texas

Here are some of the most common fees when starting a professional corporation in Texas.

  • State Laws and Regulations: To form a professional corporation in Texas, it is crucial to comply with the state laws and regulations governing professional corporations. The Texas Business Organizations Code and the specific licensing board’s regulations for each profession outline the requirements and restrictions for professional corporation formation. Before starting the process, professionals should consult with their licensing board to ensure they meet the necessary qualifications.
  • Incorporation Process: Once the licensing requirements are met, the next step to form a professional corporation in Texas is to draft and file the Certificate of Formation – For Profit Corporation with the Texas Secretary of State. This document includes essential information about the corporation, such as its name, address, purpose, and number of authorized shares. Filing the Certificate of Formation – For Profit Corporation requires a filing fee currently $300 for most professions. However, it is essential to check with the Texas Secretary of State for the specific fee associated with your profession.
  • Naming Requirements: You must follow specific rules when choosing a name for a Professional Corporation in Texas. The name must include the words “Professional Corporation,” “P.C.,” or “Prof. Corp.” Additionally, the name cannot be misleading or too similar to an existing corporation’s name. Conducting a name search with the Texas Secretary of State is recommended to ensure the chosen name is available. This search is free, but reserving a name before filing the Certificate of Formation – For Profit Corporation requires a reservation fee of $40 online and $40 mail.
  • Certificate of Formation – For Profit Corporation: The Certificate of Formation – For Profit Corporation is a critical document for forming a professional corporation in Texas. It outlines the corporation’s essential information, such as the name, address, purpose, and number of authorized shares. The Articles must also include a statement that the corporation is a professional corporation and the specific profession it practices. Once completed, the Certificate of Formation – For Profit Corporation must be filed with the Texas Secretary of State, accompanied by the appropriate filing fee.
  • Additional Fees and Costs: In addition to the filing fees mentioned above, forming Professional Corporation in Texas may involve other costs, such as:
    • Annual Report: professional corporations must file an initial Statement of Information with the Texas Secretary of State every May 15th of filing the Certificate of Formation – For Profit Corporation. The filing fee for this form is $0 because it is not mandatory.
    • Licensing and Permit Fees: Depending on the specific profession, the governing licensing board may require additional licensing and permit fees.
    • Registered Agent Fee: Hiring of Registered Agent service will likely involve an annual fee of $50 – $200, which can vary depending on the service provider.
    • Legal and Accounting Fees: Forming a professional corporation may involve consulting with attorneys and accountants, which can result in additional professional fees.

Advantages of a Professional Corporation

  • Limited Liability Protection: One of the main benefits of a professional corporation is its limited liability protection to its shareholders. This means the shareholders’ assets are protected from the corporation’s debts and liabilities.
  • Tax Benefits: Professional Corporations enjoy specific tax benefits, such as deductions for business expenses and the ability to retain earnings within the corporation.
  • Business Credibility: Operating as a professional corporation can enhance the credibility and reputation of the professional services, demonstrating a commitment to compliance and professionalism.
  • Continuity of Operations: A professional corporation has a perpetual existence, ensuring the continuity of operations even if the shareholders or directors change.

Disadvantages of a Professional Corporation

  • Complexity and Cost of Formation: Forming a professional corporation can be more complex and costly than other business structures, such as sole proprietorships or partnerships.
  • Ongoing Compliance Requirements: professional corporations must adhere to ongoing compliance requirements, including regular board meetings, filing annual reports, and maintaining proper records.
  • Limited Flexibility in Management: professional corporations may need more flexibility in management, as the board of directors must consist of licensed professionals in the same field.

Taxation of Professional Corporations

Here are the taxes that your professional corporation must pay in Texas:

Federal income tax

A professional corporation in Texas is subject to federal income tax on its net earnings. However, a P.C. can elect to be taxed as an S corporation, which allows the corporation’s income, deductions, and credits to pass through to the shareholders. This can result in significant tax savings by avoiding double taxation.

State taxes

Texas Professional Corporation is also subject to state taxes, such as the Texas franchise tax, which is based on the corporation’s annual net income. Additionally, depending on the nature of its operations, the professional corporation may be subject to other state and local taxes, such as payroll and sales taxes permit in Texas.

