In Texas, a professional corporation is a specific corporation type that is often used by accountants, engineers, doctors, psychologists, and other professionals who are licensed by states to provide professional services. The business incorporating structures of professional corporations can vary by state.
Usually, this will require filing articles of incorporation with the Texas Secretary of State. The professional corporation will also be subject to corporation laws and professional liability laws related to their professional corporation.
In Texas, What Is the Purpose of a Professional Corporation?
The purpose of professional corporations in Texas is to give limited liability protections to the professionals involved in the corporation. Limited liability means that the professionals are not held personally liable for the liabilities or debts of the corporation of which they are a member.
It is important to be aware that, even though they will have limited liability, a member of a professional corporation will not be able to completely avoid liability for their own negligence or malpractice. If a professional makes a mistake or fails to meet their required standard of care, they can face a malpractice lawsuit.
A common example of this issue are medical malpractice cases. For example, if a surgeon who is a member of a professional medical corporation makes a mistake, the patient can sue them directly. Although they are a member of a corporation, they can be held personally liable for the damages resulting from their negligence or mistake.
Due to these issues, professionals often carry malpractice insurance, giving them protection if they face a lawsuit. When these claims are filed, the corporation’s assets or the personal assets of the members of the corporation are usually not at risk.
A Texas lawyer can help a client form a professional corporation, ensure their rights and assets are protected, and avoid personal liability. A Texas lawyer can also assist clients who need to file lawsuits against members of professional corporations.
How Does Partnership by Estoppel Affect Liability in Texas?
Partnership by estoppel in Texas can impose liability on individuals who are not actually partners as though they were partners when a third party reasonably relied on the representation of the partnership. This means apparent partners can be jointly and severally liable for debts and misconduct of other partners if someone was harmed because of a reliance on their appearance of a partnership.
Whenever someone has any questions or concerns related to partnerships and partnerships by estoppel in Texas, they should schedule a Texas lawyer consultation.
What Types of Professions Usually File Under Professional Corporation Laws in Texas?
There are many different categories of professionals that commonly file under professional corporation laws in Texas. Typically, these are used by professionals who are required to hold state professional licenses.
Professional corporations can provide members with liability protections, tax advantages, and help to maintain their professional image. Professionals who commonly form corporations are discussed in the following section.
Lawyers
Attorneys often form professional corporations to limit their personal liability for the actions of their associates. When a lawyer in a professional corporation is professionally negligent, the claim will be limited to that one individual and not the others in the corporation. This type of arrangement can also provide tax benefits, such as income splitting.
Physicians and Dentists
It is common for healthcare providers to form professional corporations in order to protect their own assets from lawsuits based on the debts or liabilities of the corporation which are not related to personal medical practice. A professional can also receive tax advantages, such as being able to deduct business expenses.
Certified Public Accountants (CPAs)
CPAs form professional corporations for reasons similar to healthcare providers. Protection from liability is essential when handling financial issues in situations where errors may result in significant damages. CPA professional corporations also allow the group to present a more formal and established image to potential clients.
How Are Professional Corporations Different From Other Types of Corporations?
There are differences between professional corporations and other types of corporations, such as C Corporations and S Corporations. The biggest difference is that professional corporations are for licensed professionals.
Although other corporations can have any person as a shareholder, professional corporations usually require shareholders to be licensed professionals in the same profession. Additional differences are discussed in the following paragraphs.
Shareholder Restrictions
Professional corporations typically require shareholders to be licensed professionals in the same field, as previously discussed. This means, for example, only CPAs can be shareholders in a CPA professional corporation.
Liability Protection
A professional corporation and a regular corporation provide limited liability protection. The scope of those protections, however, differs.
For example, a shareholder in a C Corporation or S Corporation will generally have limited liability protections for all corporate obligations. In contrast, those in professional corporations can be held personally liable for their own negligence and malpractice.
Taxation
A C Corporation is taxed at the corporate level and shareholders have to pay dividend taxes, meaning they face double taxation. An S Corporation has pass-through taxation, meaning profits and losses pass through to the shareholders who report them on individual tax returns.
A professional corporation may choose to be taxed as an S Corporation or as a C Corporation. It may, however, also be subject to other tax requirements or rules under Texas law and the rules and regulations of the profession of the corporation.
Regulatory Compliance
A professional corporation is required to comply with the standard corporate laws in addition to the rules and regulations provided by a Texas state professional licensing board. For example, professional corporations of lawyers have to follow the rules of the Texas State Bar Association.
C Corporations and S Corporations, in contrast, do not have to comply with these professional rules and regulations.
In Texas, How Does Limited Liability Work With Professional Corporations?
In the State of Texas, limited liability provided by a professional corporation protects the personal assets of the shareholders from general debts or liabilities from the corporation. If, for example, the corporation owes money or is sued, a shareholder’s personal assets are not usually at risk.
As previously discussed, limited liability will not protect a professional from their own personal malpractice or negligence. If, for example, a doctor who is in a professional corporation makes a medical error, they will be held personally liable.
Do I Need a Texas Corporate Lawyer for Help With Professional Corporation Issues?
If you have any questions about Texas professional corporations, think you may need to file a lawsuit, or are considering forming a corporation, it is important to reach out to a Texas corporate lawyer. Creating and managing Texas professional corporations can be a complex issue due to the corporation laws and the rules of professional conduct.
Having a lawyer will ensure you properly form your professional corporation and comply with all applicable laws. Your lawyer can also help ensure your lawsuit against a professional corporation or member is properly filed.
You can use LegalMatch’s online submission form in as little as 15 minutes to take advantage of the no cost attorney matching services LegalMatch provides. After completing the submission process, you will receive responses from member attorneys in your area of Texas who are ready to help.
