What Is a PLLC in Texas? A Professional’s Guide to Compliance and Asset Protection

Disclaimer This article provides general information for educational purposes only. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon as a substitute for consultation with a qualified attorney. Laws vary by state, and individualized guidance is recommended.

Many Texas professionals assume that forming a standard LLC is enough to protect their practice. The problem may not become apparent until a licensing review, ownership change, financing transaction, lawsuit, or regulatory audit reveals that the entity was not properly structured for the professional services being provided.

In Texas, Form 205 creates a standard limited liability company, while Form 206 creates a professional limited liability company, or PLLC. The distinction is more than clerical. It affects the entity’s permitted purpose, ownership structure, governing persons, name, and compliance with profession-specific laws.

However, not every licensed professional is subject to the same rules. Some professions may operate through a standard LLC, while others must use one of the professional entity structures authorized for that profession. Before forming or restructuring a practice, professionals should review both the Texas Business Organizations Code and the rules of their licensing authority.

What Is a Texas PLLC?

A Texas PLLC is a limited liability company formed to provide one or more professional services. It is governed by the general Texas LLC provisions together with the special rules applying to professional entities.

A professional service is generally a service that requires a state license before an individual may legally provide it.

The practical distinction begins with the certificate of formation:

Form 205 is designed for an LLC with a general lawful purpose. The Texas Secretary of State’s instructions caution that it cannot be used for a licensed activity when the relevant license cannot legally be issued to a standard LLC. Form 206 is used when forming a PLLC to provide professional services.

Does Every Licensed Professional Need a PLLC?

No. The correct entity depends on the profession.

Texas does not impose one universal rule requiring every licensed person to form a PLLC. Some professionals may use a standard LLC, while others are limited to a PLLC, professional corporation, professional association, or another specifically authorized structure.

For example:

This table is only a general reference. The Texas Secretary of State’s entity chart is guidance rather than a substitute for reviewing the statutes, licensing rules, and restrictions applicable to a particular practice.

Professionals With More Limited Entity Options

Physicians and certain medical specialists are generally limited to professional structures such as a PLLC or professional association.

Attorneys may commonly practice through a professional corporation or PLLC.

Other professions, including certain accountants, architects, engineers, chiropractors, therapists, and real estate professionals, may have broader options depending on the precise services provided and the applicable licensing regulations.

The safest question is therefore not simply, “Do I hold a license?” It is:

What types of entities may legally provide this specific professional service in Texas?

Form 205 vs. Form 206

The most important differences are summarized below.

A professional should not assume that adding “PLLC” to a business name is enough. The correct entity type must be reflected in the Secretary of State filing, the governing documents, ownership records, professional licenses, contracts, bank accounts, insurance, and tax registrations.

What Liability Protection Does a PLLC Provide?

A PLLC can provide valuable protection against many ordinary business liabilities. For example, its owners are generally not personally responsible solely because they own the entity for obligations such as:

• Office leases
• Vendor contracts
• Equipment financing
• Employee wage obligations
• General business debts
• Certain claims arising from another owner’s conduct

However, a PLLC does not eliminate professional liability.

Personal Liability for Your Own Professional Conduct

A licensed professional generally remains personally responsible for that professional’s own negligence, malpractice, misconduct, or other wrongful acts.

A physician cannot use a PLLC to avoid personal responsibility for the physician’s own negligent treatment. Similarly, an attorney cannot use the entity to eliminate personal liability for the attorney’s own malpractice.

Liability of the Professional Entity

The PLLC itself may also be liable for professional errors, omissions, negligent or incompetent acts, or malfeasance committed by an owner, managerial official, employee, or agent while providing professional services for the entity.

That means the practice’s assets may be exposed, including:

• Business bank accounts
• Accounts receivable
• Equipment
• Office property
• Other assets owned by the PLLC

A PLLC should therefore be treated as one layer of a broader risk-management strategy—not as a substitute for professional liability insurance.

Liability for Another Professional’s Conduct

An owner is not necessarily personally liable merely because another professional in the practice committed malpractice. Liability may still arise, however, when the owner participated in the conduct, directly supervised it, independently acted negligently, personally guaranteed an obligation, or is otherwise liable under applicable law.

The exact result depends on the facts, the profession, the governing documents, and the legal theory asserted.

Who May Own a Texas PLLC?

Ownership is one of the most important compliance issues for a professional practice.

Texas generally restricts ownership and governance of professional entities to “authorized persons.” This ordinarily means individuals or entities legally authorized to provide the professional service for which the entity was formed.

A standard holding company should not automatically be inserted above a PLLC without a profession-specific legal review.

The Holding-Company Problem

In a standard business structure, an owner might use a Delaware, Wyoming, or Texas holding company to own the operating LLC.

That approach may not work for a professional practice.

A generic holding company ordinarily does not hold an individual professional license. If it is not an authorized owner under the Texas Business Organizations Code and the applicable licensing laws, placing it above the PLLC may create an impermissible ownership structure.

Professional-entity ownership structures must therefore be reviewed at every level. Using another entity as a member does not solve the problem unless that entity is itself legally authorized to own and participate in the professional practice.

Can Professionals From Different Fields Own One PLLC?

Sometimes, but not automatically.

Texas permits certain combinations of licensed professionals to jointly own a professional entity. These exceptions are specific and commonly depend on whether the services fall within compatible scopes of practice.

Examples may include authorized combinations involving:

• Physicians and physician assistants
• Physicians and podiatrists
• Physicians and optometrists
• Other combinations expressly permitted by statute

Professionals should not assume that two licensed people may jointly own a PLLC merely because both hold Texas licenses. The particular combination must be authorized.

What About Non-Licensed Investors?

Non-licensed investors generally cannot own the clinical, legal, or other professional practice when Texas law restricts ownership to licensed professionals.