Tax deductions and exemptions

A professional corporation in Texas can take advantage of various tax deductions and exemptions, such as deductions for employee benefits, operating expenses, and depreciation. These deductions can help reduce the corporation’s taxable income, ultimately leading to tax savings for the P.C. and its shareholders.

Alternatives to Professional Corporations in Texas

If you decide that a professional corporation is not for you, then you might consider the following alternatives.

  • Sole Proprietorships: A simpler business structure is where an individual operates the business under their name without limited liability protection.
  • Partnerships: Two or more individuals join to operate a business, sharing profits, losses, and responsibilities.
  • Limited Liability Companies (LLCs): A hybrid business structure that combines the limited liability protection of a corporation with the tax benefits and flexibility of a partnership.
  • S-corporations: Starting an S Corp in Texas avoids double taxation by allowing income, losses, and deductions to pass through to the shareholders’ personal tax returns.

FAQs

What is a professional corporation in Texas?
A professional corporation (PC) in Texas is a legal structure available to professionals, such as lawyers or doctors, who wish to form a corporation and limit their personal liability for the corporation’s actions.
Who can form a professional corporation in Texas?
In Texas, licensed professionals can form a professional corporation, including doctors, lawyers, dentists, accountants, architects, engineers, and others.
Do I need to apply for any special licenses to start a professional corporation in Texas?
Yes, each professional field may require specific licenses; check with your relevant governing or licensing body in Texas.
What are the benefits of forming a professional corporation in Texas?
The main benefit of forming a professional corporation in Texas is that it limits the members’ personal liability. Plus, several legal and financial advantages.
What are the requirements for forming a professional corporation in Texas?
In Texas, the requirements could be tricky; expert consulting is always recommended.
How do I select a good business name for my professional corporation in Texas?
In Texas, you can check the availability of the name you want on the Texas Secretary of State’s website or get an expert opinion.
Once I decide the name for my Texas-based professional corporation, how do I register it?
You will register your name with the Texas Secretary of State when you file your Certificate of Formation.
Do I need to file any specific documents with the Texas Secretary of State before starting my professional corporation?
Yes, the most important document is your Certificate of Formation, and other documents are required based on your professional field.
How much will it cost to start a professional corporation in Texas?
The cost may vary according to company policy and Texas regulation.
How long does it take to start a professional corporation in Texas?
Typically in Texas, it takes about 7 to 10 business days to process the required paperwork needed to form a professional corporation.
Can I reserve a name before filing my Certificate of Formation in Texas?
Yes, Texas allows for 120 days period reservation of a selected business name.
What is an Operating Agreement, and do I need it to form my professional corporation in Texas?
We strongly advise you to have one, although Texas law doesn’t require it when starting a professional corporation.
How many people are required to start a professional corporation?
In Texas, usually, there is no minimum or maximum requirement on how many shareholders needed for forming your professional corporation, but check with experts in this regard.
What is the official website for Texas Corporations?
The official website for Texas corporations is the Texas Secretary of State.
Can I change the name and/or structure of my professional corporation after it’s formed in Texas?
Yes, changes must be submitted and approved by the Texas Secretary of State.
What are the ongoing compliance requirements for Texas-based professional corporations?
In Texas, there are formal requirements such as filing annual reports, renewal of name and agent, following government regulations, updates in your designated member(s) involvement, Check with license requirements for particular rules, if any.
Which Texas government agency is responsible for regulating professional corporations?
The Texas Secretary of State regulates professional corporations in Texas.
What are the professions that require choosing professional corporations over other business formats available in Texas?
The licensed professionals like physicians, architects, engineers, attorneys are suitable entities for Limited Liability Companies (LLCs) for medical clinics, legal practices firms, and specialize work liable for malpractice more exposed than others.
Can I start a single-member professional corporation in Texas?
Yes, you can start professional corporations with just one shareholder in Texas.
How do I obtain relevant licenses for professions backed by the resident statutes or governing bodies in Texas?
These licenses are generally required by the state; you would need to apply either online or in-person.
Will forming a professional corporation in Texas limit my personal liability?
Yes, forming a professional corporation in Texas can limit your personal liability for the corporation’s actions and debts – but not for your reliable malpractice reasons yourself.
What is a Registered Agent, and do I need one for my Texas-based professional corporation?
Yes Texas mandates a Registered Agent through laws that every state office must have one, services safeguard that authorities correspond with professionalism and crucial notices.
Can I use my lawyer/accountant as a Registered Agent for my Texas-based professional corporation?
You can hire an outside agent on their behalf for their services – but you are required to nominate a non-affiliated must appoint by the secured professional entities.
Is it necessary to hold annual meetings of the members in a professional corporation in Texas?
Annual meetings are not mandatory per Texas laws, but always an expert recommendation while exercising fair corporatism procedures.
Can a professional corporation terminate their legal presence in Texas, thereby quashing the liabilities altogether?
This could be possible,but it is limited by restricted guidelines for technical bankruptcies, malpractices or illegally cited employees.
What are the rules regarding the compensation paid to shareholders in a Texas-based professional corporation?
You are availed of various permitted means to suit the stipulations based on respective licenses and laws.
What is a Tax ID number, and do I need one for my Texas-based professional corporation?
A Tax ID Number is essential for your business while dealing with taxes and managing payrolls and entitlements in partnerships even for your hiring Texas-based Professional company (SOU).
Will I need any insurance policies for my Texas-based professional corporation?
The list of both mandatory and optional insurance policies differ from each other, and you should mold and follow these subservient to the risk ethics whatever best suits relative to business operations etc.
How do other business laws and governing statutes align with the formation and operation of professional corporations?
Other tax laws and interpersonal technology must be considered according to your company’s opera-form; lean over to and hire council stipulated to live labor laws, contracts, framing compensation- etc.
Are the statutes pertinent to my selected profession exclusive to regulations my company will comply with as a Texas professional corporation?
Certain professions like medical & medicine pose extra amounts of vulnerability to paid claims like malpractice, therefore, definite measures need peculiar conformity even contradicts to some compliance that goes akin with part-time scaling and firm formation, hence it’s better to seek professionals on these matters.

