By Preston R. Polk
You may have noticed that the title to this post does not include the word “conversion”, the nomenclature used to describe the process of changing formal entity types. No, this is not a mistake—rather, an intentional point that is the inspiration of this post.
When an entity chooses to convert into a different type of entity, a conversion must take place. A traditional conversion requires the adoption of a plan of conversion, the approval of the plan of conversion by the converting entity, the filing of a certificate of conversion for the converting entity and the converted entity (if converting to another jurisdiction), and the filing of a certificate of formation for the converted entity. Following a properly executed conversion, the converting entity continues to exist as the converted entity—this is true even if converting from a Texas limited liability company (LLC) to a Delaware corporation.
However, if you formed a Texas LLC and later determined that a professional limited liability company (PLLC) was the appropriate entity choice, changing from an LLC to a PLLC cannot be accomplished with the traditional conversion structure identified above. Instead, the change must be accomplished by filing an amendment to the certificate of formation to change the name of the entity and identify the professional purpose.
Why might an LLC want to change to a PLLC? Some professions, such as attorneys, dentists, physicians, and veterinarians, are legally restricted from operating through entities unless they operate through professional entities, such as a PLLC.
If a Texas LLC determines that it should change into a Texas PLLC, the change must first be approved by the LLC’s members and managers, if any. Such approval should specifically adopt an amendment to the LLC’s certificate of formation that (1) changes its name from “LLC” to “PLLC,” and (2) identifies the PLLC’s professional purpose. Upon obtaining such approval, the LLC would then file the amendment with the Texas Secretary of State. Upon the acceptance of the amendment by the Secretary of State, the company would continue its operations as a Texas professional limited liability company.
To the contrary, if you formed a Texas corporation and later determined that a professional corporation was the appropriate entity choice, changing from a corporation to a professional corporation may only be accomplished with the traditional conversion structure identified above.
In short, making the switch from a Texas LLC to a Texas PLLC is a short process when compared with the traditional conversion process. Nonetheless, there is still a process that must be followed to accomplish the change in compliance with Texas law.
This article is provided for educational purposes only and does not constitute legal advice. Cantey Hanger LLP encourages you to consult with an attorney to assist you in making any changes to your company’s entity structure.
Preston Polk is an attorney in Cantey Hanger’s Business Transactions practice area. He can be reached at ppolk@canteyhanger.com.