When establishing a medical practice in Texas, physicians often face the decision of forming a Professional Limited Liability Company (“PLLC”) or a Professional Association (“PA”). Both structures offer liability protection, but they differ in governance, flexibility, and tax implications.
Understanding the PA Business Entity
A PA business entity operates similarly to a corporation and, in addition to some specific provisions, is governed by the provisions for for-profit corporations in the Texas Business Organizations Code (“TBOC”).
In this structure, the practice is owned by its members, who elect directors to manage the organization. Directors must also be members, and the president of the PA must be one of the directors. This creates a tightly regulated governance model designed to align management with ownership.
To comply with the legal requirements of a PA, practices must maintain formalities such as adopting bylaws and recording meeting minutes. From a tax perspective, a PA is treated as a corporation by default, taxed as a C-corporation unless an S-corporation election is filed.
This structure’s rigid framework appeals to practices seeking a traditional corporate structure with clear operational rules.
The Professional Limited Liability Company Option in Texas
A PLLC in Texas offers greater flexibility and is governed by the provisions for limited liability companies in the TBOC.
Unlike a PA, a PLLC can be managed by its members or by appointed managers, who do not need to be members themselves. This flexibility extends to operational formalities as well. While a PLLC is not required to hold annual meetings or elect officers, practices can choose to incorporate these features voluntarily to align with their preferences.
Tax treatment is another area where PLLCs stand out, offering options such as being treated as a disregarded entity, a partnership, a C-corporation, or an S-corporation. This adaptability allows practices to tailor their operations and financial planning to better meet their goals, making the PLLC an attractive choice for those seeking a less formal structure.
Choose the Right Entity Structure for Your Practice with ByrdAdatto
Both entities provide essential liability protection for physicians, but the decision between a PLLC and a PA often depends on the governance model, operational flexibility, and tax strategy that best suits the practice.
For a practice seeking a more traditional corporate structure, the PA might be the right choice. On the other hand, for those who prioritize flexibility and customization, the PLLC could be a better fit. Consulting with financial and legal advisors is crucial to navigating these considerations and choosing the most suitable structure for your medical practice. At ByrdAdatto, we guide physicians on the best structure for their business and one that aligns with their long-term vision. Contact ByrdAdatto to learn how to set up the correct entity for your practice.
