Key Takeaways

  • Texas LLC Formation: Covers the steps to form an LLC in Texas, including name reservation, Certificate of Formation, and other legal requirements.
  • Supplemental Provisions for Texas LLCs: Provides additional clauses in an LLC's Certificate of Formation to clarify operations, ownership rights, and management.
  • Business Purpose Requirements: Texas does not strictly require an LLC to state a specific business purpose, but supplemental provisions can provide clarity.
  • Online vs. PDF Filing: Explains both online and paper filing methods for forming a Texas LLC.
  • Nonprofit LLCs in Texas: Covers special considerations for forming a nonprofit LLC.
  • Importance of an Operating Agreement: While not legally required, having a well-drafted operating agreement with supplemental provisions can prevent disputes.
  • Tax Considerations and Compliance: Discusses the tax structure, including franchise tax obligations for LLCs in Texas.

How to Form an LLC in Texas

Business structures for Texas LLCs give members incentives in legal and financial areas. Members cannot be responsible for personal debts incurred by others, such as if one member defaults on a home equity loan.

In addition, one or more members cannot assume liability for debts and obligations belonging to the LLC. The LLC also offers additional flexibility when compared to corporations, as well as tax benefits.

In order to form an LLC in Texas, you must follow a few steps:

  • Locate a registered agent in Texas who can receive legal papers served on the LLC.
  • Find the Texas Business Organizations Code (BOC) online and check the rules regarding naming business entities.
  • Contact the Texas secretary of state's public information office to search the database of current business names.
  • Nominate one person to sign formation documents.
  • Visit the secretary of state's website to download and print the Certificate of Formation Limited Liability Company form.
  • Specify if the LLC's governing authority has managers or members.
  • Describe the LLC's business purpose.
  • Enter the organizer's name and address on the form and have the organizer sign it.
  • Send the form by mail, fax, or hand-deliver it.

Supplemental Provisions in a Texas LLC Certificate of Formation

Supplemental provisions are optional clauses included in an LLC’s Certificate of Formation to define how the business operates beyond standard legal requirements. These provisions can clarify ownership rights, establish management structure, and set operational guidelines. Some common supplemental provisions include:

  • Membership Rights & Responsibilities: Clarifies the roles and obligations of members, including voting rights and capital contributions.
  • Management Structure: Specifies whether the LLC is member-managed or manager-managed, along with decision-making authority.
  • Dissolution Terms: Defines conditions under which the LLC may be dissolved and how assets will be distributed.
  • Restrictions on Transfers: Limits or outlines how ownership interests may be transferred to maintain control among select members.
  • Business Purpose Statement: Although Texas does not require a specific business purpose, including one can help in contracts and tax filings.

Does an LLC Need a Business Purpose?

An LLC resembles a partnership, but each partner has full protection from personal liability. The owners, also called members, must file the Articles of Organization to define the company's purpose. Included in the business purpose are the following:

  • Articles of Organization. Members state the name, address, members, and purpose of the partnership.
  • General Purpose Statement. This clause states the LLC will comply with tax laws and business guidelines.
  • Specific Purpose Statement. Although not always necessary depending on the state laws, this states the LLC's mission statement.
  • Nonprofit Purpose Statement. Some states let LLCs organize as nonprofits rather than corporations.

Taxation and Compliance for Texas LLCs

Texas LLCs must comply with state tax obligations, even if they elect to be taxed as an S-corp or C-corp. Key tax considerations include:

  • Franchise Tax: Most Texas LLCs must file and pay a state franchise tax based on revenue.
  • Federal Tax Classification: LLCs can be taxed as sole proprietorships, partnerships, S-corporations, or C-corporations, depending on elections made with the IRS.
  • Sales Tax Obligations: If selling taxable goods or services, the LLC must register for a Texas sales tax permit.
  • Employer Taxes: If the LLC has employees, it must register for state and federal employment taxes.

