A limited liability company (LLC) is a type of business well suited to many smaller enterprises. It allows an owner to limit personal liability in the finances of the company. If someone sues the company, the owners won't lose all their personal assets. They are only financially accountable for their investment in the business. Forming an LLC also provides some flexibility in how the company runs. In Texas, LLCs can be formed easily and inexpensively.[1] Federal and state law provide many tax advantages to LLCs. For example, the LLC itself does not pay taxes; rather, the business’s net income is passed through to the owners who report it on their personal income forms.
EditSteps
EditRegistering a Name for Your LLC
- Choose a name. The first step in starting an LLC is choosing a legal name for it. Pick any name you like, but keep in mind that there are a few restrictions and rules about the name you choose.[2]
- Try to make your name unique. The secretary of state will not allow you to duplicate the name of another business. Sometimes they will not even allow one that is similar to another business.[3] The secretary of state will make this decision on a case-by-case basis.
- The name cannot include profanity or language that is obscene, such as explicit sexual language. It also may not contain words that would confuse it with a federal agency, such as the CIA or IRS.
- In Texas, LLCs must include "LLC," “L.L.C.,” or “Limited Liability Company” at the end of their name. Make sure to include this in your name registration.[4] For Example, you might name your LLC "Bagelcorp, LLC."
- Check the name's availability. Use the Texas Secretary of State's website to make sure no one else has already registered an LLC under the name you've selected.
- To search online for names, you must request an account on the Secretary of State Direct website.[5] Anyone may request an account, and the request should be processed in 15 minutes during normal business hours.
- Once your account is activated, you can search the database to make sure your name isn't taken. Each search costs one dollar.
- Also check for the URL availability at the same time. A website is a key element of marketing now. To check for the availability of a URL, you can use one of many domain search tools on the internet.
- Search assumed business names. The public or "assumed" name of your business may not match the legal name of your registered LLC. Make sure there are no duplicates to the business name you would like to use.
- An "assumed" name is one that you will use in day to day business operations. For example, you might have registered your LLC as "Bagelcorp, LLC." But, the name of the shop you want open might be "Bob's Big Bagels." This is also known as a "doing business as" or "DBA" name.[6]
- More than one business can legally use the same assumed name. For best results though, you should use an original name that no one else is using.
- If you and another company use the same assumed name, this may confuse customers. If you use an assumed name that is the same as another company’s legal name, this may also create problems. You may lose valuable business to a competitor because you have the same name.
- If there are two different stores called Bob's Big Bagels, for example, it may be hard for consumers to tell them apart.
- Reserve your legal business name. File your legal company name with the county clerk's office, or online at the Texas Secretary of State Direct website.[7]
- Businesses operating in Texas must reserve their legal name with the Secretary of State. This allows the state and other interested persons to find and store information on the business.
- To file online or in person, you will need to provide the name of the company and the business owner or owners' names. You will also need to describe the type of business (in this case an LLC) and the county in Texas in which you operate.
- You will also need to include your fee payment, either by check or cash, or with a credit card if filled out online. To register a name, you must pay $40.00
- Filing for a name registration will prevent any other business from filing under your chosen name. Your business cannot file under a name that is already registered.[8]
- If you plan on doing business under an assumed name rather than your legal name, you will also need to file an assumed name certificate with SOS direct. The secretary of state charges $25 per certificate. The county you live in may also charge a fee.[9]
- Consider trademarking your name. If your name is original or creative, you may want to consider registering it as a trademark.[10]
- A trademark can distinguish your product or service from those of competitors. It can also protect you from trademark infringement by other companies.
- For example, a trademark will allow you to hold a domain as yours. It also protects other intellectual property related to your business.
- You can trademark your business name through the U.S. Patent and Trademark office. Visit their website and fill out a form. The form will require you to provide information about your business. You will also need to pay a fee of between $275 and $325 to register your trademark.[11]
- If trademark law confuses you, feel free to consult with a trademark lawyer, who can assure that your application is accepted while also helping you avoid potential legal liability.
EditSetting up Your LLC
- Determine who your members and board are. All owners of an LLC are considered members. However, an LLC can be run by a single individual, or by a board.[12]
- The individuals who are authorized to act on behalf of the LLC are said to have "governing authority." They are the managers of the business.[13] The managers do not have to be members of the LLC.
- How many people have governing authority and who those people are is up to you and the other members. It is a decision you will need to make before filling out your certificate of formation.
