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Creating an LLC in Texas for Protection

 

 

How Does Creating an LLC in Texas Protect its Owners?

 

 

The most common question asked by new Texas business owners is "When I create a Texas LLC, How Exactly Does it Protect Me?" 

After creating an LLC in Texas, the LLC is its own legal person separate and apart from its owners. So, when you create a Texas LLC for your business, the Texas limited liability company itself is the business and the entity running the business.  You are not the business.  You are the person who owns the business.

The Texas limited liability company, once created, is the actual person who customers do business with. The Texas LLC is the person who enter into all of the business contracts. When the business is ready to hire employees, it is the Texas LLC who is the employer.

So, the magic of creating an LLC in Texas, is that there is a layer of protection between you and the activities of the Texas limited liability company. You are simply the owner of the Texas LLC. When a customer, supplier, employee or any third party has a problem with your Texas LLC business, that person must deal with the Texas limited liability company. If that person ever decides to sue the business, it must sue the Texas LLC.

The Texas LLC laws generally state that when you create an LLC in Texas, a member (owner) of that Texas limited liability company is not liable for the obligations of the LLC solely be reason of being a member.

This is the same protection afforded by corporations. The benefit of an LLC over a corporation is that when you create an LLC in Texas as opposed to a corporation, the Texas LLC allows business owners a lot more flexibility and simplicity than corporations.

If you chose not to create an LLC in Texas and ran your business as a sole proprietorship, then you would be personally liable for ALL business obligations.

If you are personally liable, then you are subjecting everything you own to unnecessary risk.  If someone were to sue you and win in court, the court can take your assets (home, savings, cars, jewelry, investments) to pay off the judgment against you.
 

On the other hand, if you create an LLC in Texas and run your business properly though the Texas LLC, lawsuit judgments would be against the Texas limited liability company and not you personally.  So, your personal assets will be protected from being taken to satisfy those judgments.

 

There are Exceptions to Limited Liability Protection even after creating an LLC in Texas

 

Now, most commentary on Texas LLC liability would end here, but you should know that there are exceptions. This next section is important and relevant.

There are several exceptions to the rule that after creating an LLC in Texas, members (owners) are not personally liable for LLC debts and obligations.  Here is a summary of the major ones.

First Exception, any person is always liable for their own personal conduct when that conduct injures someone or something. So, if you were in a company car going to a business meeting for your Texas limited liability company and you were negligent and hit another driver, you would still be personally liable for the injuries and damages. LLCs do not shield you from being liable for your own personal negligence.

Second Exception, when you first create a LLC in Texas, many third parties may not be willing to do business with just your Texas LLC. Your Texas limited liability company is brand new and probably does not have a lot of assets.

So, some people might ask the owners to "personally guarantee" the obligations of the LLC. The most common situations are borrowing money and getting office space.

Even after creating an LLC in Texas, if you personally agree to be liable for an LLC obligation by signing an agreement stating so, you will be liable for those specific obligations.

Third Exception Another big exception is known as the piercing the LLC veil problem. Many people create a LLC in Texas for their business and then operate their business as if the LLC did not exist. It is very important that you run the business through the Texas limited liability company and maintain certain LLC documentation.

After all, if the owners of the Texas LLC, after creating an LLC in Texas, ignore the LLC and run the business as a sole proprietorship, then why should third parties suing the Texas limited liability company have to honor the LLC and not be able to sue the owners?

Our eBook, The Six Step LLC Formula for Limited Liability Protection provides the necessary steps and requirements for you to ensure you use your Texas limited liability company in the right way to avoid the piercing the LLC veil challenge.  You receive this eBook as a FREE Bonus with the purchase of our Texas LLC Formation Services.
 

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