5 Entity Formation Documents You Need for Your Texas LLC
Starting a business in Houston, TX?
If you’re one of the millions of people pursuing the American Dream, you believe you can achieve prosperity through determination and hard work. Many people chase that dream by starting their own companies, and this avenue allows them to set their own schedules, work in their own way, and answer to no one. Forming a limited liability company (LLC) is a common and effective way to start a business, and there are many benefits to creating an LLC. There is also some crucial paperwork that needs to be filed for your company to operate legally and safely. We’ll walk you through five entity formation documents you’ll probably need for your Texas LLC. Still, it’s best to seek the legal counsel of a business law attorney before filing any official documents with Texas state offices.
What is an LLC?
Texas companies use all sorts of business structures when they are formed. A limited liability company—or an “LLC”—is a standard business structure used by companies of all sizes due to the liability protection it provides the business owner. It’s a much simpler route than creating a corporation, and LLC formation creates an entity that lets business owners separate themselves personally from the company’s business. This protects the individual’s personal assets and property from liabilities like business lawsuits and debts. Forming a limited liability company also allows the business owner to avoid double taxation on business gains and choose how they want to pay taxes on their business income. They can have the IRS treat the LLC as a separate corporation with separate taxes or set it up as a flow-through entity, which means the owners or investors would claim any gains on their personal tax returns.
Necessary Entity Formation Documents for Texas LLCs
While the ease and simplicity of forming a limited liability company make it a popular business structure for those starting companies, some technical requirements must be followed to ensure your LLC’s legal operation. Here are five crucial legal documents to successfully form your Texas LLC without adverse legal consequences.
Business Name Reservation Application
Choosing a name for your company is the first step in forming an LLC. Your business name needs to be unique and distinguishable from other Texas business entities’ names. Once you’ve chosen a company name, you can reserve it for four months (120 days) by completing an application on the Texas Secretary of State website and paying a fee. One thing you’ll want to do before shelling out cash for your new business’s name is that you’ll want to ensure the domain name you’ll use for the company’s website isn’t taken.
Registered Agent Designation (Form 401-A)
Every LLC needs a registered agent on file, which requires a contact name and address. This individual or business entity will be responsible for receiving official government correspondence related to the LLC on your behalf. For example, correspondence from the IRS regarding the LLC’s federal taxes and the Texas comptroller related to state taxes will be sent to the address of the business or person designated as the LLC’s registered agent. Additionally, any court summons related to lawsuits in which the business becomes involved will be sent to this address.
You have a few options when it comes to who you assign this task:
- You can be your own registered agent
- A friend or family member can serve in this capacity
- You can hire a company or business entity that provides a registered agent service
While you can certainly list yourself or a family member/friend as the registered agent of your LLC, it’s not recommended since the agent has to be available during business hours at the listed address to receive certain government correspondence in person (i.e., subpoenas).
Texas Certificate of Formation
You’ll need to file your LLC with the Texas Secretary of State for your business to officially be an LLC.
The Certificate of Formation you’ll need to file will require a lot of information about your business entity, including:
- Business name
- Business type (i.e., “LLC”)
- The name of your registered agent
- Governing authority
- The purpose of your business
- When your LLC begins business
It is an option to file online for your Texas LLC Certificate by filling out a Certificate of Formation form on the Secretary of State website. If you go this route, you’ll pay a filing fee and get your business registered within a few weeks in most cases. However, the Certificate of Formation form is relatively extensive— including both complex and basic business information—and you want it to be legally sound and beneficial for your purposes. It’s best to enlist the help of a business law attorney to ensure your certificate of formation is properly completed and filed so you can avoid any legal headaches associated with it.
What is a “Governing Authority”?
This section on the LLC certificate outlines the management structure of your new business. You can state that your LLC will be “member-managed,” which means that the LLC owners make business decisions. You can also outline a structure for a “manager-managed” operation. This means that a hired manager or another designated person will make decisions for your business.
LLC Operating Agreement
Operating agreements protect you as the business owner in many ways—whether yours is a single-member LLC or a multi-member one.
Business owners that don’t have LLC operating agreements in place risk personal financial loss and possibly legal trouble down the road:
- Your LLC operating agreement can outline a variety of different things, including:
- Percentage of ownership LLC members share
- How much each initial member contributed when the LLC was formed
- How profits are distributed among members
- Processes for when members sell their share, become incapacitated, or pass away
- Management details (like who has the power to make decisions)
- How the business will be taxed
- How the business will be dissolved if the need arises
While an operating agreement isn’t required for creating a Texas LLC, it’s a crucial document that outlines your business’s rules and operation process. In fact, you may need an operating agreement to attract investors, possible business partners or even open a business bank account.
Employer Identification Number (EIN) Application
Your LLC will likely need an Employer Identification Number (EIN). This is your company’s unique number used by the Internal Revenue Service (IRS) for tax purposes. If your business will have employees, an EIN is crucial.
Even if your LLC has no employees, you may still want or need an EIN if any of the following is true for your company:
- You’ll be applying for certain types of business permits or licenses
- You’ll need a business loan, a business credit card, or a business bank account
- You want your LLC taxed as a corporation
- There’s more than one LLC member
Obtaining an EIN for your LLC is free, and you can file your application online on the IRS website.
Foreign LLCs in Texas
Note that the legal papers and processes discussed above apply only to forming a domestic entity. A foreign LLC will require a separate process, which often comes along with a hefty filing fee and strict penalties if laws associated with foreign LLC business aren’t followed. For a foreign LLC to conduct business in Texas, permission must be granted by the Secretary of State in Texas. The first step is filing a Foreign Limited Liability Company Registration application.
How a Houston Business Lawyer Can Help
Starting a business is exciting but can also be stressful and overwhelming.
Are there legal consequences for choosing the wrong name?
Is your operating agreement legally sound?
How do you know you’re financially protected?
The good news is that you don’t have to navigate the complex legal process of forming a Texas LLC alone. Contact a Houston business lawyer at Titus Law Firm today to ensure your company is created legally, ethically, and in a way that benefits you both today and in the future.