Starting and managing a business is an exciting yet complex journey. Understanding how to establish a Limited Liability Company (LLC) and navigate its management is crucial. This guide, backed by the expertise of a business lawyer, will help you through the process with ease.
What is an LLC?
Understanding the Basics
A Limited Liability Company is a popular business structure in Texas. If setup properly, an LLC combines the liability protection of a corporation with the tax benefits and flexibility of a partnership.
Benefits of an LLC
- Limited Liability: Owners personal assets are protected from company debts or liabilities.
- Tax Flexibility: These companies can choose between being taxed as a sole proprietorship, partnership, or an S corporation.
- Management Flexibility: LLCs can be managed by the owners, called members, or by appointed member managers.
- Less Paperwork: Compared to corporations, LLC’s have fewer reporting and record-keeping requirements.
- Credibility: Forming this type of company can enhance your business’s credibility with customers and suppliers.
How Do I Start a Limited Liability Company?
Step-by-Step Guide to Setting Up
- Choose a Business Name: Your company’s name must be unique and comply with the Texas Secretary of State’s naming rules. You should perform a name search at https://mycpa.cpa.state.tx.us/coa/.
- Appoint a Registered Agent: This person or business entity will receive legal documents on behalf of your company. The registered agent must have a physical address in Texas.
- File the Articles of Organization: In Texas, you file articles of organization with the Texas Secretary of State. This is a crucial step in the start-up process. The Articles of Organization include details like your business’s name, address, and the names of the members.Fortunately, this can be done online at https://www.sos.state.tx.us/corp/sosda/index.shtml.
- Create an Operating Agreement: Although not always required, this document outlines your management structure and operating procedures. An Operating Agreement helps prevent conflicts by clearly defining the roles and responsibilities of each member.
- Obtain an EIN: An Employer Identification Number is necessary for tax purposes and can be obtained from the IRS. This number is used to open a business bank account, hire employees, and file taxes.
- Comply with Other Government Requirements: Ensure you meet any additional federal, state or local requirements for your business, such as business licenses or permits. These requirements vary by industry, so it’s important to check.
How to Get My Company Established
Once you’ve completed the steps above, you will receive your official documents. These typically include a file stamped Certificate of Formation from the Texas Secretary of State. This certificate proves that your company is legally registered and allowed to operate in Texas. You business entity is not established to operate until the certificate of formation is issued.
How to Become an LLC
Transitioning Your Business
If you’re converting an existing business, consult a business lawyer to ensure a smooth transition. This may involve transferring assets, revising contracts, and informing stakeholders. The transition process can vary depending on your current business structure (e.g., sole proprietorship, partnership, corporation).
- Notify Stakeholders: Inform employees, clients, suppliers, and creditors of the change.
- Transfer Assets: Transfer title or ownership of business assets to the new entity, including property, inventory, and intellectual property.
- Update Contracts: Revise existing contracts to reflect the new business entity. This includes leases, service agreements, and supplier contracts.
- Amend Business Licenses: Update your business licenses and permits to reflect the new structure.
Why Become a Limited Liability Company?
- Limited Liability: Protects your personal assets from business debts and claims. This protection is crucial if your business faces legal challenges or financial difficulties.
- Tax Advantages: Enjoy the benefits of pass-through taxation, avoiding the double taxation faced by corporations. These companies can also choose to be taxed as a corporation if it benefits the owners.
- Flexibility: Fewer formalities and paperwork compared to corporations. These businesses have more flexibility in how they are managed and operated.
- Enhanced Credibility: Customers and suppliers often view these companies as more credible and professional compared to sole proprietorships.
The Process: What to Expect
Filing and Approval
The approval process can take a few days to several weeks, depending on the complexity of your transaction. During this time, your application will be reviewed, and you may be asked to provide additional information.
Operating Your Business
Once approved, you can start operating. Make sure to follow all state of Texas requirements and file any necessary annual reports. It’s important to keep accurate records of your company’s activities and maintain compliance with state laws.
Ongoing Compliance
- Annual Reports: You must file annual franchise tax reports with the Texas Comptroller. You do not need to file annual reports with the Secretary of State unless required to disclose a change in ownership or registered agent of the like.
- Taxes: File federal, state, and local taxes as required. Depending on your structure, you may need to file different tax forms.
- Record Keeping: Maintain accurate records of meetings, financial transactions, and important decisions.
- Renew Licenses and Permits: Ensure all business licenses and permits are up to date.
Decision-Making in a Limited Liability Company
Importance of an Operating Agreement
An Operating Agreement is vital for LLCs with multiple members, that is 2 or more members. It outlines how decisions are made, how profits and losses are distributed, and how disputes are resolved. The operating agreement helps maintain clear and effective partnership decision-making.
Decision-Making Structures
- Member-Managed: All members are involved in the daily operations and decisions. This structure is common in small companies where all members want to be actively involved.
- Manager-Managed: Members appoint one or more managers to handle operations. You should consider a manager managed structure if members prefer a more hands-off approach.
Conflict Resolution
Even with a well-crafted Operating Agreement, conflicts can arise. It’s important to have a plan in place for resolving disputes. Mediation or arbitration are effective methods for resolving conflicts without resorting to litigation.
How Much Does It Cost to Dissolve a Limited Liability Company?
Understanding Dissolution Costs
The cost to dissolve a business varies on which method you select but generally includes filing, paying outstanding taxes, and legal counsel fees. Consulting a business lawyer helps you understand the exact costs and requirements.
Factors Influencing Costs
- Secretary of State Fees: Filing fees for dissolving a Texas LLC are $40.
- Outstanding Obligations: Any unpaid taxes, debts, or obligations must be settled before dissolution.
- Legal Fees: Hiring a lawyer to assist with the dissolution process can add to the cost but increases the likelihood that all requirements are met.
How to Close an LLC in Texas
In Texas, you must file a Certificate of Termination with the Secretary of State and ensure all taxes and reports are up to date. It’s advisable to seek legal advice to ensure all steps are correctly followed.
- Wind Up Business Affairs: Pay off debts, distribute assets, and close business accounts.
- File Final Tax Returns: Submit final federal and state tax returns for your business.
- File Certificate of Termination: Submit the form to the Texas Secretary of State along with the required fee.
- Notify Creditors and Stakeholders: Inform all relevant parties about the dissolution of your company.
Ensure Long-Term Success and Stability for Your Business
Setting up and managing a Limited Liability Company can seem daunting, but with the right guidance, it becomes manageable. An experienced business lawyer can provide invaluable perspective throughout the process, from start-up to dissolution. Whether you’re wondering how to form a start-up LLC or navigating the complexities transitioning your existing business to an LLC, it is advisable to seek professional legal advice to avoid wasted time and money. If you have questions about how to form or structure your LLC, contact the business attorneys at Roquemore Skierski PLLC for informed answers and legal guidance.
