Choosing Between an LLC and PLLC in Texas: My Journey as a Mental Health Therapist

Let’s start with the basics: what is an LLC? If you’re thinking of setting up a private practice then you might have come across the term “LLC,” without fully understanding it. 

An LLC is a Limited Liability Company; not a corporation, and not a sole proprietorship. Instead, an LLC combines the two. The business is treated as a sole proprietorship for tax and financial purposes, and a separate entity for litigation.

No, you don’t need an LLC for a private practice, but it may be the best choice for your company. Alternatively, you could become a sole proprietor. 

This is often seen as the easier option, as the business is tied to you as an individual. However, it limits growth, and leaves you as an individual open to litigation.While it is a matter of personal opinion, many consider the LLC to appear more credible than sole proprietorship. If you’re just starting your private practice and you’re looking to attract clientele, it might be better to register as an LLC (or PLLC).

Stepping out on my own as a mental health therapist in Texas came with many decisions. One of the first and most pivotal was whether to establish my practice as an LLC (Limited Liability Company) or a PLLC (Professional Limited Liability Company), or remain a sole proprietor. Here's what I've learned and considered during this decision-making journey:

Differences I Discovered

Type of Services Offered:

LLC: This structure seemed versatile, suitable for a broad array of business activities.

PLLC: Tailored specifically for professionals like me (a psychologist), the PLLC is designed for those holding licenses in their areas of expertise. In Texas, certain professionals (think doctors, lawyers, etc.) need to choose this structure if they opt for a limited liability company setup.

The Formation Process:

LLC: The simpler route. I'd only need to file a Certificate of Formation with the Texas Secretary of State.

PLLC: This requires the same Certificate of Formation, but I'd also need to present evidence of my licensure in the state. 

Liability Considerations:

Both LLC & PLLC: Offer protection for personal assets against business debts. Like LLCs, each member of the PLLC enjoys limited liability within the company. Additionally, PLLC members are not liable for the negligence of any other member of the PLLC. 

Pros/Cons I Weighed

Considering an LLC:

Pros:

Seemed easier and quicker to set up without the need for professional board approval.

Ideal if I considered offering a mix of services, not strictly related to therapy.

Cons:

There's the possibility that this might not be the right legal choice for my profession in Texas. I realized I'd definitely need to seek legal advice first.

Contemplating a PLLC:

Pros: Recognized and often expected for licensed professionals, giving me some added credibility. The perk of protecting my personal assets from potential business issues was appealing.

Cons: That extra step of getting professional board approval could mean more time and effort. 

The Internal Revenue Service does not recognize either LLCs or PLLCs for tax purposes. This means that you need to decide if you want to be taxed as an individual, a partnership, or an S Corp regarding your tax structure. 

Ultimately, whether choosing an LLC or PLLC largely depended on the nature of the services I envisioned offering and the legal requirements of our great state of Texas. As I navigated this, I found it essential to balance my individual needs and aspirations with what was legally and professionally appropriate. If you're in a similar position, I strongly advise consulting with legal and tax professionals. They've been invaluable in helping me make an informed decision, which ultimately was a PLLC.