In November of 2018, the Texas Department of Licensing and Regulation (TDLR) adopted regulations governing the names of business entities through which podiatrists may provide professional services. These new regulations included 16 Tex. Admin. Code § 130.50(f), which provides that “[t]he name of a professional corporation created for the practice of podiatric medicine shall include certain enumerated suffixes, including
- (1) (Name), a Professional Corporation;
- (2) (Name), A Prof. Corp.;
- (3) (Name), P.C.;
- (4) (Name), Incorporated;
- (5) (Name), Inc.;
- (6) (Name), Professional Association;
- (7) (Name), P.A.;
- (8) (Name), P.L.L.P.;
- (9) (Name), Professional Limited Liability Partnership;
- (10) (Name), P.L.L.C.;
- (11) (Name), Professional Limited Liability Company;
- (12) (Name), L.L.C.; or
- (13) (Name), Limited Liability Company.
The problems with this portion of the Texas Administrative Code are fairly obvious to most business law practitioners and become more apparent when cross-referencing this list of names with the FAQ promulgated by the Texas Secretary of State for the formation of professional entities. That FAQ, which follows the language of Title 7 of the Texas Business Organizations Code, illustrates the Texas Secretary of State’s position that podiatrists cannot form a non-professional entity such as a standard limited liability company. The FAQ is also in line with Title 7, which states:
“A professional entity or foreign professional entity, other than a professional association or foreign professional association, may provide a professional service in this state only through owners, managerial officials, employees, or agents, each of whom is an authorized person.”Tex. Bus. Org. Code Ann. § 301.006(b) (Westlaw 2019).
While podiatrists may therefore form a practice through a professional limited liability company, the names of these entities are governed by Tex. Bus. Org. Code § 5.059. That section of the Business Organizations Code imposes specific requirements on the names and abbreviations of professional limited liability companies.
“(a) The name of a professional limited liability company or foreign professional limited liability company must contain:Tex. Bus. Org. Code Ann. § 5.059 (Westlaw 2019).
(1) the phrase “professional limited liability company”; or
(2) an abbreviation of that phrase.
(b) A professional limited liability company or foreign professional limited liability company formed before September 1, 1993, the name of which complied with the laws of this state on the date of formation but does not comply with this section, is not required to change its name.
Thus, a clear conflict exists between 16 Tex. Admin. Code § 130.50(f), which is an administrative regulation, and Tex. Bus. Org. Code Ann. § 5.059, which governs the permitted names of business entities in Texas.
Making matters worse, 16 Tex. Admin. Code § 130.50(f)‘s introductory language creates a striking problem – it appears to only authorize the formation of professional corporations for the practice of podiatry. While this appears to be a simple misuse of entity terminology, the language is fairly clear:
“The name of a professional corporation created for the practice of podiatric medicine shall include one of the following suffixes:”16 Tex. Admin. Code § 130.50(f) (Westlaw 2019) (emphasis added).
Clearly, this introductory language has significant problems. It either (i) restricts the practice of podiatry through administrative rules to ONLY a professional corporation (which, it should be noted, is a specific entity type under the Texas Business Organizations Code governed by Titles 2 and 7); or (ii) it is a misuse of the term “professional corporation,” which should be replaced with the term “business entity” or, more appropriately, “entity.”
The proposition that the term “professional corporation” was intentionally used in the introductory language of 16 Tex. Admin. Code § 130.50(f) yields a two absurd results. First, it would restrict filing-entity-based practice of podiatry in Texas to only professional corporations. This would exclude practice under professional associations and professional limited liability companies, each of which is permissible under Title 7 of the Texas Business Organizations Code. Second, it would imply that several incorrect names and abbreviations for a professional corporation could be used, such as “LLP,” “LLC,” “Association,” etc. The use of any of these terms in relation to a professional corporation would violate § 5.054 of the Texas Business Organizations Code.
Another interesting concept in this portion of the Texas Administrative Code is the fact that § 130.50(f) appears to recognize a business entity that does not exist in Texas – the “Professional Limited Liability Partnership” or “P.L.L.P.” While Texas recognizes a number of partnership structures (general partnership, limited partnership, limited liability partnership, and limited liability limited partnership), there is no provision in Title 7 of the Texas Business Organizations Code (which governs professional entities)for a professional version of a partnership or, specifically, a “P.L.L.P.” This is not to say that a podiatrist could not form a limited partnership or limited liability partnership in order to provide podiatric services. Rather, it is simply an illustration of the significant disagreement between the terminology used in this new administrative rule and the Texas Business Organizations Code.
16 Tex. Admin. Code § 130.50(f) appears to do little more than incorrectly attempt to restate the suffix descriptors and abbreviations already set forth under Chapter 5 of the Texas Business Organizations Code. Therefore, the purpose of enacting § 130.50(f) is a bit of a mystery. It is possible that the Texas Commission of Licensing and Regulation desired to add teeth to the professional entity identification language in the Business Organizations Code. However, if that were the case, one would assume that the drafters would have paid more attention to the Business Organizations Code’s language and structure.
Licensees rely on state agencies to properly apply the law. Confidence in an agency’s ability to do so is easily shaken when that agency fails to enact administrative rules that comply with basic concepts of Texas business law. A practitioner reading the current version of the Texas Administrative Code could be easily misled into believing that he or she is allowed to form a number of different non-professional entities (LLCs, for-profit corporations). This could result in the practitioner completing an entity formation only to discover that their professional service could not be provided through the entity they created. With online filings services readily available, the likelihood of such a mistaken formation is very high – for online entity-filing services cannot give legal advice on which entity structure is best for a podiatrist.
The incorrect language in 16 Tex. Admin. Code § 130.50(f) has only been in force for a couple of months as of the date of this post. It should be revised and corrected before its incorrect language causes real trouble – whether in transactions or regulatory enforcement.