Professional Entity Series Continued
Welcome to Blog #3 in our Professional Entity series. Long time readers will remember that professional limited liability companies are formed to provide professional services.
This blog will focus on the requirements and intricacies involved in forming and maintaining a professional limited liability company 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 LLC?
A professional limited liability company may provide a professional service in Texas only through owners, managerial officials, employees, or agents, each of whom is a professional individual,
and is licensed in this state to provide the same professional service provided by the entity.
—See License Required to Provide Professional Service—Tex. Bus. Org. Code §301.006(a)
An individual may not, under the guise of employment, provide a professional service in Texas unless she is licensed to provide the professional service under the Texas law.
—See License Required to Provide Professional Service—Tex. Bus. Org. Code §301.006(c)
However, a professional entity is not prohibited from employing nurses, clerks, secretaries, bookkeepers, technicians, or assistants, etc., who do not ordinarily provide a professional service according to general custom and practice.
—See License Required to Provide Professional Service—Tex. Bus. Org. Code §301.006(d)
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 entity must promptly resign her position and employment and relinquish her ownership interest in the entity.
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 entity. The entity must then purchase the former owner’s interest pursuant either to Texas law, the entity’s governing documents, or an agreement.
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 entity, including selling the outstanding ownership interests and other entity assets.
An ownership interest may only be transferred to an owner, the entity itself, or an authorized person, unless limited by the entity’s governing documents.
—See Transfer of Ownership Interest—Tex. Bus. Org. Code §301.009
Can I Operate a Joint Practice?
Licensed medical doctors, osteopathy doctors, and podiatrists may jointly form and own a professional association 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(a)
Licensed physicians and physician assistants may form and own a professional association to perform professional services that fall within the scope of practice of those practitioners. However, a physician assistant may not be an officer, and may not contract with or employ a physician to be a supervising physician in the professional association.
—See Joint Practice by Certain Professionals—Tex. Bus. Org. Code §301.012(a-1)- (a-3)
Professionals engaged in related mental health fields such as psychology, clinical social work, licensed professional counseling, and licensed marriage and family therapy may form a jointly owned professional entity to perform professional services that fall within the scope of practice of those practitioners. Physicians are excluded from this section.
—See Joint Practice by Certain Professionals—Tex. Bus. Org. Code §301.012(b)
Who is the Governing Authority?
A professional limited liability company is governed by either its members or mangers, depending on the terms of the certificate of formation. Each member or manager must be a professional individual licensed in Texas to provide the same professional service provided by the company.
—See Governing Authority—Tex. Bus. Org. Code §101.251
The governing authority manages the business and affairs of the company as provided by the company agreement and Texas law.
—See Management by Governing Authority—Tex. Bus. Org. Code §101.252
What About Profits?
The profits and losses of the company are allocated to each member of the company based on the agreed value of the contributions made by each member, as stated in the company’s records.
—See Allocation of Profits and Losses—Tex. Bus. Org. Code §101.201
Members are entitled to receive or demand a distribution from the company only in the form of cash, regardless of the form of the member’s contribution to the company. This means that if the member provided real property as his initial contribution to earn an interest in the company, he can only demand a distribution in the form of cash, not the return of the real property.
—See Distribution in Kind—Tex. Bus. Org. Code §101.202
Please speak with your business law attorney if you are considering forming a professional limited liability company. 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