Steps to forming an LLC in the State of Texas?

Recently on our legal forum a user asked, “I have decided to open a restaurant. After reviewing the different business structures, I have decided that I should form a limited liability company (LLC). Can you tell me what steps I need to take to form an LLC in Texas?”

There are a variety of common business structures which can be used to create a business including a solo proprietorship, general business partnership, corporation, and a limited liability company (LLC). After reviewing the pros and cons, however, many business owners decide to use an LLC because it affords them the powers of both a corporation, such as limited liability for debts, as well as the pass-through tax treatment of a partnership.

Steps to create an LLC in Texas

As with any business enterprise, before taking any steps to create or start a business you will need to discuss your plans with the appropriate professionals including tax accountants, attorneys, and business experts. If after discussing your business strategies with you decide to continue with you plans, you will need to take the following steps:

• File a Certificate of Formation (Form 205). This form will need to be filed with the Texas Secretary of State. The form will include the following: the name and address of the LLC, name and address of the LLC organizers, the type of management to be used, the purpose of the formation, and the dissolution date. The forms can be filed online, by fax, or by mail.

Note: The State of Texas will require the name to meet specific naming requirements which differentiate the business from other LLCs within the state of       Texas. The Texas Secretary of State as well as other state agencies must also approve of the name. You may contact the Secretary of State at 512-463-5555. Names may be reserved by filing Form 501.

• Pay the filing fee. Filing fee payments must be submitted with the Certificate of Formation. They can be paid via personal check, money order, LegalEase debit card, or by credit card (American Express, Discover, MasterCard or Visa.)

• Assign an agent for service of process. Agents of the LLC must sign an acceptance of consent (Form 401-A) and register it with the Secretary of State. This form allows each member to serve as a registered agent.

• Obtain an Employer Identification Number from the Internal Revenue Service.

• Create and sign an operating agreement. This agreement is used for an LLC with more than one member. It will identify and clarify each member’s financial and managerial responsibilities. This form is not required in the State of Texas, but it is highly recommended.

• Review the legal, tax, and financial responsibilities of the LLC. In the first year you will have to submit an initial franchise report with a public information report to the Texas Comptroller. Other reports will also need to be submitted for all subsequent years, including an annual franchise tax report and a public information report.

• Understand your tax liability. Depending on your business, you will have different federal tax responsibilities which will need to be discussed with a tax attorney.

Bottom Line: 

Many business owners recognize the benefit of creating an LLC. Not only can it allow you to make your own business decisions, assuming you opt for a single member LLC, you will also be able to manage and operate your restaurant without the increased liability of a sole proprietorship.

Additionally, if you do decide to take on a business partner you can also structure your operating agreement to clarify financial obligations and business responsibilities. An LLC will also allow you to avoid double taxation and eliminate certain complicated administrative requirements of a corporation.