For most people, determining the business structure best suited for your intended purpose should be made after consultation with an attorney and accountant. Items such as taxes, liability protection, management, continuity, and transferability of ownership interest should be taken into consideration prior to selecting a business structure.
Most of the business created in Texas are a Limited Liability Company (“LLC”). The formation of a Texas LLC requires the filing of a Certificate of Formation that meets the minimum state law requirements with the Texas Secretary of State.
LLCs are a distinct type of entity that have traits of both a corporation and a partnership. Choosing to form an LLC allows the LLC’s owners, known as members, to structure the LLC in a way that meets the members goals. The LLC can be managed by the members or by managers elected by the members. The management structure must be stated in the in the certificate of formation.
In additional to the flexibility allowed with the management of the company, the LLC members can elect to be taxed at the individual level so that they experience pass-through tax treatment, and they report income or losses on their personal tax returns. This avoids the double taxation of a C-corp. LLCs give business owners significantly greater flexibility as far as federal income taxes are concerned.
The members of the LLC can consist of individuals, partnerships, corporations, trusts, and any other legal entity, and there is no limit on the number of members. More importantly, the LLC legally exists as a separate entity from its owners, thus protecting the members from the debts and liabilities of the LLC under most circumstances. Unlike sole proprietorships and certain partnerships, the personal assets of LLC members cannot be pursued by creditors attempting to collect on the LLC’s debts.
To quickly recap, the benefits of choosing a Limited Liability Company include:
Flexible management options,
Flexible tax options,
Flexible membership, and
Limited liability for members
When forming an LLC in Texas (or any other state) it is important to understand that there are no standard forms. Although the Texas Secretary of State provides a form Certificate of Formation, it provides the bare minimum for establishing an LLC in Texas.
In order to ensure that the members are protected, it is paramount that the company documents are prepared by attorneys well versed in LLC formation. The attorneys at Byers & Taylor, PLLC have years of experience forming and preparing company documents for LLCs used in a wide array of businesses from professional LLCs to LLCs used for small businesses and investment real estate. Byers & Taylor, PLLC offers a free business formation consultation and affordable flat rate LLC formation packages.
Information in this article and others are provided for general and educational purposes only. It is not to be construed as legal advice upon which anyone should rely. The law changes, and legal counsel or financial advisement relating to your individual needs and circumstances is advisable prior to taking any action that has legal consequences. This firm does not represent you unless and until it is expressly retained in writing to do so.