How to Form a Professional Corporation in Texas


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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Form a Professional Corporation in Texas

Are you considering starting a professional corporation in Texas? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in Texas can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in Texas, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in Texas!

What is a Professional Corporation in Texas?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in Texas. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in Texas.

LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in Texas if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in Texas

To form a Professional Corporation for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Registered Agent, filing the Certificate of Formation – For Profit Corporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Texas, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

  • Doctors
  • Architects
  • Engineers
  • Accountants
  • Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in Texas

After you have decided on the idea to form a professional corporation in Texas, deciding the name for your corporation is significant. There is a complete guide on Texas LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • No confusion with a government entity name.
  • A unique name is needed with no match
  • Limit of restricted words that need a license.

In Texas, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 120 days. To keep the name, you must file a name reservation application with Texas Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the Texas Registered Agent

The next step in forming a professional corporation is hiring the Texas Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Texas. Forming a professional corporation for your service will be easier if you have Registered Agent in Texas.

Alternatively, you can serve as your own Texas Registered Agent if you have the time. However, you must stay compliant to avoid missing any important documents from Texas.

Step 4: File the Certificate of Formation – For Profit Corporation in Texas

After you hire a Texas Registered Agent to form a professional corporation, the next step is to file the Texas Certificate of Formation – For Profit Corporation. In writing the Certificate of Formation – For Profit Corporation, the business name, owner’s contact information, corporation address, and Registered Agent contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

Filing the Certificate of Formation – For Profit Corporation in Texas may be done with four methods that are online, fax, by mail and in-person. The Certificate of Formation – For Profit Corporation fee may vary from different states. However, in Texas, it costs $300 for filing online, by mail, in person filing, or by Fax. Create an account/Log in to the SOS site, get the e-form, fill it, and submit online. Or get the online PDF, fill it up and upload it back on the site. . For offline filing, Send the form by mail to or drop it off in person at Secretary of State, P.O. Box 13697, Austin, TX 78711-3697. Or Fax it to (512) 463 – 5709.

Step 5: Write an Operating Agreement in Texas

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The Texas operating agreement includes information like-

  1. About Business
  2. Members and management
  3. Capital contribution
  4. Profit Distribution
  5. Change of membership
  6. Dissolution

Step 6: Designate the PC Board of Directors in Texas

The next step is to appoint the initial board of directors in your PC in Texas. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the Texas SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made.

  • The responsibilities are given to each officer.
  • How will judgments in business be made?
  • Where and when are the annual shareholder meetings?
  • The minimum number of shareholders required for decision-making.
  • Location and timing of dividend payments.

Step 8: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 9: Request an EIN in Texas

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Texas can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in a number of ways. It will give your professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Texas might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in Texas

Before your professional corporation operates in Texas, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In Texas, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in Texas

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the Texas classification of taxes for the taxes an LLC in Texas has to pay.

Important Information

Maintaining Professional and Business License in Texas

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in Texas

In Texas, you will be required to submit a report each year. The owners’ and Registered Agent’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in Texas, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in Texas

A professional corporation takes a lot of time to process and pursue. However, with the help of the Texas Registered Agent, everything will become easier. In fact, there are advantages that will help you form a professional corporation in Texas.

  1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.
  1. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.
  1. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

