The Advantages of an LLP Over a PLLC in Texas

By Jeffry Olson, J.D.

The Advantages of an LLP Over a PLLC in Texas

By Jeffry Olson, J.D.

An LLP, or a limited liability partnership, and a PLLC, a professional limited liability company, are both business entities that offer limited liability and pass-through taxation to members. Both are options for professionals starting businesses in the state of Texas; however, the PLLC has been recognized for a shorter period of time. Although the PLLC is the newer option, there are still situations in which an LLP has advantages over a PLLC.

Man typing at desktop computer

Filing Paperwork

Filing an LLP in Texas requires less paperwork than filing a PLLC. When a business creates an LLP, it must complete and file articles of organization with the Secretary of State. Texas does not require an LLP to designate a registered agent, though any LLPs that were not formed in Texas but are conducting business in the state must have a registered agent.

While when forming a PLLC an operating agreement, referred to as a "company agreement" in Texas, isn't required, it's an important aspect to consider including so there's never doubt on the rues within the company. In addition to filling out the articles of organization, the professional license number of each member must be included. After the necessary documents are completed, they must be sent to the Texas state licensing board before the Secretary of State.

Consider Status

PLLCs are a relatively new creation in the state of Texas. As a result, many of the older, established firms in the state are organized as LLPs. This often means little or nothing to a new business owner. However, in more conservative professional businesses—such as some law firms—perceptions matter, and this makes an LLP more attractive.

Consider the importance of prestige to your firm and its potential customers when deciding between an LLP and a PLLC.

Nationwide Availability

Every state in the country recognizes LLPs, while not every state recognizes PLLCs. This doesn't matter to a business that operates solely in the state of Texas, but many businesses choose to expand into other states.

The nationwide recognition of LLPs eliminates one potential problem for future business expansions. Remember, while a business may currently have no plans for expansion, this may change with new members and opportunities.

Texas Margin Tax

Texas does not assess personal state income tax, but does have a margin tax that requires businesses in the state to pay a franchise tax based on their taxable margins. PLLCs in the state of Texas are subject to the margin tax.

Historically, debate existed over whether LLPs would be subject to the margin tax. As a result, many businesses formed as limited or general partnerships to avoid the margin tax, which Texas legislature amended to include all businesses with any type of limited liability. An LLP that provides limited tax liability to its partners is subject to the Texas margin tax. However, the issue is controversial, and the law could change in favor of LLPs sometime in the future.

While both forms of business are available in the state of Texas, the LLP offers advantages that a PLLC does not. An LLP is easier to create, requiring minimal paperwork. For a conservative business, an LLP provides more prestige, as LLPs have been in existence in Texas for a longer period of time. Consider the benefits of an LLP when selecting a form of business in the state of Texas.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.