When it comes to business formation, forming a limited liability corporation (LLC), particularly an LLC in Texas, can be done in as few simple steps. Besides the first step, naming the LLC, here’s a list of things that will prove important to know while forming an LLC in Texas. (TRUiC’s website helped us put this together).
Choosing an LLC structure
One of the first things people looking to start an LLC in Texas should know is whether they want to form a single-member or a multi-member LLC. A single-member LLC will have one owner who will have full reign of running and managing the LLC and be entitled to 100% of the profits. Multi-member LLCs, however, are owned by two or more people, referred to as members. Owners of a multi-member LLC share ownership of the LLC, they manage it together and divide profits among themselves according to predetermined arrangements set out in the LLC Operating Agreement, which we will get back to. Deciding on LLC structure is always best done before any other actions are taken and business formation decisions are made.
Finding a Registered Agents
Appointing a registered agent is part of the process of setting up an LLC in Texas. Appointing a registered agent can be rather straightforward when using a professional registered agent service who is authorized to conduct business in Texas. However, if using a registered agent service is not the best option, an individual from the company, including yourself, can be chosen to be the LLC’s registered agent. It is imperative that the registered agent, whether appointed personally or through a registered agent service, is a resident of the State of Texas, has an official postal address in, also in Texas, and is always available during business hours. This is necessary to ensure that all legal documentation, tax forms, notices of lawsuits and government correspondences, pertaining to the LLC, are received by the registered agent in a proficient and timely manner.
The formation documents and other requirements
Having the correction LLC business formation documentation in order is crucial if people would want to speed up the process of filing for their LLCs. In Texas it is required that people file a Certificate of Formation with the Texas Secretary of State that can be done online, through the mail or in-person. This document is a legal document which also states the company name, the name and address of the LLC’s registered agent, the purpose of the LLC and also whether the LLC will be member-managed or manager-managed. Knowing the difference between member-managed and manager-managed LLCs is also something to investigate before formation.
An Operating Agreement is another form LLCs are required to create. It is not necessary that the Operating Agreement be filed with the Texas Secretary of State, however, as an internal legal document outlining the ownership, management structure and operating procedures of an LLC, it is highly advisable for LLC owners to have one drawn up to avoid future risk and conflict. It is also advised that newly formed LLCs obtain an Employer Identification Number (EIN) with the Internal Revenue Service (IRS), a free service offered on the IRS website. EINs will allow LLCs to hire employees, open a bank account, and also allows the IRS to keep track of the LLC for tax purposes.
How LLC are taxed
LLCs afford business certain tax advantages, LLCs qualify for something referred to as pass-through taxation. Pass-through taxation means that an LLC’s profits are transferred directly to its owner or owners, which they report on their individual tax returns to the IRS. LLCs are not subject to corporate tax, instead, an LLC’s profits, once passed on or divided among members are only taxed once at an individual level, on individual income tax returns. The taxes an LLC is subjected to will also depend on whether it is a single-member or multi-member LLC as single-member LLC are not subject to federal tax returns. It’s important to know that the State of Texas also requires LLCs to pay Annual Report and Franchise Tax each year depending on the LLC’s profit margin.
Now knowing everything there is to know about business formation before setting up an LLC in Texas, the next step is visiting TRUiC’s website, and following their step-for-step and video guides on how to form an LLC in Texas today.