Choosing the right business entity structure is a critical step for Black lawyers launching solo practices or forming small law firms in Texas. The structure you select affects your personal liability, tax obligations, compliance requirements, and eligibility for minority-owned business certifications. Texas law offers several entity options, but not all are appropriate—or even permissible—for legal professionals. Understanding the differences between a PLLC, LLC, S Corporation, and sole proprietorship is essential to build a compliant and tax-efficient practice.

This guide outlines the available legal structures, registration process, tax consequences, and strategic advantages for Black lawyers aiming to form and grow a law firm in Texas.

What Are the Main Business Entity Options for Lawyers in Texas?

In Texas, lawyers are limited to certain business entity structures due to professional regulations set by the State Bar and the Secretary of State. The most common options include the Professional Limited Liability Company (PLLC), Professional Association (PA), Sole Proprietorship, and, in some cases, Limited Liability Partnership (LLP) for multi-attorney firms.

A PLLC is the most popular choice for solo practitioners. It offers liability protection, complies with state bar rules, and allows pass-through taxation. Unlike a standard LLC, a PLLC is specifically designed for licensed professionals, including attorneys, doctors, and architects.

A Professional Association (PA) is another entity used by some law firms. It functions similarly to a corporation but is limited to individuals in the same licensed profession. A sole proprietorship—operating under your own name or a DBA—offers simplicity but lacks liability protection.

Regular LLCs and corporations are not allowed for law practices in Texas unless they are specifically structured as professional entities. Always verify the legality of your entity type with the Texas Secretary of State and the State Bar before proceeding.

LLC vs S Corp for Solo Law Practice: Which Is Better?

Black solo attorneys often face the choice between forming a PLLC taxed as a disregarded entity (default) or electing S Corporation status for potential tax savings. While both offer limited liability, they differ in how income is taxed and how owners pay themselves.

A PLLC without S Corp election is treated as a sole proprietorship for tax purposes. You report all profits and losses on Schedule C of your personal return and pay self-employment tax on net income.

By contrast, a PLLC electing S Corporation status files Form 1120-S and must pay the owner a “reasonable salary” through payroll. Remaining profits can be distributed as dividends, which are not subject to self-employment tax. This structure can save thousands annually in taxes, especially once your net income exceeds $75,000.

However, S Corps come with additional compliance requirements: quarterly payroll, state filings, and bookkeeping standards. If you’re just starting your law firm or earning inconsistent income, it may be better to wait before converting to an S Corp.

The decision between PLLC and S Corp should depend on your profit level, risk tolerance, and growth plans—and it’s best made with the help of a CPA experienced in legal practices.

How to Register a Legal Business Entity in Texas as a Lawyer

Registering a legal business in Texas involves several steps, all of which must comply with both state laws and bar regulations. Here’s how Black lawyers can officially form a compliant entity:

1. Choose an Entity Type: Select between PLLC or PA. Confirm your eligibility as a licensed attorney in Texas.
2. Reserve Your Business Name: Make sure it includes “PLLC” or “PA” and does not imply other services outside of law.
3. File Certificate of Formation: Use the Texas Secretary of State’s SOSDirect portal to submit Form 206 (PLLC) or Form 208 (PA). Include your professional license number.
4. Obtain EIN from the IRS: Even if you’re a solo attorney, an Employer Identification Number is required for banking and tax filing.
5. Register for State Taxes: Most solo law firms in Texas will not owe sales tax, but you may need to file for franchise tax exemptions.
6. File with the State Bar: Notify the Texas Bar of your new firm and update your contact details.
7. Create an Operating Agreement: Though not mandatory, a written document outlining firm operations is advised for all PLLCs.
8. Open a Business Bank Account: Maintain financial separation between personal and business expenses.

You may also consider certifying your business as a minority-owned enterprise, which provides access to grants, contracts, and business development programs through entities like the Texas Comptroller HUB Program.

What Are the Tax Implications of Different Business Structures

Each business structure comes with distinct tax obligations that affect how profits are reported, how much you owe in self-employment tax, and whether you’re eligible for certain deductions or credits.