Some practices address this limitation through a management services organization, commonly called an MSO.

Under a typical MSO structure:

The MSO may provide services such as staffing support, technology, billing administration, office space, equipment, marketing, and other non-professional functions.

However, an MSO structure must be carefully drafted. The management company must not improperly control professional judgment, interfere with licensed decision-making, or receive compensation in a manner prohibited by fee-splitting or professional-practice rules.

Securities and Ownership Transfers

Membership interests in a PLLC may constitute securities depending on the structure and circumstances.

Certain private or internal issuances may qualify for exemptions from securities-registration requirements. However, an exemption should not be assumed merely because the purchasers are licensed professionals or already work in the practice.

Before issuing, selling, or transferring ownership interests, the practice should evaluate:

• Whether the recipient is an authorized owner
• Whether approval is required under the company agreement
• Whether the transfer complies with licensing rules
• Whether federal or Texas securities laws apply
• Whether the transfer triggers tax consequences
• Whether buy-sell or redemption provisions apply

How to Form a Texas PLLC Correctly

1. Confirm That a PLLC Is Permitted

Review the Texas Secretary of State’s entity guidance and the statutes and board rules governing the profession.

The licensing authority may impose requirements beyond those reviewed by the Secretary of State.

2. Select a Compliant Name

The entity name should contain an appropriate designation, such as:

• Professional Limited Liability Company
• Professional Limited Company
• PLLC
• P.L.L.C.

The name must also be distinguishable in the Secretary of State’s records and must not falsely imply that the entity is authorized to provide services it cannot legally provide.

3. File Form 206

The certificate of formation should identify the entity as a professional limited liability company.

It must include the required information concerning:

• Entity name
• Registered agent
• Registered office
• Governing authority
• Professional purpose
• Organizer
• Initial mailing address
• Effective date

4. State the Professional Purpose Clearly

Unlike a standard general-purpose LLC, the PLLC’s purpose should identify the professional service it will provide.

Examples include:

• The practice of medicine
• The practice of law
• The practice of dentistry
• Certified public accountancy services
• Professional engineering services

The purpose language should be consistent with the profession’s governing statute and licensing rules.

5. Verify Every Owner and Governing Person

Before filing, confirm that every proposed member, manager, director, or other governing person is eligible to serve in that role.

Verify:

• Current license status
• Correct profession
• Texas authorization where required
• Ownership through any upper-tier entity
• Eligibility for multidisciplinary ownership
• Applicable board approvals

6. File With the Texas Secretary of State

The current base filing fee stated in the Secretary of State’s Form 206 instructions is $300, excluding any expedited-processing or payment-convenience charges.

The filing may be submitted through the available Secretary of State filing channels.

7. Complete Post-Formation Compliance

Secretary of State acceptance does not necessarily establish full professional compliance.

Depending on the profession, the practice may also need to:

• Register with the licensing board
• Obtain an entity or facility license
• Notify the professional regulator
• Maintain professional liability insurance
• Obtain an EIN
• Open a dedicated business bank account
• Adopt a company agreement
• File franchise tax and information reports
• Update payer, credentialing, or malpractice records
• Obtain assumed-name registrations

Common Texas PLLC Compliance Traps

What If You Filed Form 205 Instead of Form 206?

First, do not assume that the entity is automatically invalid or that every contract and act of the business is void.

The consequences depend on:

• The profession
• Whether a standard LLC was legally permitted
• The entity’s stated purpose
• Its ownership and governance
• Licensing-board rules
• How long it has operated
• Whether licenses, contracts, or insurance policies identify the correct entity
• Whether any claims or regulatory proceedings are pending

Possible Corrective Options

Depending on the circumstances, correction may involve one or more of the following:

Amending the certificate of formation:
A certificate of amendment may be appropriate for changing the entity’s name, purpose, or other formation provisions. However, an amendment alone may not always be sufficient to change the underlying entity type.

Completing a statutory conversion or restructuring:
Some situations may require a conversion, merger, formation of a new PLLC, or transfer of operations into a properly structured professional entity.

Forming a new PLLC:
In certain cases, the cleanest approach may be to form a new PLLC and transfer the practice’s contracts, assets, employees, licenses, insurance, billing arrangements, and operations to it.

Updating the licensing authority:
The professional board may require a separate application, notice, approval, or corrective filing.

Reviewing historical exposure:
Correcting the structure prospectively may not resolve every historical issue. Counsel should review prior contracts, malpractice coverage, ownership distributions, tax filings, billing records, and professional services performed before the correction.

Do Not Rely Solely on Secretary of State Acceptance

The Texas Secretary of State performs a filing function. Acceptance of a certificate does not necessarily confirm that:

• Every owner is professionally eligible
• The practice complies with licensing-board rules
• The purpose language is sufficient
• A multidisciplinary structure is permitted
• An MSO arrangement is compliant
• Fee-sharing arrangements are lawful
• The entity holds every necessary operating license

Professional compliance should be confirmed separately with the applicable regulator and qualified legal and tax advisers.

Final Takeaway

The difference between Form 205 and Form 206 can be significant, but the correct entity choice cannot be determined by the form number alone.

Texas professionals must consider the rules governing their specific profession, permitted ownership, liability exposure, licensing-board requirements, tax treatment, insurance, and long-term practice structure.

A properly formed PLLC can protect owners from many ordinary business liabilities and may limit exposure arising solely from another professional’s conduct. It does not protect a professional from personal responsibility for that professional’s own malpractice, and it does not eliminate liability at the entity level.

Professionals who discover that their practice was formed using the wrong entity type should address the issue promptly, but they should not assume that a simple amendment will always solve it. The appropriate correction may require an amendment, conversion, new formation, regulatory filing, or broader restructuring.

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