Texas Medical Practice Formation: PLLC vs. PA vs. Standard LLC

Launching a medical practice in Texas involves navigating complex business and healthcare laws. Many entrepreneurs and physicians mistakenly attempt to form a standard LLC, only to discover later that they are operating illegally and risking their medical licenses. Texas strictly separates corporate business interests from medical decision-making. To ensure compliance, you must form the correct professional entity. Browse our US Lawyers Directory to hire a specialized healthcare attorney who understands Texas compliance.

The Strict Corporate Practice of Medicine Doctrine

The foundation of medical business law in this state is the Corporate Practice of Medicine (CPOM) doctrine, rooted in the Texas Medical Practice Act under Tex. Occ. Code § 164.052. The core principle is simple but rigid: non-physicians cannot employ doctors, nor can laypersons own a medical clinic. This doctrine ensures that medical decisions are made purely for the patient's benefit, uncompromised by corporate profit motives.

Because a standard LLC can be owned by anyone (including non-medical business investors), Texas law outright prohibits physicians from providing medical care through a standard LLC. The precedent Gupta v. Eastern Idaho Tumor Institute, Inc., 140 S.W.3d 747 (TX Court of Appeals 2004) illustrates the strict enforcement and complex joint-venture regulations surrounding medical ownership in Texas.

PLLC vs. Professional Association (PA)

Physicians generally have two choices under Tex. Bus. Orgs. Code § 301.003: a Professional Limited Liability Company (PLLC) or a Professional Association (PA).

Professional Limited Liability Company (PLLC): This is the most popular choice. It operates like a regular LLC but requires all owners (members) to be licensed in the same profession. It offers excellent liability protection and flexible tax options (can be taxed as a mechanics-friendly Sole Proprietorship, S-Corp, or C-Corp).

Professional Association (PA): Historically used by medical professionals before PLLCs existed, a PA operates more like a traditional corporation, with directors and officers. It is often chosen by larger, multi-physician practices or when specifically advised by a CPA for particular corporate tax treatments.

Formation Rules for Specific Medical Professions

The rules for ownership strictly depend on the medical license you hold.

MDs and DOs

Medical Doctors and Doctors of Osteopathic Medicine have the most flexibility within professional entities. However, an MD cannot partner with a chiropractor or a massage therapist in the same professional entity. The Texas Medical Board, Austin mandates that all owners of the entity must be licensed physicians, with narrow exceptions for joint ownership with certain professionals permitted under Tex. Occ. Code § 162.053 and Tex. Bus. Orgs. Code § 301.012.

Dentists

Dentists are regulated by the Texas State Board of Dental Examiners, Austin under the Dental Practice Act (Tex. Occ. Code § 251.001 et seq.). Like physicians, dentists must form a PLLC or a Professional Corporation (PC) where all owners are actively licensed dentists.

Chiropractors

Under Tex. Occ. Code § 201.001 et seq., chiropractors must form their own independent PLLCs. A chiropractor cannot hire a medical doctor to act as a medical director within a chiropractor-owned entity, as this violates the CPOM doctrine.

Medical Spas (Med Spas)

Med Spas are highly scrutinized in Texas. Even if the primary treatments are Botox or laser hair removal, Texas law classifies these as medical treatments subject to physician delegation and supervision rules under 22 Tex. Admin. Code § 193.1 et seq. Therefore, a Med Spa cannot be owned by a nurse, an esthetician, or a business investor. It must be a PLLC or PA owned by a physician. Nurses and investors can only form a Management Services Organization (MSO) to handle the administrative side, which then contracts with the physician's PLLC.

Telehealth Startups

Telehealth companies booming in Dallas and Houston face the same rules. Software developers cannot simply employ doctors to run a telehealth app. They must use the 'Friendly PC/MSO' model, where a Texas-licensed physician owns the PLLC providing the care, and the tech company manages the software platform via a separate standard LLC.

Step-by-Step Formation Process

Step 1: File the Correct Certificate of Formation

To form a PLLC, you must file Form 206, Texas, Secretary of State, Certificate of Formation - Professional Limited Liability Company. To form a PA, you use Form 204, Texas, Secretary of State, Certificate of Formation - Professional Association. Both filings happen with the Texas Secretary of State, Austin.

Step 2: Verify Licensing

During formation, the state requires proof that the organizers or members are actively licensed in Texas for the specific professional service they intend to provide.

Costs and Timelines

• State Filing Fees: $300 to file Form 206 (PLLC) or $750 to file Form 204 (PA) pursuant to Tex. Bus. Orgs. Code § 4.156.
• Legal Fees: Structuring a compliant PLLC and drafting a medical-grade Company Agreement usually costs between $1,500 and $3,500. Setting up a complex MSO agreement for a Med Spa can exceed $10,000.
• Timeline: Filing with the state takes about 5 to 7 days, but obtaining necessary clinic permits from the Medical Board can add weeks to your launch timeline.

Frequently Asked Questions (FAQ)