- Draft an operating agreement. An operating agreement outlines your company’s policies and procedures. Although not required by Texas law, an operating agreement is helpful at clarifying the verbal agreements between members.[14]
- Begin the operating agreement by stating the purpose of the business, e.g., to offer legal services or to sell cosmetics.[15]
- Define the members’ powers and duties. You can outline the day-to-day responsibilities of each member. You should also designate each member a percentage of ownership.[16]
- Assign accounting responsibilities. Because financial accounting is so critical to a business’s success, you should clarify and delegate who will have responsibility for check writing, distributing profits, and bookkeeping.[17]
- Clarify process for a member’s withdrawal. Members may leave the LLC or die. A process should be put in place for what happens to the member’s shares. For example, the remaining members may agree to purchase the shares.
- Establish dissolution procedures. Not every company lives forever. You should specify when and how the LLC can be dissolved. For example, you might decide that an LLC can be dissolved by a majority vote of the board and that the profits of the LLC will be divided at the dissolution according to share ownership.
- Find a registered agent. You must name a registered agent for the company on your LLC application. The agent is the person who will be contacted in the case of a lawsuit or if taxes are owed.[18]
- The registered agent can be an individual resident or other entity that is registered to do business in Texas. Usually, one of the partners of the LLC will act as the agent.
- You can also hire an agent. This is useful if the business is not located in Texas. To find a qualified agent, you can contact one of the “Big Four” agents, which operate nationally: InCorp Services, Corporation Service Company, CT Corporation, or National Registered Agents.[19]
- The website “Best Registered Agents” gathers fee information and consumer reviews for over 25 agents working in Texas.
- The limited liability company cannot act as its own registered agent.
- Prepare a certificate of formation for an LLC. The State of Texas requires you to file this form, which includes articles of organization. Once you've registered your name, submit this form and pay the fee.[20]
- You can find a certificate of formation application on the Texas Secretary of State website.[21]
- You will need to enter the company name and legal address. You'll also have to fill out the business purpose, names of members and general business structure.
- The articles of organization is a document that lays out the corporate structure of your LLC. It specifies who the partners will be and who will sit on the board of the company. This document is also known as the articles of incorporation.[22]
- You may print the form out or use the online system to file it. If you choose to print and send in the form, you may deliver it by mail to P.O. Box 13697, Austin, Texas 78711-3697. You can also fax it (512) 463-5709. Or, you can deliver it person to the James Earl Rudder Office Building, 1019 Brazos, Austin, Texas 78701.
- The filing fee for a certificate of formation is $300.[23] You will have to pay an additional fee if you file online.
- Obtain any required local licenses. License requirements will vary according to the county in Texas. Contact your county clerk's office to determine if you need any licenses or permits for your type of business.[24]
- For example, if you are opening a restaurant, you must have the applicable licenses from the health department.
- The Chamber of Commerce also will have information on what type of licenses you need, how to apply for them, and what the fees will be.[25]
- You also may consult the Texas Department of Licensing and Regulation for more information. They will also have applications for licenses. For example, you can apply for or renew an electrician's license online through this department. Just click on "occupational licenses" and choose your occupation. Fees can paid by credit card.
- Apply for an employee identification number. An employee identification number (EIN) is an assigned number for IRS purposes. It is similar to a social security number.[26]
- Small business and corporations use EINs to account for employee tax withholdings. You must have an EIN when setting up an LLC.
- Visit the Internal Revenue Service (IRS) website to apply for an EIN.[27] Click on "Apply for an EIN online" in the left corner. Then, read the guidelines and click on "apply now."
- To apply for an EIN you'll need to fill out an online form and enter several pieces of information. You will need to provide the name and address of your LLC. You will also need to include the name and social security number of the owner or managing member. Finally, you will need to enter information about the members of the LLC and the services it provides.
- Alternatively, you may print off and mail the appropriate form to the IRS.
- There is no charge for the application if you go directly through the IRS.
- Pay franchise tax. Texas requires that LLCs pay a franchise tax in order to operate.[28] You should visit the Texas Comptroller of Public Accounts website for information about how to pay.
- You can register you company online or by printing off and completing a PDF.
- Tax rates vary, but generally companies pay a 1% tax.[29]
- Open a bank account for your LLC. The last step of setting up your LLC is to open a bank account for it. After you've done this, you can start doing business.
- You will need to have your EIN before opening an account.[30]
- Ask the bank if you will need to present other documentation to open the account. Banks in Texas may vary in their requirements. For example, you might need to bring your certificate of formation or business license.
- Consult your bank of choice about the options on your account that will be best suited to your business needs. For instance, you may need overdraft protection or prefer to hold a checking account. Or, if you'll be depositing a lot of money, you also may want to consider an interest-bearing account.
EditVideo
EditTips
- Be sure to familiarize yourself with Texas tax laws regarding limited liability companies. The information you need is available online and free of charge. Knowing the law is an important way to protect yourself and your new business from lawsuits and other legal problems.
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EditSources and Citations
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