*Author: Gautam Sharma*

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*Date: March 2023*

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Introduction

If you are a licensed professional in Texas looking to start your own business, specifically in the field of law, medicine, accounting, or engineering, forming a professional corporation (PC) may be the right choice for you. A professional corporation is a legal entity that allows professionals to conduct their services under corporate laws, providing benefits such as liability protection and potential tax advantages. In this guide, we will walk you through the process and requirements for forming a professional corporation in Texas.

1. Understanding Professional Corporations in Texas

A professional corporation differs from a regular corporation in that its shareholders must be licensed individuals in a specific profession, and the corporation itself can only engage in the practice of that profession. For example, a PC formed by attorneys can only offer legal services. Professional corporations aim to protect professionals from personal liability related to business debts and malpractice claims from their colleagues.

2. Choose a Name for Your Professional Corporation

Choosing the right name is a crucial step in establishing your professional corporation in Texas. The name must reflect that your business is a professional corporation. Make sure to comply with the Texas Association Inc. naming requirements and check if the desired name is available by conducting a search on the Secretary of State's website.

3. File Articles of Incorporation

To formally create your professional corporation, you must file Articles of Incorporation with the Texas Secretary of State office. The form requires specific information, including:

- The corporation's name

- Registered agent's name and address

- Principal place of business

- Purpose of the corporation - i.e., the specific profession to be practiced

- Number and classes of shares authorized

- Names and addresses of incorporators

You can either file online or download the form from the Secretary of State's website and mail it. Along with the completed form, you need to include the filing fee, which is subject to change, so check the current fee at the time of filing.

4. Draft Professional Corporation Bylaws

The next step is drafting professional corporation bylaws. Bylaws act as an internal rule book for your corporation, detailing the decision-making process, roles and responsibilities of directors and officers, and corporate procedures. While not required to be filed with the state, bylaws provide structure and help your professional corporation operate smoothly.

5. Obtain Required Licenses and Permits

As a professional corporation, you must ensure that your shareholders, directors, and officers hold relevant state licenses to offer professional services. Determine the specific licensing requirements for your profession and obtain or update any necessary licenses before commencing operations.

6. Create a Shareholder Agreement

Having a shareholder agreement among the professionals in your corporation is essential, even if it's not legally mandated. This agreement will outline the rights, responsibilities, voting powers, and share distribution among shareholders. A well-drafted shareholder agreement can avoid disputes and protect the interests of all shareholders.

7. Comply with Texas Tax and Reporting Requirements

As a professional corporation, you must comply with Texas' tax and reporting requirements. Register your corporation with the Texas Comptroller of Public Accounts for tax purposes, and you may also need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Make sure to check with relevant state agencies for comprehensive guidance on tax obligations and ongoing reporting requirements.

8. Maintain Corporate Compliance

To maintain your professional corporation's legal standing, you need to fulfill several compliance obligations, such as holding annual meetings, maintaining updated corporate minutes and records, and filing annual reports with the Texas Secretary of State. Stay organized and keep track of filing deadlines to ensure ongoing compliance.

9. Consider Hiring Professional Services

While forming a professional corporation can be done independently, consulting with an attorney or professional business service can help simplify the process and minimize potential mistakes. Professionals with expertise in corporate law will guide you through the legal intricacies and ensure your corporation is established correctly.

Conclusion

With its liability protection and specific benefits for professionals, forming a professional corporation in Texas can be a prudent step towards independence and growth. By following the steps outlined in this guide, you can establish your own professional corporation and take your professional career to new heights. Keep in mind that laws and requirements may change, so consult the appropriate authorities or professionals for the most up-to-date information.

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