Choosing the optimal business form in Texas can be a challenge. Depending upon your goals, an experienced business formation attorney can help you select the appropriate entity, which may include a sole proprietorship, partnership, corporation, limited liability company (LLC) or a professional entity.
The choice is tailored to your needs, with the key areas of concern being to provide the best tax structure, to develop a capital framework, and to consider how profits and losses will be allocated, along with many other issues over how the company will be operated and who will have control.
LLCs offer flexibility and liability protection
Limited liability companies are one of the more popular business structures. LLCs are hybrid entities that can take on characteristics of corporations and limited partnerships and even of sole proprietorships. Owners have options on how they are taxed, and it is possible to have an unlimited number of owners.
But perhaps the most compelling quality of an LLC is that generally it protects its owners’ personal assets from the company’s debt and lawsuits. LLCs typically allow growth and expansion opportunities while not being bound by the rigid rules facing corporations.
Steps for forming an LLC in Texas
With the help of your attorney, the following actions must be taken in order:
- Choose a name: Your business’ name cannot be the same or too similar to other companies on file with the Texas Secretary of State’s office. The name must also contain “limited liability company,” ‘limited company,” or an abbreviation of either one of those phrases.
- File a certificate of formation: The certificate is filed with the Secretary of State. If the LLC is managed by one or several managers, rather than all the members, that information must be included.
- Create an LLC agreement: This step, while not required by the state, is generally considered essential. These agreements typically include specifics on how the company will be managed, how meetings will be conducted, the capital contributions needed from each member and how profits and losses will be handled.
- Obtain licenses: Your attorney and other professional advisors are good resources to learn the licenses required to operate in the sector and within the community the business is located.
- Determine tax structure: The next step is to request an Employer Identification Number (EIN) from the IRS. LLCs can be taxed as a sole proprietorship, partnership or corporation depending upon what best fits your situation. To elect to be treated as a corporation, a filing with the IRS is required. An additional step beyond that is needed to elect treatment as a subchapter S corporation.
- Open a bank account: To protect your personal assets among other things it is essential to keep your business’ finances separate. One way to do this is to open a business bank account early on. You will need the company’s Tax ID number, a copy of the filed certificate of formation, a copy of the LLC Agreement and a list of authorized signers.
Other requirements for maintaining an LLC
Texas also mandates that certain documents are kept available at the company’s primary place of business. Your attorney will guide you through this process from start to finish.