A sole proprietorship or PLLC (default tax) passes income directly to the owner. You’ll pay:

• 15.3% self-employment tax on net income
• Federal income tax based on your individual tax bracket
• Quarterly estimated taxes using IRS Form 1040-ES

A PLLC taxed as an S Corporation allows you to divide income between reasonable salary (subject to employment taxes) and dividends, which are not. This structure is commonly used to reduce self-employment tax liability once your practice generates steady profits.

Corporate structures (including PAs) may face Texas franchise tax, though many small law firms qualify for the No Tax Due threshold if revenue is under $2.47 million.

Keep in mind:

• Business expenses such as malpractice insurance, bar dues, CLE courses, software, and rent are all deductible
• You may also qualify for the Qualified Business Income (QBI) deduction, which offers up to 20% off taxable income, though service-based firms like law practices have limitations at higher income levels

Consult a CPA familiar with professional service firms and Texas tax code to maximize your after-tax income.

How Should Minority-Owned Law Firms Choose Their Entity Structure?

For Black lawyers in Texas, structuring your law firm strategically can unlock not only tax advantages but also access to statewide and national programs for minority-owned businesses.

Choosing an entity like a PLLC or PA allows you to apply for Historically Underutilized Business (HUB) certification through the Texas Comptroller’s Office, which increases your visibility in state contracting opportunities.

Additionally, the Small Business Administration (SBA) and National Minority Supplier Development Council (NMSDC) offer resources, networking, and financial support to qualifying minority-owned legal practices. Some of these programs require specific ownership thresholds and active participation in business operations.

Entity structure also affects your ability to receive grants, loans, and government contracts targeted at Black-owned firms. For example:

• A formal entity is usually required for federal 8(a) Business Development Program certification
• LLCs and S Corps are easier to qualify for professional liability insurance and business credit lines

Choosing the right structure helps position your firm not just for compliance and tax savings but also for economic empowerment through certification and recognition.

What Is the Best Entity Structure for Legal Tax Savings?

The best entity structure for tax savings will vary depending on your income level, number of employees, and long-term business goals. For most solo Black lawyers in Texas, the PLLC taxed as an S Corporation offers the best blend of liability protection and tax optimization.

By paying yourself a reasonable salary and classifying the remaining income as distributions, you can reduce your self-employment tax burden, potentially saving thousands annually. For example, a solo attorney earning $150,000 net profit could save $6,000 to $9,000 per year in taxes by electing S Corp status compared to a standard PLLC.

Additional benefits include:

• The ability to set up a Solo 401(k) or SEP IRA with higher contribution limits
• Clear separation of personal and business finances for audit protection
• Eligibility for QBI deductions, if income thresholds allow

However, this setup requires formal payroll, quarterly filings, and close accounting oversight. It’s not cost-effective for firms earning under $60,000 in net profit unless future income is expected to grow.

When Should a Lawyer Consult a CPA or Legal Advisor for Entity Planning?

Business entity planning should not be done in isolation. Solo attorneys and small law firms should consult with both a CPA and a business attorney to evaluate risks, tax strategies, and compliance requirements.

A CPA can:

• Analyze your income potential to determine if S Corp election is worthwhile
• Help set up payroll systems and advise on deductible expenses
• File IRS forms for entity conversion and ensure compliance with quarterly tax payments

A business attorney can:

• Draft your PLLC operating agreement
• Review state bar restrictions on naming and advertising
• Ensure your entity documents meet Texas legal standards

You should also review your entity structure annually or after any major business change—such as hiring employees, expanding services, or exceeding revenue milestones.

Choosing the wrong structure can expose you to unnecessary liability, tax penalties, or even professional misconduct if your firm fails to meet legal requirements.

Final Thoughts

For Black lawyers in Texas, selecting the right business entity structure is more than a legal formality—it’s a strategic decision that impacts your income, growth potential, and access to equity-focused business resources. Whether you’re launching a solo practice or building a small law firm, understanding how to structure your business for tax efficiency, professional compliance, and long-term security is essential.

The PLLC structure remains the most popular and legally compliant option for solo attorneys, with the S Corporation election providing substantial tax benefits once profits are consistent. Minority-owned law firms should also explore HUB certification and other programs that recognize and uplift Black legal entrepreneurs in Texas.

Professional guidance from a CPA and legal advisor ensures your law firm is built on a solid foundation. With the right structure, your practice can thrive—not just legally, but financially and strategically.