What is a Texas Public Information Report (PIR)?

A Public Information Report in Texas is an annual report made to the Texas Comptroller under Tax Code Section 171.203 by "any corporation or limited liability company on which the franchise tax is imposed even if those businesses are not required to pay the tax". 

The report generally must contain:

• the name of each corporation or limited liability company that the filing business owns 10% or greater interest in and the percentage owned; 
• the name of each corporation or limited liability company that owns a 10% or greater interest in the filing business;
• the name, title, and mailing address of officer or director of the filing business when the report is filed and the expiration date of each of the terms;
• the name and address of the agent for the service of process for the filing business ; and
•  the address of the business’s principal office and principal place of business.

The report must be sent to all of the filing business’s non-employee officers and directors. Finally, a person authorized by the filing business must sign the report and certify that all of the information in the report is correct and that a copy has been sent to all of the required people.

Interesting to note, a public information report is only required of LLC's and corporations (S corps and C corps), but it appears to not be required for other entities, like limited partnerships or limited liability partnership.  Also, it is filed with the Texas Comptroller's Office (not the Texas Secretary of State), for the Comptroller will forward same to the Secretary of State.  The report is mailed by the filing business to the non-employee officers and directors so that said officers have the opportunity to object to their inclusion with a sworn statement disclaiming the role (to avoid potential imposed liability).

(Drafted by Eric Rupe; Edited by Marc L. Lippincott for the firm.)

What is a Texas PLLC?

PLLC stands for “professional limited liability company.” In fact, PLLCs are nothing more than LLCs (limited liability companies) that perform a professional service. Of course, this explanation is meaningless without first understanding the form and function of an LLC in Texas.

Choosing a business form is one of the most critical decisions that a fledgling business must make. There is no shortage of options: the sole proprietorship, general partnership, limited liability partnership (LLP), limited liability company (LLC), and corporation are just a few of the many business forms available to choose from.

Yet among this myriad of choices, one business form has skyrocketed in popularity in the last decade: the LLC. Relatively speaking, the LLC is a recent business innovation. It was created by legislatures to combine three highly desirable characteristics of businesses: (1) limited liability to owners; (2) pass-through tax treatment; and (3) flexible management structure.

Limited liability to owners is a characteristic that LLCs share with limited liability partnerships (LLPs) and corporations. This means that one owner of the business cannot automatically be held liable for another owner’s wrongdoing. Depending on the nature of that wrongdoing, the suing party may be able to recover from the LLC’s assets, or personally from the business owner at fault, but he or she cannot automatically recover personally from a business owner who was not involved. This may seem intuitive, but sole proprietorships and general partnerships—even today—do not shield innocent business owners in this way.

Pass-through tax treatment is a characteristic shared by nearly all business forms except for the Subchapter C Corporation. This is only to say that LLCs are not “double-taxed.” LLC business owners only pay income tax on their own income—they do not need to pay an additional tax on the LLC’s overall income.

Flexible management structure is the hallmark of the LLC. Most other business forms in Texas are bound by numerous statutory requirements. And while many of these requirements are “subject to agreement otherwise,” some provisions cannot be contracted around. In contrast, LLCs experience virtually complete freedom of contract regarding which terms they can dictate for their business. They are even able to disclaim the fiduciary duty of loyalty that would otherwise exist between business partners.

So how is a PLLC any different from a regular LLC? The only essential difference is that PLLCs are founded by “professionals” to conduct business within their profession. Texas law considers the term “professional” to include areas in which a license is necessary to practice (such as physicians, architects, and attorneys). But why would professionals chose a PLLC instead of an LLC? Simply put: Texas law says they have to.

The distinction is perhaps because lawmakers thought it necessary to reign in the near-absolute freedom of contract possessed by LLCs. Professionals are generally held to a higher standard than other occupations, and so it would seem counterintuitive to allow them to disclaim fiduciary duties to other partners or to clients.

The formation of a PLLC is governed by a separate provision of the Texas Business and Commerce Code than that of an LLC. Aside from this fact, the precise difference between a PLLC and LLC in practice is not obvious. It bears reemphasizing that LLCs and PLLCs are relatively recent business innovations, and case law—as well as statutory provisions—will likely continue to develop over the next several years.

***This article was prepared by Matt Lloyd and edited by Chloe Love.

Individual State Tax Liabilty for Corporate Officers

The reason that most corporations are formed are to provide limited liability to its shareholders, and to shield officers and directors of small businesses from many liabilities of those companies. However, there are some distinct areas where shareholders may have liability for the actions of the company.

One of the most common "veil piercing" comes up in situations where a company collects sales taxes as part of its operations. Many officers and directors of companies do not realize that they can be held individually liable for taxes collected and not paid to the state. An example of this, and a good discussion related thereto, can be found in the case State of Texas v. Crawford, a recent case out of the 3rd Court of Appeals in Texas.

The statute dealing with individual liability for tax collection is found in the Texas Tax Code Section 111.016 (emphasis added):

§ 111.016. PAYMENT TO THE STATE OF TAX COLLECTIONS.
(a) Any person who receives or collects a tax or any money represented to be a tax from another person holds the amount so collected in trust for the benefit of the state and is liable to the state for the full amount collected plus any accrued penalties and interest on the amount collected.

(b) With respect to tax or other money subject to the provisions of
Subsection (a), an individual who controls or supervises the collection of tax or money from another person, or an individual who controls or supervises the accounting for and paying over of the tax or money, and who wilfully fails to pay or cause to be paid the tax or money is liable as a responsible individual for an amount equal to the tax or money not paid or caused to be paid. The liability imposed by this subsection is in addition to any other penalty provided by law. The dissolution of a corporation, association, limited liability company, or partnership does not affect a responsible individual's liability under this subsection.

(c) The district courts of Travis County have exclusive,
original jurisdiction of a suit arising under this section.

The Crawford facts are probably not that uncommon; that is, a party fails to property designate a contract as taxable in the accounting, but taxes are invoiced and collected. After a tax audit shows the error, the state seeks collection against a company that cannot pay the liability, and bank accounts get frozen. The twist here is that the State tried to claim that the officers wilfully failed to pay the tax, therefore they sought payment from the officers responsible for the taxes not getting paid. Although here the court found that the business owners did not wilfully withold payment, but they do state that knowledge of the failure to pay is not required to find wilfullness.

But if you are an officer of a company, be aware that you may be held liable by the state for failure to pay state taxes (which would include payroll and sales tax collections) should the company fail to remit.