LLC, PLLC, or S-Corp: Picking the Right Texas Entity Structure
LLC versus S-Corp is a question that collapses two different decisions into one. The business owners who benefit most from the election are exactly the ones holding an LLC.
·6 min read·Last reviewed on April 23, 2026
LLC versus S-Corp isn't actually a question. An LLC is a state-law entity; an S-Corp is a federal tax election. The two answer different questions, can coexist on the same business, and collapse into one decision only on filing-service websites and founder forums where the distinction doesn't survive the marketing copy.
The cost of the conflation is real. Founders who think they're choosing between an LLC and an S-Corp end up either forming the wrong entity, electing the wrong tax treatment, or making the S-Corp election too early and getting stuck with payroll obligations that outweigh the self-employment tax savings. Licensed professionals get an additional layer of exposure: a lawyer, doctor, or architect in Texas who forms a standard LLC instead of a PLLC has formed the wrong entity entirely, and the mistake can compromise the liability shield the filing was supposed to create.
There are three separate decisions here, and they're best made in order. What kind of entity to form. Whether to elect S-Corp tax treatment for that entity. And whether the profession requires a Professional LLC rather than a standard one. The order matters because the second and third decisions both presuppose an answer to the first.
What an LLC Actually Is
An LLC is a creature of state law. In Texas, it's formed by filing a Certificate of Formation with the Secretary of State under the Texas Business Organizations Code, which creates a separate legal person that can own property, sign contracts, sue and be sued, and insulate its owners from personal liability for the entity's debts. The liability shield is the point. Without it, every dollar the business owes is a dollar the owner owes, and the line between personal and business assets isn't one the law recognizes without the entity sitting between them.
Federal tax treatment is a separate question. By default, a single-member LLC is a disregarded entity (income flows to the owner's Form 1040), and a multi-member LLC is taxed as a partnership (income flows to members on K-1s). Both are forms of pass-through taxation; neither pays federal income tax at the entity level. For many businesses, that default is fine and doesn't need to be changed. For some, a tax election makes it meaningfully better. That's the second decision.
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Texas adds one wrinkle founders often miss. The state doesn't have a personal income tax, but it does have a franchise tax that applies to LLCs and most other entities above a revenue threshold. The no-tax-due threshold is $2.47 million for 2024-2025 reports and $2.65 million for 2026, so most small businesses owe nothing on the tax itself. What changed recently is the reporting side: SB 3 (2023) eliminated the No Tax Due Report starting with 2024 reports, so entities under the threshold no longer file that form, but a Public Information Report (for LLCs and corporations) or Ownership Information Report (for most other entities) is still required every year. Texas-forming founders should know the franchise tax is a thing, and that the filing obligation survives even when the tax does not, before they're surprised by it in year two.
When the S-Corp Election Earns Its Keep
The S-Corp election is a federal tax election filed on IRS Form 2553 that changes how the LLC's income is reported, not what the LLC is. After the election, the entity is still an LLC under Texas law, with the same operating agreement, the same membership interests, and the same liability shield. What changes is that the owner-operator has to be paid a reasonable salary as a W-2 employee, with remaining profit distributed as a K-1 distribution that isn't subject to self-employment tax.
The value of the election lives in that last clause. Self-employment tax runs 15.3 percent on pass-through income up to the Social Security wage base (roughly $185,000 for 2026, indexed annually), with the 2.9 percent Medicare component continuing above it. An S-Corp election can exempt the distribution portion from self-employment tax, so a business with $200,000 of profit that pays the owner a $90,000 reasonable salary saves self-employment tax on the $110,000 distribution. The savings compound at scale.
The election doesn't earn its keep everywhere. There's real administrative overhead: quarterly payroll filings, a W-2 by January, a more complex 1120-S return instead of a Schedule C or a 1065. Most accountants price that overhead at $1,500 to $3,000 a year, and a payroll service adds another $500 to $1,200 on top. The math generally works when net profit clears roughly $40,000 to $60,000 above the reasonable salary threshold; below that, the overhead eats the savings. We've seen founders make the election before the numbers supported it and spend the first three years paying more in compliance costs than they saved in self-employment tax. The math is worth doing before the election, not after.
