You can start an LLC in Texas to reap the tax benefits and legal protections it offers. Here are some tips to help you get started:
Choose a unique company name. It must pass the state government name search and avoid terms such as bank, university or attorney.
Obtain an Employer Identification Number (EIN). This nine-digit number will identify your business with the IRS.
Choosing a Company Name
When starting an LLC, it’s important to choose a company name that is unique and reflects the business. It should also be distinguishable from other entities already registered in Texas, as otherwise there may be confusion about which entity is performing the same services.
Most state agencies that maintain registrations of business names offer a searchable online database to check whether or not a specific business name is available. However, these databases do not always check for availability with federal trademark databases or other entities.
If you’re considering a particular name, it’s often best to call the Secretary of State and speak with someone directly. They can give you a better idea of whether the name will be approved or not and can also help you with other legal aspects of the process.
Filing Articles of Organization
Once you've decided on an LLC structure, you'll need to file articles of organization. These are a form that gives the state the information it needs to create your company.
This includes the name of your LLC, which must end with "LLC." It's important to check for availability online before finalizing your LLC's name, as others may already have it registered. You'll also need to indicate whether your LLC will be member-managed or manager-managed.
You'll also need to provide the name and address of a registered agent, which is a person or business entity that can receive service of process and official legal documents for your LLC. You can find a qualified registered agent by searching online. Finally, you'll need to obtain an Employer Identification Number (EIN). This is a unique nine-digit number that the IRS assigns to your company. It's used to distinguish your company from you personally, and it helps you keep personal and business assets separate at tax time.
Obtaining an EIN Number
Unless you plan on being the only member of your LLC and have no employees, your business should obtain its own federal tax ID number (EIN). You can apply online. The IRS website provides definitions for many terms in the application, which you can access by clicking on them.
The first page of the EIN application will ask you to choose your business type. Most LLCs will choose to be classified as a partnership for tax purposes.
The next page will ask you to confirm that the information you provided is correct. You will also be given the option to select a date for the filing to become effective. Many new LLCs choose to delay their effective date until the end of the calendar year, which avoids paying state taxes in the current year.
Creating an Operating Agreement
Whether your state requires an LLC operating agreement or not, this is an essential document for establishing protocols for company matters like management and voting, capital contributions and ownership stakes. It also establishes the way profits and losses are allocated among owners to help preserve an LLC’s limited liability status by limiting members’ personal exposure to business lawsuits or debt.
While it isn’t a legal requirement, many lawyers and business advisors strongly recommend crafting this document to set expectations for the company, protect members’ interests and provide clarity for potential lenders or investors. It can also prevent costly litigation down the road when one or more members decide to retire, pass away or sell their stake in the company. An LLC operating agreement may include a non-compete agreement, conflict of interest policy and other specialized agreements.
Keeping Records
The process of setting up a new LLC in Texas includes important steps like choosing a company name, filing articles of organization, selecting a Registered Agent and creating an operating agreement. There are also other items that must be considered to keep the business compliant with state law and running smoothly, such as obtaining health insurance for employees.
The operating agreement should include information such as the management type (manager-managed or member-managed), ownership percentages and decision-making procedures. BetterLegal recommends having an operating agreement signed and notarized as it can help prevent misunderstandings down the road.
A business bank account can be helpful to manage the company's finances, and it's important to have an accountant or tax attorney on retainer to prepare annual reports for the State of Texas. Additionally, it's wise to consider obtaining business insurance to protect the company from unexpected events.
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