Forming an LLC in Texas- LLC FAQs

LLC FAQs

Answers:

What is a Limited Liability Company (LLC)?
A Limited Liability Company, commonly referred to as a LLC, is a legal entity that is formed at the state level to separate a business owner from his or her business. Like a corporation, the owners of a LLC are not personally liable for the debts of a properly formed and maintained LLC. Like a partnership or sole proprietorship, an LLC has operating flexibility and is a pass-through entity for tax purposes. This means that the profits of the LLC are passed through and taxable to the owners of the LLC unless the LLC elects to be taxed as a Corporation.

How long will it take to form my LLC?
The processing time for forming an LLC in Texas depends on the workload of the State f Texas at the time the documents are filed. If you purchase a TX LLC Formation Package and you fill out the questionnaires completely, your documents will be prepared within 3 business days for filing with the State f Texas. Then, the State f Texas usually takes 10-25 business days to process the paperwork. An expedited filing can be completed for additional fees where your LLC can be formed and processed in 4 days.

What is a Registered Agent?
A registered agent is a person assigned by an LLC to accept services of process and any other important documents on behalf of the LLC. Texas requires that a registered agent be located in Texas and it must have a legal street address. PO Boxes and mailbox services are not valid. If you are a manager or member of your LLC and you have a Texas address, you can serve as your LLC’s registered agent. Otherwise, you can purchase our Registered Agent service. Also, the registered agent’s name and address is a matter of public record. Some business owners prefer to keep their information private and if so, you can purchase the Registered Agent services we offer.

How many people are needed to form an LLC?
In Texas, only one person is required to form an LLC. An owner of an LLC is commonly known as a member of that LLC (similar to shareholders of a corporation).

How is Ownership established with an LLC?
Ownership in an LLC is usually structured in two ways: (1) by percentage or (2) by membership units, which are similar to shares of stock in a corporation. In either case, ownership generally confers the right to vote and the right to share in the profits of the LLC.

Although membership units are like shares in a corporation, an LLC is different from a corporation in that an LLC can distribute its ownership interests as it pleases, without regard to how much money or property a member contributes to the LLC. For example, if Dave contributes $10,000 of cash to an LLC but does not manage the business, and his partner John contributes only $1,000 but runs the LLC on a daily basis, Dave and John could decide to each have 50% of the membership units of the LLC.

A limited liability company can also be organized with different classes of ownership interests, which provides flexibility for special allocations of profits and voting power. If you are thinking about having a complex structure like this, it is advisable that you consult an attorney and accountant.

The sale of membership interests in an LLC is subject to federal and state securities laws. Generally though, if you are not advertising the sale and are dealing only with a very small number of knowledgeable and sophisticated investors or persons who you have a pre-existing family relationship with, then you will be exempt from the regulations. If, however, you are seeking to raise money from a large number of investors or from persons who you do not have a pre-existing relationship with, it will be necessary to consult an attorney.

What is an Operating Agreement?
An Operating Agreement is the primary contract among the members of a LLC that governs the membership, management, operation and distribution of any income of the company. It is similar to a corporation’s Bylaws. An Operating Agreement should be in place directly after the LLC becomes active. Operating Agreement Details

How is an LLC taxed on its income?
By default, LLCs do not pay income tax at the entity level. Instead, the LLC's income is passed through to the members, who must recognize their allocated income or loss on their personal tax returns. For a single-member LLC, this income is reported on the individual owner's Form 1040, Schedule C. For multiple member LLCs, an informational return is filed with the IRS and members are given K-1s. However, an LLC Can elect to be taxed as a corporation. See Tax Choices Article.

How is an LLC managed?
An LLC can be either “member managed” or “manager managed.” The initial members (owners) can decide whether they, as members, want to each be responsible for managing the LLC or whether they want to set up a Board of Managers (manager managed) and elect persons to be managers similar to the way a corporation is managed by its Board of Directors.

How much will it cost to form and run an LLC?
Texas charges an initial filing fee of $300. The State f Texas does not require an annual filing or subsequent annual fees. However, you may be subject to franchise taxes in Texas.