Also Read

How to Save Money While Forming Texas Professional Corporation

One of the first steps to saving money when forming a professional corporation in Texas is to do your research. By understanding the requirements and steps involved in forming a professional corporation, you can ensure that you are not overspending on unnecessary services or fees. Take the time to carefully review the regulations and guidelines set forth by the Texas Secretary of State to avoid any costly mistakes.

Another way to save money when forming a Texas professional corporation is to consider utilizing online resources and tools. Many online platforms offer affordable services to help guide you through the process of forming a professional corporation, such as preparing and filing the necessary paperwork. These services can often be more cost-effective than hiring a lawyer or professional service provider to assist you.

When it comes to choosing a name for your professional corporation, consider opting for a name that is unique and does not require any additional legal steps, such as a “doing business as” (DBA) registration. By choosing a name that is readily available and compliant with Texas regulations, you can bypass the extra costs associated with registering a DBA.

Additionally, consider leveraging networking opportunities and seeking out advice from other professionals who have successfully formed their own professional corporations in Texas. By connecting with others who have gone through the process, you can gain valuable insights and potentially save money by learning from their experiences and avoiding common pitfalls.

Furthermore, when it comes to selecting a registered agent for your professional corporation, opt for a reliable and affordable option. While it is essential to choose a registered agent that meets the legal requirements set forth by the state of Texas, there are many cost-effective options available that can help you save money without compromising on the quality of service.

Lastly, make sure to keep track of your expenses and take advantage of any tax benefits or deductions available to professional corporations in Texas. By staying organized and knowledgeable about your financial situation, you can potentially save money in the long run by minimizing unnecessary costs and maximizing your tax savings.

In conclusion, forming a Texas professional corporation does not have to break the bank. By taking the time to research, utilize online resources, choose a cost-effective name, seek advice from other professionals, select an affordable registered agent, and maximize tax benefits, you can save money while still creating a successful and legally compliant business. By being proactive and informed, you can make the process of forming a professional corporation in Texas more cost-effective and manageable.

Conclusion

Texas Professional Corporation can offer several benefits for licensed professionals. However, it is essential to carefully consider the proper structure and compliance requirements before proceeding. Seeking professional guidance in forming a professional corporation can help ensure a smooth process and enable professionals to focus on providing their services. Visit LLCBase for more information about starting a professional corporation in Texas.

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