Before you jump to the fun stuff, like creating logos and branding, you need to file some paperwork to take advantage of that limited liability and protect yourself in case the business doesn't work out.
LLCs are governed by state law, and each state has its own guidelines for forming an LLC. Here are the rules for forming an LLC in Texas.
Decide if you want a lawyer's help.
You don't need a lawyer to form an LLC in Texas. But lawyers can save you a lot of time and energy, as well as protect you from liability in case your business doesn’t work out.
Lawyers also are less likely to make mistakes on paperwork, which will prevent a lot of future headaches. Read up on a few reasons why you need a lawyer.
Pick a name and search its availability.
One important aspect of your business is its name. Your business name must include some variation of the term “Limited Liability Company,” “Limited Company,” LLC, or LC. You want to put people, especially creditors, you’re dealing with as a business on notice that you are limiting your liability and they can’t come after your personal assets, such as your car or home.
Your LLC’s name should be different from names of businesses already registered with the Texas Secretary of State. You can check the availability of your LLC name at the Texas Secretary of State’s SOSDirect website. If the name of your LLC is the same or too similar to another LLC, corporation, or limited partnership then you will not be allowed to establish your business and will have to refile. So conducting a search beforehand will save you a lot of time and money on filing fees.
You don’t have to use the LLC name registered on the Certificate of Formation. You can use another name, called a DBA (doing business as), by registering an Assumed Name Certificate (Form 503) with the Texas Secretary of State and the county clerk. You can register online through SOSDirect or by mail.
Furthermore, you should search through the U.S. government’s trademark database (a trademark is the sign or name that people use to identify your company, i.e. the checkmark for Nike). If you are creating a brand, you want to make sure no one out there already has a claim on that name, or a close variation of it.
Customers generally expect the domain name of a company website to match the business name, so conduct a search to see if the domain name is available.
Once you settle on a name, you can reserve the name for 120 days. Fees and instructions for reserving a name are included on the Application for Reservation or Renewal of Reservation of an Entity Name (Form 501).
File the Articles of Organization
An LLC is formed by filing a Certificate of Formation for a Limited Liability Company (Form 205) with the Texas Secretary of State.
You must appoint an agent for service of process, who will be responsible for accepting legal papers for the LLC. The agent can be either a Texas resident or a business registered in Texas, but can’t be the LLC itself. You can find more information on registered agents at the Texas Secretary of State’s website.
The Articles typically include:
- The name of your LLC
- The purpose of the LLC, i.e. the services your business will offer
- The name and address of the agent for service of process, so if someone wants to sue your LLC, there is a public record of where the LLC may be served.
- Whether your LLC will be member-managed or manager-managed
- Pay the state filing fee
- The name, address, and signature of the LLC’s organizer
- Effective date of the certificate
You may file the Articles online or by mail for $300.
No Annual Reports Required
In Texas, LLC’s are not required to file annual reports with the Secretary of State. But the LLC is still required to file franchise annual tax reports. You can find more information at the Texas Comptroller’s website.
Create an Operating Agreement
An Operating Agreement is not required in Texas, but is highly recommended even though it is not filed with the state. This document usually dictates how the LLC will be governed, otherwise state LLC laws will govern. This agreement can also help preserve the owners’ limited liability by ensuring that the LLC is treated as a separate business entity.
The operating agreement should include:
- The allocation of the members’ ownership interests in the LCC
- Member rights and responsibility
- Member voting powers
- The allocation of profits and losses
- Procedures and rules governing meetings and voting
- Procedures for when a members want to exit the LLC
Get an EIN Number
You will next want to get an EIN for your Texas LLC, which is basically a Social Security number for your business. The Employer Identification Number (EIN) is a nine-digit number issued by the IRS to identify a business entity and keep track of a business’s tax reporting.
You’ll need an EIN number to:
- To open a business bank account for the company
- To file Federal and State taxes
- To hire employees
After forming your LCC, you can get an EIN from the IRS for free online.
What did we tell you? It's not so easy to form an LLC. But if you want to protect yourself, you will. And one of our lawyers can make the whole process easier.
This article is intended to convey generally useful information only and does not constitute legal advice. Any opinions expressed are solely those of the author, not LawChamps.
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