As a Texas Business Attorney, I offer many services for small businesses, growing businesses, and entrepreneurs. Among these, if you are looking to start a business, I can help you create your Texas limited liability company (LLC). Contact us today!
Benefits of a Texas LLC:
Limit Personal Liability: shield your personal assets from business liabilities
Separate Legal Entity: also protection for LLC assets
More Flexibility, Less Paperwork: the LLC is the most modern, popular, and flexible business entity
Asset Protection Planning: one or several LLCs are frequently used in asset protection planning (sometimes in conjunction with other entities
Ownership Flexibility: because LLCs are heavily contractual in nature, rather than agency-based, the ownership structure can be modified and customized
Distribution Flexibility: while a corporation is required to pay dividends in lockstep with its ownership percentages, an LLC (depending on drafting and tax treatment) does not necessarily have to follow such strict guidelines
Tax Flexibility (Maybe): LLCs can often elect to be taxed as other entities
… and more
When you hire your Texas Business Attorney to prepare your limited liability company (LLC), there are three main sets of documents that must be prepared. While it is possible to prepare some of these documents yourself, it will likely be necessary to retain a competent Texas Corporate Attorney to prepare a quality set of documents that “covers all the bases.” These three main sets of documents are:
Certificate of Formation
Resolutions (of different sorts)
Operating Agreement or Company Agreement
Below, I will outline a few of the relevant areas that you will need to consider with regard to your LLC. Some of these are questions that your San Antonio Business Attorney will be required to ask you before he or she is able to form your entity; others are simply matters that will behoove you to consider.
The Certificate of Formation
The Certificate of Formation must be filed with the Texas Secretary of State, including any Amendments, etc. The other documents referenced above (and others) need not be filed with the Texas Secretary of State, but do need to be prepared, executed, and kept in the LLC’s minute book.
The Texas Secretary of State publishes a simple, three-page version of the certificate of formation, accompanied by three pages of detailed instructions. This statutory form is the minimum required to form an LLC under the applicable legal requirements. The form itself states that
“The attached form is designed to meet minimal statutory filing requirements pursuant to the relevant code provisions. This form and the information provided are not substitutes for the advice and services of an attorney and tax specialist.”
You will need to appoint a registered agent to accept service of process for the LLC. Because LLCs are not physical bodies that can be found and served with process like natural persons, every entity, including an LLC, is required to keep on file with the Texas Secretary of State’s office a designation of registered agent – i.e., the person who is designated and authorized to receive process on behalf of the LLC or other entity.
Names and Name Availability Searches
In the State of Texas (and in most other states), two entities cannot have the same name, or a confusingly-similar name. Accordingly, the Texas Secretary of State allows anyone to run a name availability search and reserve a name, each for a nominal fee.
In addition, under Texas law, an LLC must include in its name “LLC” or “limited liability company” etc. This is similar to the requirement that Corporations include in their names “Inc.,” “Corp.,” “Corporation,” “Incorporated,” or similar and the requirement that Limited Partnerships include in their names “Ltd.,” “Partners,” etc.
DBAs (Doing Business As)
Speaking of names, if you would like to do business under a different name than your LLC’s name, you will want to file an assumed name certificate. These are sometimes known as “DBAs” (“doing business as”). They’re simply nicknames – not entities.
An LLC can be managed directly by its members, or it can be managed by managers. A member-managed LLC is simpler and more flexible, while a manager-managed LLC looks somewhat more like a traditional corporation – managers being analogous to directors in the corporate context, and members being analogous to shareholders in the corporate context.
After considering the alternatives, you should inform your Texas Business Attorney which of the two you prefer.
Under Texas law, entities are required to declare their purpose on the certificate of formation. If an LLC attempts to undertake an action that is outside of its declared purpose, the action might be declared null and void, under the doctrine of ultra vires (literally “beyond the powers”.)
Fortunately, Texas, like many other states, permits general purpose statements – and while the use of general purpose language is likely the most common nowadays, there nonetheless are many reasons why a business owner might want to bind his or her LLC’s hands a little bit with a slightly more restrictive purpose designation in the LLC’s certificate of formation.
A Texas LLC also provides a basic level of privacy and anonymity – it makes it somewhat harder to determine ownership of assets (certainly not impossible! just a little harder). While this privacy and anonymity is less than that found in some other states, it may still be a consideration for some.
Texas LLC Formation FAQs
Below I will attempt to address a few of the common questions asked when talking about how to start an LLC in Texas:
What is required to form an LLC in Texas?
First and foremost, you must file a certificate of formation with the Texas Secretary of State. This certificate can be a custom form prepared by a business attorney or the form provided by the Texas Secretary of State’s office. It is of utmost importance that the certificate of formation be completed fully and accurately, including information such as: the name of the LLC, whether the LLC will be managed by members or managers, the mailing address of the company, the name and address of the company’s registered agent, and more information. In most cases, you are well-advised to consult with a high-quality Texas business attorney to help you file the certificate of formation.
How do I fill out the LLC certificate of formation in Texas?
Depending upon whether you are using an attorney-prepared certificate or the form provided by the Texas Secretary of State’s office, the method will be slightly different. If you are using an attorney to file your LLC, discuss the information required with your attorney. On the other hand, if you are using the state-prepared form, you will need to read and follow the instructions of the form closely
What are other LLC Formation Requirements in Texas?
One thing that is required to form an LLC, corporation, or partnership in the state of Texas is the nomination of a registered agent. Because an entity is a legal creation that does not have a physical body, serving an LLC or other entity with process or documents requires the owner/organizer of the LLC to nominate a “registered agent” to receive such papers on its behalf. You are required to keep that registered agent on-file with the state and updated. Additionally, it is required to provide the LLC’s business address and initial mailing address.
What are the benefits of a Veteran-Owned LLC in Texas?
Texas offers some fantastic tax benefits for LLCs owned by veterans! For example, it grants veteran-owned entities a franchise tax exemption beginning in 2022 (and in some previous years) and also waives filing fees from time to time. If you would like to know more about the ways that Texas takes care of its veterans, you can read my blog article Texas Reinstates Franchise Tax Exemption for Veterans beginning in 2022 addressing this exact topic.
Who can own an LLC in Texas?
While, under federal tax rules, foreign ownership can have serious tax consequences, and while obtaining an EIN can be difficult, as a legal matter there are relatively few restrictions on who may own an interest in a Texas LLC.
Do I have to live in Texas to form a Texas LLC?
No, you can live anywhere you want and form or own a Texas LLC. However, as mentioned above, you will need to maintain a registered agent in the State of Texas in order to accept service of process on the LLC’s behalf.
Can an Accountant form an LLC in Texas?
Most accountants or CPAs will refuse to form an LLC, on the grounds that this is well into the gray area of “potentially engaging in the unauthorized practice of law” so if your accountant or CPA offers to form an LLC for you, this may be a red flag. To illustrate why: if your lawyer makes an error in the LLC process that ends up costing you money or causing problems, you will likely have a claim against the lawyer’s malpractice insurance and the damage of the error may be relatively limited. If your accountant or CPA, on the other hand, makes an error in the LLC process that causes damage, their accountants’ insurance will likely refuse to cover the claim because forming LLCs is outside the practice of accounting – it is the practice of law.
In other words, tread very carefully here and talk to a good Texas business lawyer about your LLC – it’s money well-spent.
Other Considerations + Conclusion
There are many more considerations that apply to the formation of your Texas LLC that you will want to discuss. As a San Antonio business attorney, I counsel clients and new business owners on such matters on a weekly (sometimes daily) basis. Feel Free to contact me if you have any questions regarding the process of forming your Texas LLC.
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