Texas Secretary of State LLC Formation: Everything to Know
Texas Secretary of State LLC formation is one option you have when choosing a business structure while setting up a new company.3 min read
2. What Is an LLC in Texas?
3. How to Form an LLC in Texas
Texas Secretary of State LLC formation is one option you have when choosing a business structure while setting up a new company. Decisions regarding business structure should be done after consulting with an attorney and accountant. There are a number of issues to take into consideration, including:
- Personal liability.
- Management type.
- Taxation methods.
- Formality of operations.
- Business continuity.
- Ease of ownership interest transfers.
Selecting a Business Structure
Sole proprietorships are considered the easiest and most common type of business structure. There is no need for formal organization, and you can do business under your legal surname. If you want to do business under a different name, you would file for an assumed name or DBA. A DBA needs to be filed in the city or county where the business is maintained. Absent a formal location, it should be filed in all counties where the company conducts business under the DBA.
General partnerships are formed when two or more people create a business designed for profit. They operate under the terms set forth in the partnership agreement; however, there is no requirement to put a partnership agreement in writing. There are no Texas state filing requirements, but if the business operates under an assumed name, it will need to file a DBA. Texas also has an option for a Limited Partnership, which is formed by having one or more general partners and one or more limited partners. To limit the liability of the partners, a general or limited partnership would need to file for a Limited Liability Partnership (LLP).
To create a corporation in Texas, you need to file a Certificate of Formation with the Secretary of State, who then provides the form detailing what the minimum requirements are in Texas. Corporations are considered legal persons, and they offer limited liability, centralized management, perpetual existence, and simple procedures for ownership interest transfers.
What Is an LLC in Texas?
If you want to form an LLC in Texas, you need to file a Certificate of Formation with the Texas Secretary of State. This is a distinct business structure, but it combines the benefits of a partnership and a corporation. Because it's considered an entity, there are formal regulations in regard to formation. Owners of an LLC are called members, and members can be:
- Individual people.
- Any other commercial or legal entity.
Liability of members is typically limited to their investment amounts, and they are able to enjoy the tax benefits of pass-through taxation like a partnership.
How to Form an LLC in Texas
Start by choosing your desired name, which must be unique and easily distinguishable from other business entities already on file in Texas. State law requires that you include some version of LLC or Limited Liability Company at the end of your name. To verify that your desired name is available, conduct a search through the Texas Secretary of State SOSDirect website. You can reserve your desired name by filing an Application for Reservation or Renewal of Reservation of an Entity Name. This extends the reservation by 120 days and, as its name suggests, it's also a renewal.
The LLC is created when you file a Certificate of Formation with the Secretary of State's office. It must include all of the following information:
- LLC's name
- Address of the LLC
- Decision on whether it will be manager-managed or member-managed
- LLC governing person's name and address
- LLC organizer's name and address
- Certificate effective date
Every LLC in Texas is required to have a registered agent for service on file. This is a legal entity or individual who agrees to accept any legal documents on the LLC's behalf in the event of a lawsuit. They must be a Texas resident or business that is authorized to conduct operations in the state, and there must be a physical address located in the state.
Texas law doesn't mandate the use of an Operating Agreement, but it's highly recommended. This document sets forth operating guidelines and details for how important situations, like membership transfers, are to be handled.
LLCs with more than one member are required to obtain an EIN, even if there is no plan to have employees. Depending on what type of business you are forming, and where it's located, you may have to apply for specific state and local business licenses. If you are selling goods in Texas, you will be responsible for collecting and paying sales tax as well.
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