What is a Professional Corporation in Texas?
A professional corporation in Texas is a type of business entity that is formed to provide professional services such as legal, accounting, engineering, and medical services.
What are the benefits of forming a Professional Corporation in Texas?
There are many benefits of forming a professional corporation in Texas, such as limited personal liability, tax savings, and more control over the company.
What are the steps to form a Professional Corporation in Texas?
The steps to form a professional corporation in Texas include selecting a business name, filing Articles of Incorporation with the Texas Secretary of State, obtaining business licenses, and filing an assumed name certificate.
How much does it cost to form a Professional Corporation in Texas?
The cost to form a professional corporation in Texas can vary depending on the services used, but typically ranges between $100 and $400.
How long does it take to form a Professional Corporation in Texas?
Typically, it takes around 2-3 weeks to form a professional corporation in Texas.
What type of taxes must be paid by a Professional Corporation in Texas?
A professional corporation in Texas is subject to federal and state income taxes, as well as state franchise taxes.
Is a Professional Corporation in Texas required to have a registered agent?
Yes, a professional corporation in Texas must have a registered agent in the state of Texas.
What types of professional services can be offered by a Professional Corporation in Texas?
Professional services that can be offered by a professional corporation in Texas include legal, accounting, engineering, and medical services.
Is a Professional Corporation in Texas required to hold annual meetings?
Yes, a professional corporation in Texas is legally required to hold annual meetings.
Is a Professional Corporation in Texas required to keep corporate records?
Yes, a professional corporation in Texas must keep corporate records such as minutes of meetings, stock ledgers, and other relevant documents.
Does a Professional Corporation in Texas need to have bylaws?
Yes, a professional corporation in Texas must have bylaws which outline the company’s internal operations.
Is a Professional Corporation in Texas required to issue stock?
No, a professional corporation in Texas is not required to issue stock, but it can do so if desired.
Is a Professional Corporation in Texas required to have a Board of Directors?
Yes, a professional corporation in Texas must have a Board of Directors.
What are the legal requirements to form a Professional Corporation in Texas?
The legal requirements to form a professional corporation in Texas include selecting a business name, filing Articles of Incorporation with the Texas Secretary of State, obtaining business licenses, and filing an assumed name certificate.
Is a Professional Corporation in Texas required to pay estimated taxes?
Yes, a professional corporation in Texas is required to pay estimated taxes.
Does a Professional Corporation in Texas need to have an Operating Agreement?
No, a professional corporation in Texas does not need to have an Operating Agreement, but it is recommended as it outlines the company’s internal operations.
Is a Professional Corporation in Texas required to have an Employer Identification Number (EIN)?
Yes, a professional corporation in Texas is required to have an Employer Identification Number (EIN).
Does a Professional Corporation in Texas need to file annual reports?
Yes, a professional corporation in Texas is required to file annual reports with the Texas Secretary of State.
How much control do the shareholders of a Professional Corporation in Texas have?
The shareholders of a professional corporation in Texas have a limited amount of control as the Board of Directors typically makes most of the decisions.
Does a Professional Corporation in Texas need to file tax returns?
Yes, a professional corporation in Texas is required to file tax returns with the Internal Revenue Service (IRS).
Are the profits of a Professional Corporation in Texas subject to taxation?
Yes, the profits of a professional corporation in Texas are subject to taxation.
What is the filing fee for registering a Professional Corporation in Texas?
The filing fee for registering a professional corporation in Texas is $300.
Does a Professional Corporation in Texas need to obtain business licenses?
Yes, a professional corporation in Texas is required to obtain business licenses.
Does a Professional Corporation in Texas need to file an assumed name certificate?
Yes, a professional corporation in Texas must file an assumed name certificate with the Texas Secretary of State.
Is the personal liability of the shareholders of a Professional Corporation in Texas limited?
Yes, the personal liability of the shareholders of a professional corporation in Texas is limited.
Does a Professional Corporation in Texas need to have a written employment agreement?
Yes, a professional corporation in Texas is required to have a written employment agreement.
What is the difference between a Professional Corporation in Texas and a Limited Liability Company (LLC)?
The main difference between a professional corporation in Texas and a Limited Liability Company (LLC) is that the former is designed to provide professional services, while the latter is designed for any type of business.
Can a Professional Corporation in Texas be dissolved?
Yes, a professional corporation in Texas can be dissolved by filing Articles of Dissolution with the Texas Secretary of State.
Is a Professional Corporation in Texas required to have a written shareholders agreement?
Yes, a professional corporation in Texas is required to have a written shareholders agreement.
Does a Professional Corporation in Texas need to follow corporate formalities?
Yes, a professional corporation in Texas must follow corporate formalities such as holding meetings, filing annual reports, and keeping corporate records.
Is a Professional Corporation in Texas required to pay dividends?
No, a professional corporation in Texas is not required to pay dividends, but it can do so if desired.

Also Read

Why Texas Professional Corporation is So Important

One of the main reasons why Texas Professional Corporation is so important is that it provides a legal shield for the individual professionals behind the company. In a professional corporation, personal assets of the professionals are shielded from business debts and liabilities. This means that if the company faces a lawsuit or bankruptcy, the personal assets of the professionals are protected. This is crucial for professionals who work in high-risk industries where lawsuits are common, as it helps them safeguard their hard-earned assets.

Moreover, operating as a professional corporation allows professionals to enjoy certain tax benefits. By choosing this legal structure, professionals can take advantage of lower tax rates, deductions, and other benefits that are not available to sole proprietors or general partnerships. This can help professionals save money on taxes and reinvest in their businesses, ultimately leading to growth and success.

In addition, another reason why Texas Professional Corporation is so important is that it helps professionals establish credibility and trust with their clients. When clients see that a professional operates under a professional corporation, they know that the individual is serious about their practice and adheres to industry standards and regulations. This can give clients peace of mind and increase their confidence in the services provided by the professional corporation.

Furthermore, professional corporations offer flexibility for professionals to raise capital and expand their businesses. By operating under this legal structure, professionals can bring in additional partners, investors, or shareholders to help grow the business. This allows professionals to scale their operations, enter new markets, and take advantage of new opportunities that may arise in their industries.

Another advantage of Texas Professional Corporation is that it provides a clear delineation between the business and personal affairs of professionals. By maintaining separate accounts and records for the professional corporation, professionals can keep their personal and business finances distinct. This not only helps professionals stay organized but also simplifies tax filings and compliance with regulatory requirements.

Overall, Texas Professional Corporation is a crucial form of legal entity for professionals looking to protect themselves, grow their businesses, and establish credibility with their clients. By operating under this legal structure, professionals can enjoy a host of benefits, including liability protection, tax advantages, credibility with clients, flexibility for expansion, and clear separation of personal and business affairs. In today’s competitive business environment, professionals must consider forming a professional corporation to ensure the longevity and success of their practices.

Conclusion

In forming a professional corporation in Texas, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.

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