Texas Liability Company: Everything You Need to Know
A Texas liability company falls under the governing laws of the Texas Business Organizations Code (BOC).3 min read
A Texas liability company falls under the governing laws of the Texas Business Organizations Code (BOC). The BOC is a set of laws in which all Texas business organizations are set to follow. The Code was enacted in 2003 to replace multiple other laws such as:
- The Texas Limited Liability Act
- Texas Revised Limited Partnership Act
- Texas Revised Partnership Act
The laws that apply to a Texas LLC include Title 1 which will apply to all organizations, Title 3 which is specific to LLCs, and Title 7 if the LLC is a professional one.
Types of Texas LLCs
There are three primary types of LLCs that operate in the state of Texas including domestic LLC, Foreign LLCs, and Professional LLCs. Two less common LLCs in Texas are non-profit LLCs and Series LLCs.
1. Domestic LLCs
The majority of LLCs in the state of Texas are domestic LLCs. In short, this means that they are formed under the governing laws of Texas. An LLC that was not formed in the state can still become a domestic LLC by converting it through filing the appropriate paperwork.
To form a domestic LLC, you will need to file a certificate of formation with the Texas Secretary of State's Corporations Section. Most LLC attorneys in the state can file the appropriate paperwork for any business.
This certificate will need to be filed before the LLC creates its operating agreement and applies for an EIN.
Filing the certificate of formation is the first step in setting up the business. Since the form is relatively simple to fill out, many businesses believe that it will provide them with all the protection of liability they need. Unfortunately, this is not the case, and a well-drafted operating agreement is a necessity for the business to ensure it is protected.
2. Foreign LLCs
Forming a foreign LLC does not mean that it was formed in another country, it simply means it was formed under another governing body besides the state of Texas. Before a foreign LLC is allowed to perform business in the state, they are required to file with the Texas Secretary of State Corporations Division along with a $750 filing fee.
There is a specific list of transactions that count as doing business in the state. For example, an LLC that holds a title to real estate in the state does not need to register as a foreign LLC with the state just to own the property. Though if they decide to sell or lease the real estate, that may constitute a business transaction in the state if certain conditions are met.
It is important to find out from the state what the requirements are as they cannot always be clear, but there are bad consequences if they are not filed. If a business is found liable for a civil penalty and they are not appropriately registered they will not only have to pay the liability but also fines and penalties for failing to register. It is also important to remember that a foreign LLC does not have the right to bring suit in the state of Texas.
3. Professional LLC
A professional LLC, which is often referred to as a PLLC, is an LLC formed to provide professional services. Examples of professional people who may form an LLC include:
When a PLLC is formed, it will provide the protection for its members from personal injuries or financial bills associated with the LLC. To form a professional LLC, you will need to have all the necessary professional licenses required by the state.
There are a few steps you will need to take before forming a PLLC is Texas such as:
- Including professional limited liability company or PLLC in the name
- Make sure each professional member has the necessary state licenses
- Filing a certificate of formation with the Texas Secretary of State Office which will need to include the management structure
You can file and pay the fee online with the Secretary of State as well. Once you have completed your forms, it is best practice to draft an operating agreement that will lay out how the company is run.
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