Starting an LLC in Texas
An LLC is a limited liability company. In Texas, LLCs are legal business entities.
In this video, I’m going to explain:
- What a legal entity is,
- How to start your own LLC in Texas, and
- A few points on how to properly manage your LLC.
1. What is a Legal Entity?
A legal entity is a person or business who is authorized to hold title to property, enter into contracts, sue, or be sued.
A person is a natural legal entity. People can hold title to property, enter into contracts, sue, or be sued.
Businesses can also be legal entities. Although, not all businesses are legal entities.
Sole proprietorships and general partnerships are not their own legal entities.
In a sole proprietorship, an individual person is doing business as the name of that person’s business. The property, contracts, and law suits are all in the name of that individual person.
In a general partnership, you have a group of individuals conducting their business as the name of their partnership. The title to property, the contracts, and the law suits are all in the names of the individual partners doing business as the name of their partnership.
An LLC, however, is it’s own legal entity. The LLC can hold title to property, enter into contracts, and sue or be sued.
2. Starting Your Own LLC in Texas
And, the certificate needs to have the name of the LLC, and the name can’t be one that’s already being used or deceptively similar to one that is already being used.
It can’t be misleading, and the name has to have either “LLC” or “Limited Liability Company” or an abbreviation in the name.
The certificate also has to have the name and address of the registered agent, the person who is authorized to accept service of process on behalf of the LLC.
The certificate also has to have the names and addresses of each initial member if the LLC is going to managed by the members.
If it’s going to managed by managers, then the certificate requires the name and address of each initial manager.
The certificate for the LLC also has to have the purpose of the LLC, which is generally to conduct any and all lawful business in the state of Texas.
The certificate can also contain additional terms by which the LLC is going to conduct its business.
And finally, it will have the name and signature of the person organizing the LLC.
When you send your Certificate of Formation [and the required filing fee] to the Texas Secretary of State’s office, they will review it to make sure that the name is one that can be used and that the certificate has all the necessary information.
Once it’s been reviewed and approved, then they’ll send you confirmation that the certificate has been filed.
Once you receive the confirmation that the certificate has been filed, you can apply for a federal employer identification number from the IRS, open a bank account, and begin operating the business on behalf of the LLC.
3. Properly Managing Your LLC
One thing you need to consider for properly maintaining your LLC is to have an Operating Agreement.
That Operating Agreement acts like a partnership agreement in a partnership or the Bylaws of a corporation.
It establishes what the roles are between the owners and the managers.
If the owners are the managers, then the LLC functions like a partnership. If the owners are not the managers, then the LLC functions more like a corporation.
The Operating Agreement should carefully express the terms by which new members are included, how contributions are to be made, how distributions are made, and how decisions are made.
Decisions are usually made by the members and managers voting on major decisions that the company has to decide on.
Another important aspect of properly maintaining your LLC is capitalization.
When you start conducting business on behalf of the LLC, you want to make sure that the LLC has sufficient capital to meet its operating expenses.
If the LLC doesn’t have sufficient capital to meet its operating expenses, then you as an owner could face potential personal liability to satisfy those financial obligations.
Also, if the LLC were to make any distributions of its profits in a way that would prevent it from being able to meet its financial obligations, then you can also become personally liable for those financial obligations.