For personalized tax planning, consult an experienced attorney on UpCounsel.

How to Start an LLC in Texas: Online Filing

If you opt to start your Texas LLC through online filing, follow a few steps to streamline the process.

  • Log into your account on the Texas secretary of state website to access the online filing portal.
  • Provide the filing fee payment information.
  • Click on the Business Organizations link and locate the Domestic Limited Liability Company option. Click File Document.
  • Select Certificate of Formation and click Continue.
  • Choose your organization type, whether it's a standard or professional LLC, and give the name of the LLC.
  • Give the registered agent name and address.
  • Specify if managers or members manage the LLC.
  • List supplemental information and attach a letter of consent, if applicable.
  • Enter the name and address of the organizer, as well as signature.
  • Click Submit Filing when complete.

Common Mistakes When Filing a Texas LLC

Many business owners make avoidable mistakes when filing their Texas LLC, such as:

  1. Incomplete Certificate of Formation: Missing required fields can lead to rejection.
  2. Failing to Designate a Registered Agent: Texas law requires a valid agent for service of process.
  3. Not Defining Supplemental Provisions Clearly: Vague or missing provisions can create legal uncertainties.
  4. Ignoring Texas Franchise Tax Rules: Many LLCs forget to file their annual franchise tax report.
  5. Skipping the Operating Agreement: Though not legally required, this document helps avoid internal disputes.

How to Start a Texas LLC: PDF Filing

If you would rather file your Texas LLC documents via PDF, there are also a few steps you must follow:

  • Download the professional Certificate of Formation, and enter the name of the entity, name of registered agent, business address, nature of the management, LLC purpose, name and address of organizer, date, and signature of organizer.
  • Print the document, sign it, and make a duplicate copy.
  • Attach a filing fee payment in the form of check or money order. You can also pay via credit or debit card.
  • Apply for an Employer Identification Number (EIN). The IRS uses the EIN to keep track of tax-withholding businesses in the United States.

How to Start a Nonprofit in Texas

If you're looking to start a nonprofit organization in Texas, the Texas Business Organizations Code (BOC) governs these groups. Complete the following before you start a Texas nonprofit.

  • Select a name for the organization. The name cannot be the same or similar to that of one already in use.
  • Prepare the Certificate of Formation. In this document, you must have the proposed name, a statement specifying it is a nonprofit, its purpose for formation, if it has membership provisions, the names and addresses of its board of directors, a statement describing the distribution of assets in case of dissolution, and any supplemental information.
  • Submit documents for incorporation. Print two copies of the Certificate of Incorporation and have the organizer sign the original. The registered agent also must sign consent to serve on behalf of the organization.
  • File the incorporating fee. You can pay via check, debit or credit card, or money order.

Supplemental Provisions for Nonprofit LLCs in Texas

Nonprofit LLCs have unique requirements when including supplemental provisions. These may cover:

  • Charitable Purpose Clause: Ensures alignment with IRS tax-exempt rules.
  • Restrictions on Earnings Distribution: Specifies that profits must support the nonprofit's mission.
  • Dissolution Clause: Ensures assets are transferred to another nonprofit upon dissolution.

Nonprofit LLCs should consult with a legal professional to ensure compliance with IRS and state regulations.

Frequently Asked Questions

  1. Are supplemental provisions required for a Texas LLC?
    No, but they are highly recommended for clarifying operational and ownership structures.
  2. Can I change supplemental provisions after forming my LLC?
    Yes, amendments can be made by filing a Certificate of Amendment with the Texas Secretary of State.
  3. Do supplemental provisions affect an LLC’s tax status?
    Not directly, but they can influence how profits and responsibilities are allocated among members.
  4. Is an operating agreement required for a Texas LLC?
    No, but it is strongly advised to define governance and prevent disputes.
  5. What happens if I don’t include supplemental provisions?
    Your LLC will operate under Texas default rules, which may not suit your business needs.

If you need help with a supplemental provisions information example, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.