Looking to start-up an LLC in Texas? Learn the process and get help from the pros at Wood Edwards LLP.
Starting a new business involves many critical decisions. Along with defining your mission and market, you must decide what type of business structure you prefer. Many companies want to form a limited liability company, or LLC.
The LLC offers many advantages over traditional partnerships. However, you must act diligently to establish an LLC and gain its benefits. At Wood Edwards LLP, we have helped many clients start LLCs and other businesses. Potential clients are often curious about how to obtain an LLC in Texas and may wonder if they can complete the process without legal counsel.
Here, we provide important steps on how to set up an LLC in Texas and share potential cautions for your business.
What Is an LLC?
The LLC emerged as a business structure in Texas in 1991 and became very popular. It combines the liability protections of a corporation with easier formation along with flexible tax and management policies.
An LLC can serve as a business structure for many different types of companies. LLCs may have a single owner or multiple owners, called members.
Why Should You Form an LLC in Texas?
If you are running a business as a sole proprietorship or general partnership, you should consider forming an LLC to gain liability protection. An LLC greatly shields you from personal liability. LLC owners are not personally liable for most business debts.
However, LLC liability shielding is not absolute. If a member does something illegal or unethical, or doesn’t comply with required business formalities, the member could be held personally liable for that action.
An LLC also provides tax advantages, passing tax obligations to owners instead of imposing the “double tax” of a corporation. However, LLC flexible tax structures allow owners to have the LLC taxed as a corporation if desired. Also, LLCs avoid the complicated requirements of corporations, not needing officers, boards, and shareholders.
Five Steps to Start an LLC in Texas
If you’re wondering how to create an LLC in Texas, you should research all legal requirements and proceed cautiously. It is worth putting in the time and work from the start. An LLC in Texas has several requirements, and your effort can save you money in the long run.
To form an LLC in Texas, you need to take careful steps. If you skip a step or incorrectly form the LLC, your company structure might be invalid. In the face of litigation, an incorrectly formed LLC might expose you to personal liability, putting your personal assets at risk.
Here are the five steps you should take to form an LLC in Texas.
Name the LLC
You may already have a company name that you will use when you form an LLC. Make sure your company name complies with Texas naming requirements:
- Your company name must include the words limited liability company, LLC, limited company, or Ltd. Co.;
- Your company name cannot contain misleading words that imply government affiliation, like FBI;
- The company name cannot contain restricted words like Olympic, bank, college, or other words prohibited by the Secretary of State; and
- The name cannot be grossly offensive.
The name must also be distinguishable from those of other Texas LLCs. This difference can be minor, such as one unique keyword. Names that are similar to other Texas LLCs may be used with consent from the other LLC.
To find an available LLC name, search the Texas Comptroller of Public Accounts website for names in use. Also, you may want to check domain name availability and purchase an available domain before settling on an LLC name.
Choose a Registered Agent
You need to select a registered agent for your company. A registered agent receives tax and legal documents, acting as the company’s contact person with the state.
Texas imposes several requirements for registered agents. A registered agent must:
- Be 18 years of age or older,
- Reside in Texas,
- List a Texas address, and
- Be available in person during regular business hours to receive legal documents.
The registered agent must consent to this duty in writing, though you do not have to file the consent form with the Secretary of State. If your company does not have someone who wants to serve as a registered agent, you can hire a registered agent service. A registered agent service allows for greater privacy, as their address is listed on the LLC filing.
File a Certificate of Formation
To form your LLC, you must file a Certificate of Formation with the Secretary of State. You can file this Certificate of Formation online, accompanied by a $300 filing fee. You can also download Certificate of Formation forms and mail them to the Secretary of State, along with the filing fee.
List company name and registered agent
On the Certificate of Formation, list the LLC name and the registered agent.
Select management style
You must also indicate whether the LLC is member managed or manager managed. A member-managed LLC means that all LLC owners manage the company. A manager-managed LLC chooses LLC members or people outside the company to manage it.
List business purpose
You also must list your business purpose on the Certificate of Formation, though listing “general purpose” is usually adequate. If you are hoping to obtain tax-exempt status, you must include language that complies with IRS guidelines.
Write An Operating Agreement
While filing a Certificate of Formation with the Secretary of State satisfies the legal requirements to form an LLC, you should also draft an operating agreement. An operating agreement is an internal document used to outline the management structure and policies of your LLC.
Include these details in your operating agreement:
- LLC members and managers,
- Capital contributions from each member,
- Profit and loss distribution rules,
- How to add and remove members, and
- How to dissolve the LLC.
The operating agreement is not a legally required document, and you do not need to file it with the Secretary of State. However, an operating agreement can help you resolve disputes before they arise and avoid litigation.
Complete Other Business Operating Formalities
There are a few other business formalities that you should comply with for tax and legal protection. Complete these steps after you register an LLC in Texas:
- Apply for an Employer Identification Number (EIN) from the IRS,
- Open a bank account for your business,
- Apply for any required licenses or permits, and
- Obtain business insurance policies.
After completing these last few formalities, you should be ready for business.
Need Legal Advice on Forming Your LLC?
Though the LLC is touted as a simple and efficient way to form a business, it can still feel complicated. Forming an LLC requires making business decisions and filing forms that comply with Texas and IRS legal requirements. The consequences of incorrectly forming an LLC can be financially catastrophic.
Since the LLC offers excellent liability protection when formed correctly, we recommend consulting with an experienced business attorney to make sure you follow legal requirements.
At Wood Edwards LLP, we assist Texas business owners in forming LLCs and litigating business disputes. When you meet with us, we can evaluate whether an LLC or another business structure is right for your company. Then, we will carefully guide you through each step required to comply with Texas and federal law, steering you toward decisions that will minimize your liability and maximize tax savings.
Our lawyers combine talent developed in big firms with the efficiency of a small firm to deliver extraordinary service to each client. Contact us today for a consultation where we can discuss your LLC options. We welcome the opportunity to serve you and your business.