The election also constrains the estate plan. An S-Corp has eligibility requirements (no more than 100 shareholders, no non-resident alien shareholders, only certain kinds of trusts can hold S-Corp interests) that don't apply to a plain LLC. A revocable trust can hold S-Corp stock while the grantor is alive, but at death the trust has to qualify as an Electing Small Business Trust or a Qualified Subchapter S Trust, or the S-Corp election blows up. That's not a reason to avoid the election. It's a reason to coordinate the election with the estate plan so the trust is drafted to qualify from the start.
The PLLC Question
Licensed professionals in Texas have their own entity type. A Professional LLC is a variant of the LLC designed for what Texas calls a "professional service": under the Texas Business Organizations Code (§ 301.003), that's any service that requires, as a condition of lawful performance, a license issued by a licensing authority of the state. The functional test matters because the list of covered professions isn't static; rather than enumerating specific fields, the statute sweeps in whichever professions require licensure under Texas law at the relevant time. Law, medicine, dentistry, architecture, engineering, accounting, veterinary medicine, and several others fall inside the definition by operation of their respective licensing regimes. The Texas statute prohibits licensed professionals from rendering their professional services through a standard LLC. They have to use the professional form (PLLC for an LLC-style entity, PC or PA for a corporate-style entity), and membership has to be limited to individuals who themselves hold the relevant professional license.
The confusion we see most often is owners of professional-services businesses forming standard LLCs because their filing service didn't ask the right question. An unlicensed person can own a standard LLC that sells marketing services or general consulting; a licensed professional cannot use a standard LLC to sell their professional services. We most often see this where a licensed professional has been operating through a standard LLC for two or three years and didn't realize the formation was wrong until something prompted a closer look (often a bar audit, a malpractice policy application, or an estate-planning engagement). If the entity was formed incorrectly, the liability shield it was supposed to create may be unavailable when the professional actually needs it. The fix is usually a statutory conversion to a PLLC, which preserves the EIN and contract continuity described in our post on moving LLCs across forms; in older cases where conversion is messier, a merger or fresh formation can be the right call instead.
The PLLC doesn't change the tax questions. A PLLC can elect S-Corp treatment on the same terms as a standard LLC. It has the same operating agreement structure, the same pass-through default, the same integration points with an estate plan. What it adds is the professional-practice overlay: restrictions on who can be a member, requirements about which services can be rendered through the entity, and supervision rules that vary by licensing board.
How the Three Decisions Stack
The sequence we recommend runs this way. First, establish the entity type, which is almost always an LLC for unlicensed owners and a PLLC for licensed professionals, with rare exceptions for businesses that need corporate-style equity structures (employee stock options, venture-backed financing) where a C-corp makes more sense. Second, once the entity exists and has a year or two of revenue data, evaluate whether the S-Corp election earns its keep given the actual profit numbers and the administrative overhead. Third, coordinate the entity structure with the estate plan so that the trust is drafted to qualify as a permissible S-Corp shareholder if the election is made, and so the operating agreement contemplates trust ownership of the membership interest.
Getting the order wrong produces expensive corrections. An S-Corp election made before the revenue justifies it is revocable, but the revocation costs time and creates a mismatch in the tax year. A standard LLC formed for a licensed professional has to be converted or abandoned. A trust drafted without contemplating S-Corp eligibility can be amended, but if the grantor dies before the amendment, the election is at risk of blowing up at the worst possible moment.
None of these decisions is esoteric, and all of them get harder to undo once the wrong answer is embedded in filings, contracts, and tax returns. Our intake at /get-started asks about entity type, tax election, and professional licensure together because the right answer to each depends on the answers to the others.
By Connor McGarvey · McGarvey Law · Dallas, Texas
This article provides general information about Texas law as of its publication date and does not constitute legal advice. Reading this article does not create an attorney-client relationship between you and McGarvey Law or any of its attorneys; such a relationship is formed only by a signed written engagement agreement. The attorneys of McGarvey Law are licensed to practice in Texas; the law of other jurisdictions may differ. Prior results do not guarantee a similar outcome.
Responsible Attorney: Connor McGarvey, Texas Bar No. 24126967
McGarvey Law is a law firm licensed to practice in the State of Texas. The information on this website is for general informational purposes only and does not constitute legal advice. Viewing this website or submitting an intake form does not create an attorney-client relationship. An attorney-client relationship is only formed upon the signing of a written engagement letter and payment of the agreed-upon fee.
Estate planning is not a recognized specialty area by the Texas Board of Legal Specialization. Results vary based on individual circumstances.
LLC, PLLC, or S-Corp: Picking the Right Texas Entity Structure | McGarvey Law
