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Texas LLC

What is an LLC in Texas?

A Texas LLC is created by filing a certificate of formation with the Texas Secretary of State. The Secretary of State provides a form that meets minimum state law requirements. Online filing of a certificate of formation is provided through SOSDirect.

The limited liability company (LLC) is not a partnership or a corporation but rather is a distinct type of entity that has the powers of both a corporation and a partnership. Depending on how the LLC is structured, it may be likened to a general partnership with limited liability, or to a limited partnership where all the owners are free to participate in management and all have limited liability, or to an “S” corporation without the ownership and tax restrictions imposed by the Internal Revenue Code. Unlike the partnership, where the key element is the individual, the essence of the limited liability company is the entity, requiring for its creation more formal requirements. 1 William D. Bagley & Phillip P. Whynott, The Limited Liability Company, §2.10, (2d ed. 2d rev. James Publishing, 1995).

The owners of an LLC are called “members.” A member can be an individual, partnership, corporation, trust, and any other legal or commercial entity. Generally, the liability of the members is limited to their investment and they may enjoy the pass-through tax treatment afforded to partners in a partnership. As a result of federal tax classification rules, an LLC can achieve both structural flexibility and favorable tax treatment. Nevertheless, persons contemplating forming an LLC are well advised to consult competent legal counsel.

A limited liability company can be managed by managers or by its members. The management structure must be stated in the certificate of formation. Management structure is a determination that is made by the LLC and its members. The Secretary of State cannot give advice about management structure.

 

What are the benefits of having an LLC?

Asset Protection. When you form a Texas LLC it becomes a separate legal entity apart from the members. This means that the LLC itself can own assets, enter into contracts, and be liable for its own debts. If the LLC cannot pay its debts, the creditors can normally only go after the assets owned by the company and not the personal assets of the members. However, the members can also be held responsible for LLC’s debts in certain situation

Pass-through taxation. LLCs typically do not pay taxes at the business level. Any business income or loss is “passed-through” to owners and reported on their personal income tax returns. Any tax due is paid at the individual income tax rate.

Less compliance requirements. The LLC has to file an annual Texas franchise tax return and a federal tax return however it does not have to do an annual Stockholders meeting every year.

Flexible management structure. The LLC can establish a flexible organizational structure agreed upon by the members. LLCs can be managed by the members or managers, unlike corporations that have a board of directors who oversee the day-to-day business operations of the company.

Few ownership restrictions. There are only a few restrictions on who can be an LLC member or how many members they can have unless S-corporations.

What is the difference between an LLC and a corporation in Texas?

The main difference between an LLC and a corporation in Texas is the taxation. An LLC in Texas and a S corporation are “pass-through” tax entities. A corporation is taxed as a separate entity.

How much does it cost to get an LLC in Texas?

The Certificate of Formation is filed online through the Texas Secretary of State website using SOSDirect, fax, or by mail. The State filing fee is $300. We can take care of the complete filing process for you. Just click on the red “Get Started” button to start the process.

What are Corporate Bylaws?

Corporations adopt what are known as Corporate Bylaws. These are the rules agreed upon by the shareholders for managing various aspects of the company including:

  • How and when to elect or remove Directors.
  • How and when to appoint or remove Officers.
  • When the Annual Shareholders meeting is held and what kind of notice needs to be given.
  • What kind of records need to be maintained.

What is a Texas LLC Operating Agreement?

The Operating Agreement is the governing document of your Texas LLC. It is not required to file with your Certificate of Formation. However, it needs to be put together immediately upon receiving your approved Certificate of Formation. It’s best to consult an attorney to draw up this document. An Operating Agreement details out the following:

  • Who Your Members Are & Their Ownership Percentages
  • Rights & Responsibilities of Members
  • Member Shares of Profits & Losses
  • Management Structure (Member-Managed or Manager-Managed)
  • Amendment Process
  • Buy-In & Sell-Out Rules & Procedures
  • Asset Distribution in Wake of Dissolution
  • Rules for When a Member Leaves or Dies

Do I Really Need an Operating Agreement?

Yes. The Operating Agreement lays out the expectations for all members of the limited liability company and their roles, rights, and responsibilities. By putting this together from the beginning, it ensures that all the LLC members are clear about who will do what, how any disagreements of operations are handled, and exit strategies of dissolution.

It is the Operating Agreement that determines ownership of the LLC.  If ever a legal situation concerning ownership of the LLC arises, a court would look to the Operating Agreement to determine who owns what and who is entitled to what. If there is no Operating Agreement, then the court may decide whom the ownership of the LLC is and what shares they are entitled to.

Where Do I File My Operating Agreement?

The Operating Agreement is not filed with the Texas Secretary of State. It is an internal document only. However, when opening a business banking account, some banks will ask to see your Operating Agreement.

What is a Series LLC in Texas?

A Series LLC, formed under Texas law, is an LLC that provides in its governing documents for the establishment of a series of members, managers, membership interests, or assets that have separate rights, obligations and liabilities and business purposes from the general LLC.

Benefit Of A Texas Series LLC

The main one is liability protection. The debts, liabilities, expenses, and obligations from each of the individual series are enforceable only against the assets of that series.

The Texas Series LLC provides a means of insulating the assets of one series from the liabilities and obligations of the main LLC. The Texas Series LLC can be the perfect entity choice for a real estate investor or someone that has multiple large assets or lines of business.

How Do You Start An LLC in Texas?

To get an LLC in Texas, you must file a document called a Certificate of Formation. You file the Certificate of Formation with the Texas Secretary of State. There is a $300 filing fee required by the State. You can file the document online on the Texas Secretary of State’s website (SOSDirect). The appropriate steps to form an LLC in Texas are:

  1. Choose a name for your Texas LLC
  2. Hire a registered agent service for privacy purposes or you can be your own (not advised)
  3. Choose whether the LLC will be Manager-Managed or Member-Managed
  4. Purpose of your Texas LLC
  5. File a document called Texas LLC Certificate of Formation (Form 205)
  6. List the Organizer (person filing the Certificate of Formation)
  7. Sign and date the Certificate of Formation
  8. File online through SOSDirect and pay $300 with credit card (fastest) although Fees paid by Credit Card are subject to the statutorily authorized convenience fee of 2.7% of total fees. You can mail the Certificate of Formation into the Secretary of State at P.O. Box 13697, Austin, TX 78711-3697 along with a check for $300
  9. Within 1 to 2 business days you’ll receive an email with a .pdf file attached from the Texas Secretary of State providing the approved certified filing copy of the Certificate of Formation.
  10. Apply for your federal employer identification number with IRS online for by fax
  11. Create an Operating Agreement (this does not get filed with Texas Secretary of State’s office)
  12. Take the approved documents to the bank and open a corporate bank account
  13. If you are going to sell taxable goods or services, you’ll need to get a Texas Sales Tax Permit online through the Texas Comptroller of Public Account’s website

 

Texas LLC Formation one-time $375 includes:

  • *Free corporate name research
  • *Preparation of your Certificate of Formation
  • *Texas Secretary of State filing fees
  • *Processing of your Articles of Organization
  • *Receive employer identification number
  • *FREE first year Texas Registered Agent Service (renewal only $49/year)
  • *Receive approved Certificate of Formation and EIN confirmation via your Client Portal

Processing usually takes 2-3 business days to complete!

Texas Comptroller of Public Accounts office filing requirement by May 15th of every year.

Texas Secretary of State

 

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