Professional Entity Series Continued
Welcome to Blog #4 in our Professional Entity series. Long time readers will remember that professional corporations are formed for the purpose of providing a professional service other than the practice of medicine by physicians, surgeons, or other doctors of medicine.
This blog will focus on the requirements and intricacies involved in forming and maintaining a professional corporation so that you will be better equipped to determine whether this professional entity is the correct one for your business.
What is Required for a Professional Corporation?
A professional corporation may provide a professional service in Texas only through owners, managerial officials, employees, or agents, each of whom is an authorized person. A person is an authorized person if she is a professional individual or professional organization.
—See License Required to Provide Professional Service—Tex. Bus. Org. Code §301.006(a)
—See Authorized Person—Tex. Bus. Org. Code §301.004(2)
A professional organization means a person other than an individual that renders the same professional service as the professional corporation only through owners, members, managerial officials, employees, or agents, each of whom is a professional individual or professional organization. A professional individual is an individual who is licensed to provide the same professional service as is rendered by the professional entity.
—See Professional Organization—Tex. Bus. Org. Code §301.003(7)
—See Professional Individual—Tex. Bus. Org. Code §301.003(5)
What if I Lose My License?
A managerial officer or an owner who is no longer licensed to provide the same professional service as the professional corporation must promptly resign her position and employment and relinquish her ownership interest in the entity.
—See Duties and Powers of Owner or Managerial Official Who Ceases to Be Licensed—Tex. Bus. Org. Code §301.008(a)-(b)
The person who succeeds to the ownership interest of the owner that relinquished her ownership interest must promptly relinquish the former owner’s financial interest in the corporation. The corporation must then purchase the former owner’s interest pursuant either to Texas law, the corporation’s bylaws, or an agreement.
—See Duties and Powers of Owner or Managerial Official Who Ceases to Be Licensed—Tex. Bus. Org. Code §301.008(c)-(d)
If the relinquishing owner owns 100% of the ownership interests, she may act as a managerial official or owner solely for the purpose of winding up the affairs of the corporation, including selling the outstanding ownership interests and other corporate assets.
—See Duties and Powers of Owner or Managerial Official Who Ceases to Be Licensed—Tex. Bus. Org. Code §301.008(e)
An ownership interest may only be transferred to an owner, the corporation itself, or an authorized person, unless limited by the corporation’s governing documents.
—See Transfer of Ownership Interest—Tex. Bus. Org. Code §301.009
Can I Operate a Joint Practice?
Professionals, other than physicians, engaged in related mental health fields such as psychology, clinical social work, licensed professional counseling, and licensed marriage and family therapy may form a professional corporation that is jointly owned by those practitioners to perform professional services that fall within the scope of practice of those practitioners.
—See Joint Practice by Certain Professionals—Tex. Bus. Org. Code §301.012
What About Shareholders?
A shareholder of a professional corporation is not required to supervise the performance of duties by an officer or employee of the corporation. A shareholder is subject to no greater liability than a shareholder of a for-profit corporation.
—See Authority and Liability of Shareholder—Tex. Bus. Org. Code §303.002
Any restriction on the transfer of shares in a professional corporation that is imposed by the governing documents should be noted on each certificate representing the shares.
—See Notice of Restriction on Transfer of Shares—Tex. Bus. Org. Code §303.003
A professional corporation may redeem shares of a shareholder. The price and terms of a redemption of shares may be agreed to between the board of directors and the shareholder or specified in the governing documents of the professional corporation.
—See Redemption of Shares—Tex. Bus. Org. Code §303.004
Please speak with your business law attorney if you are considering forming a professional corporation. She can help you with the many requirements and nuances involved in formation and continued business.
–Authored by Carrie A. Harris, Esq.,
Matthew Harris Law, PLLC – Business Law Division
1001 Main Street, Suite 200, Lubbock, Texas, 79401-3309
Tel: (806) 702-4852 | Fax: (800) 985-9479