Forming an LLC in Texas

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How to Form an LLC in Texas

If you own a business and you also own assets, then you might consider forming an LLC. An LLC is a limited liability company that provides the owners with protection for their personal assets. When an LLC is formed, the owners will not be personally liable for any of the debts or liabilities of the company.

Although there are some similarities with corporations, there are also similarities with that of a partnership or sole proprietorship. Each state has different laws, but there are many reasons why you might want to consider forming an LLC in the state of Texas.

Reasons to Form an LLC in Texas

If you do not set up a business as its own entity, you are opening yourself up to the possibility of losing your personal assets. Although no one plans to be sued or run into trouble, forming an LLC can provide you with various protections and benefits as an owner.

Liability Protection

LLCs offer the opportunity to limit your liability as an owner, for business debts. For example, anything that is owned by the LLC can be taken in the event of bankruptcy, but your personal assets cannot.

Flexible Tax Management

LLCs offer different tax advantages compared to a corporation or working as a sole proprietorship. Most often with an LLC, there are no taxes paid by the LLC itself. Instead, owners pay all taxes on profits and losses through their own personal tax returns.

Raising capital

Most businesses seek investors in order to build their business. If you are bringing in other people or companies to contribute funds, then forming an LLC allows you to protect yourself if there are debts owed to these investors.

How to Form an LLC

If you are looking to form an LLC in the state of texas, it is important to note that forming an LLC is different in every state. There are different laws that govern the formation, but typically the beginning step is to form an LLC operating agreement.

After that, you should continue with filing the right forms, and finally, you can pick a name and pay the filing fee.

Choose a Location

To start an LLC, you must file initial paperwork with the state in which you wish to form. If you live in Texas, then you would most likely plan to form in this state.

Choose a Name

When choosing a name for your LLC, there are a few main requirements. Under Texas law, an LLC name must contain the words "Limited Liability Company" or "Limited Company”. Another option is to use one of the abbreviations "L.L.C.," "LLC," "LC," or "L.C." If you wish to include an abbreviation for “limited", it may be abbreviated as "Ltd." or "LTD" and "Company" as "Co."

It is essential that your LLC's name is unique from all of the names of other business entities in your state. These can be found on file with the Texas Secretary of State. Names need to be checked for availability at the Texas Secretary of State website.

Names can also be reserved for up to 120 days. This can be done by filing an Application for Reservation, or Renewal of Reservation of an Entity Name. The filing fee is $40.

You can also use an assumed name, also known as a DBA (doing business as). This is when you do not use your LLC official legal name to do business, and instead, use a different name. In order to do this, you must register an Assumed Name Certificate with the Texas Secretary of State as well. This is $25.

Choose a Registered Agent

Also called a statutory agent, you will also need a registered agent. They must have a legal address in the state of Texas where they can receive mail during normal business hours. You can name yourself, a business partner, manager, or a third party as a registered agent.

Create the Operating Agreement

All states do not require an operating agreement, Despite this, an operating agreement can be extremely helpful to determine exactly how you plan to run your business. It is an internal document and can help to protect your limited liability your LLC will be run. This internal document is important because it will state how you plan to manage your LLC. Otherwise, state law will govern exactly how your LLC must operate.

It is good to be aware that this is not filed with the state. Instead, it sets out how everything will be managed in the LLC and used only when necessary. In your operating agreement you should include:

  • Percentage of member interests in the LLC
  • Rights and responsibilities of all members
  • Voting powers
  • Profit and loss share
  • Rules for meetings
  • Determine what happens when a member wants to sell his or her interest, dies, or becomes disabled.

Create the Certificate of Formation

In order to create a Texas LLC, you do so by Filing a Certificate of Formation for a Limited Liability Company with the Secretary of State. Legally you must include:

  • Name of LLC
  • Name and address of the LLC's registered agent
  • Management structure (member-managed vs manager-managed)
  • Name and address of each initial member (if member-managed)
  • Name and address of each initial manager (if manager-managed)
  • Name and address of the LLC's organizer
  • Effective date of the certificate
  • Signature of the organizer.

Submit Application

The filing fee is $300 in the state of Texas and the certificate must be filed online through the Texas Secretary of State, or through the mail.

Who Should Start an LLC?

Starting an LLC is typically a great option for those who wish to separate their personal assets from their business. If you are a start-up or enterprise and looking for traditional funding options, then this may not be the best option. This might include those who are looking for investors, such as venture capitalists, due to the fact that they may have tax-exempt partnerships that prevent them from investing in LLCs.

Despite this situation, in particular, forming an LLC can protect you personally in many ways. Look into all aspects of what you are trying to achieve, and typically an LLC will help you to achieve that protection.

Work With a Business Attorney

Starting an LLC is easier, and safer, to do with a business attorney by your side. Contact us today to learn more about how we can help you stay in compliance with the law, form an LLC legally, and benefit both you and your business, in the state of Texas.



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