How to Open a Limited Liability Company (LLC)

Limited Liability Company

If you’re doing business — or considering doing business — in Texas, you may be curious about the benefits of forming a corporate entity. For small businesses, in particular, a specific type of corporate form, the limited liability company (LLC) has certain advantages. This structure can limit your personal liability for business debts and lawsuits and give you flexibility when it comes to owning and managing your business.

In Texas, a lawyer can help you file the appropriate paperwork to form a LLC. In addition, your legal counsel can help you take the necessary steps to protect your interests and your business. In particular, having an operating agreement is critical to avoiding problems that may arise over the life of your LLC.

If you are interested in forming a Texas LLC, an El Paso business law attorney can help you with the process. From assisting with the forms to advising you of legal requirements to drafting an operating agreement, having a lawyer on your side will make the process smoother and will help to ensure that your company is formed in an effective manner.

Forming a Texas LLC

If you choose to organize your company as a limited liability company, then you must take certain steps under Texas law in order for the formation to be legally valid. An attorney can help you with the process, ensuring that the paperwork is properly filed in order to protect your business interests.

As an initial matter, you will need to choose a name for your entity. For LLCs, this name must contain the words “Limited Liability Company,” “Limited Company,” or an abbreviation of the same (such as LLC or LC). If you want to use a different name for doing business, you can do so by registering that name (a “doing business as” or DBA name) with the state.

The name that you pick must be distinct from other business names. You can check to see if a particular name is available through the Texas Secretary of State website. After selecting a name, you can reserve it for up to 120 days.

Once you have selected a name, you can begin the process of forming a LLC. This includes designating a registered agent and filing a Certificate of Formation for a Limited Liability Company with the Secretary of State. This form can be filed online through the Secretary of State’s website, or via mail.  

After Formation: What Comes Next?

Once your limited liability company has been formed, you may be ready to get to work. However, there are still some things that you should do in order to more effectively run your LLC and to preserve it as a separate business entity.

In Texas, operating agreements are not required for LLCs. They are generally recommended to set out the rights and responsibilities of the members and managers. Without an operating agreement, state law will govern how your LLC will be run. 

A well-drafted operating agreement should include the percentage interest that each member has in the LLC, how profits and losses will be allocated and buyout provisions. In addition, it should outline the members’ rights and responsibilities, their voting powers, and rules for how meetings will be held and votes will be taken. An El Paso business law firm can work with you to ensure that your operating agreement covers all relevant matters for your company.

Depending on the type of business that you are in and the number of members that you have, you may need to take additional steps to comply with federal and state law. For example, you may need to obtain a business license from the Texas Department of Licensing and Regulation (TDLR). For businesses that sell goods and collect sales tax, you will also need to register with the Texas Comptroller of Public Accounts.

If your LLC has more than one member, or if it will have employees, you will be required to obtain an Employer Identification Number (EIN). Although Texas does not require LLCs to file annual reports, you will still be required to file annual franchise tax reports with the state. This requirement is for all Texas LLCs.

Mistakes to Avoid in Forming a Texas LLC

One of the biggest errors that people make when it comes to forming an LLC is believing that their business is too small to qualify — or that there is no benefit to becoming an LLC. For sole proprietors and small business owners, there are significant advantages to forming an LLC. In particular, an LLC protects your personal financial interests in the event that the company is sued. Any size business can form an LLC in Texas.

Other businesses make a mistake by believing that it is enough to register their LLC by following steps one through three above, and then not taking any further steps. While doing the bare minimum does lead to the formation of an LLC, it may not be enough to get real asset protection or to clearly document your relationship with partners. At the very least, all LLCs should have an operating agreement in place to protect all interested parties and to avoid being held personally liable for the company’s debts.

Similarly, failure to maintain the LLC can also lead to personal liability. After the initial formation, you must do certain things to maintain the business’ status as a septet entity. This includes having the members meet at least once per year, keeping records, paying federal and state taxes, and maintaining a separate bank account. If you do not take these steps and a lawsuit is filed against you, then your personal assets could be at risk.

While forming an LLC may appear to be simple, don’t be deceived by the ease of the process. In order to truly protect yourself and ensure the viability of your company, you should work with an El Paso business law attorney and follow their advice on both the formation and operation of your LLC.

Interested in Forming an LLC? We Can Help.

If you’re a small business owner, then you probably already know how to run your company day-to-day and make it profitable. We can help you take your business to the next level while helping you protect yourself and your assets. If you are interested in forming a Texas LLC, reach out to an experienced business lawyer to assist you with the initial paperwork, draft an operating agreement, and ensure that you have complied with all applicable laws and regulations for your company.

At Forbes & Forbes, we have substantial experience representing businesses of all sizes in the greater El Paso area. We offer a range of services, from business formation to commercial collections to real estate and construction disputes. To learn more or to schedule a consultation with a member of our team, contact us today at 915-533-5441 or email us at any time.

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