A limited liability company, or LLC for short, is a common entity used by small business owners and investors alike. Texas Business and Organizations Code (TBOC) Section 101 governs limited liability companies in Texas. A “simplified version” of a corporation, limited liability companies allow owners to operate their business without the immense paperwork and formalities of an incorporated entity while still offering liability protection and federal tax elections.
Forming a limited liability company should not overwhelm you. Below are 5 key items to remember when forming a Texas limited liability company:
1. Certificate of Formation
The Certificate of Formation is the first document necessary in the formation of your Texas limited liability company. This document provides the name, address, organizer, registered agent, managers (if any) and members of the limited liability company. The certificate of formation is filed with the Texas Secretary of State along with their payment form.
Be sure to check if the name you want is available for use with the Texas Secretary of State. Luckily, if you're in a hurry to form your limited liability company, there is an expedited filing option you can mark on the top of their payment form.
You can visit the Texas Secretary of State and view their forms at https://www.sos.state.tx.us/index.html.
2. Company (Operating) Agreement
The company agreement is the operating document for a Texas limited liability company. This could be considered the nuts and bolts of how your limited liability company will operate. This document includes, but is not limited to, sections such as managers' duties, capital accounts, officers' duties, taxes, mediation, liabilities, etc.
A company agreement should be tailored for your limited liability company. Form documents can leave out very important information or clauses specific to your business.
3. Unanimous Written Consent Agreement – Organizational Meeting
When forming your limited liability company, the managers and/or members need to establish and memorialize items such as officer positions, tax matters agent, fiscal year, ownership percentage, principal office and filing the certificate of formation.
Occasionally an organizational meeting is held and those items are recorded in a written consent agreement or resolution. Many times a unanimous written consent agreement is drafted and executed allowing the members and/or managers to sign off-site.
Companies operating in Texas are required to have a Federal EIN. This number is very important for everything from taxes to opening a bank account and obtaining financing for your limited liability company.
Once your limited liability company is formed, the paperwork received from the Texas Secretary of State should contain a filing number and date of filing. These items will be necessary for EIN application. Be sure to keep this paperwork in a safe place (copies are always a good idea).
You can apply for an EIN online at https://www.irs.gov/businesses/small-businesses-self-employed/how-to-apply-for-an-ein or follow the instructions to file by other methods.
5. Tax Filings
How your limited liability company is treated as a taxable entity by the IRS depends on whether you file the proper forms. Limited liability companies should have a tax matters agent appointed to handle both federal and state tax items.
A single-member limited liability company is treated as a disregarded entity and filed on Schedule C of your income taxes unless otherwise designated. Multi-member limited liability companies are treated as a partnership unless otherwise elected.
Form 8832 must be prepared and submitted to the IRS in order to make an entity classification election to be treated as a corporation. For more on tax classification election and for Form 8832, visit the IRS online at https://www.irs.gov/forms-pubs/form-8832-entity-classification-election.
There are many online legal services offering "more affordable" company formations. While these services might be great in a pinch, many fail to offer specific document customization and legal advice throughout the formation process. If you decide to use the online route, be sure have your documents reviewed by an attorney for proper protection and compliance of your LLC.
A Texas limited liability company is a great option for small business owners or investors to offer liability protection without the demands of traditional incorporation. Since every business has unique needs, consulting an attorney before filing or finalizing formation is recommended to make sure you are properly protected.
The information is not offered as legal advice upon which anyone may rely. Information in this article is provided for public informational and educational purposes only. No attorney-client relationship is created by the offering or reading of this article. This law firm does not represent you until expressly retained by written agreement. It is recommended that you seek legal and professional counsel for your individual circumstances prior to taking any action with legal implications.