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Form A Texas LLC And Gain Liability Protection Plus Other Business Benefits

Jun 26, 2008
The LLC is now the most popular business vehicle for new business in Texas. This is because it is a simple and straightforward legal entity to form and maintain but at the same time it gives business owners a lot of choices when it comes to taxes, ownership structure and operations structure.

The Texas Secretary of State significantly revamped the regulations applicable to the Texas LLC in 2003 when it enacted the Business Organizations Code. This Code did not become effective until 2006. From 2006 on, the TX limited liability company is governed by Title 3 which covers the Texas Limited Liability Company Law.

LIABILITY PROTECTION

The biggest reason to form a Texas LLC is protection against personal liability. A business run as a sole proprietorship without a legal entity places the owner entirely at risk for personal liability. Given our litigious society and its growing number of plaintiff attorneys looking for cases, every business should operate with a legal shield.

The legal shield states that members (who are owners) are not liable for the business obligations, lawsuits and other liabilities of the business merely because they are owners. This protection is a tremendous benefit that becomes more significant as your business becomes more successful and thus becomes a larger target for lawsuits.

EASE OF EQUITY CAPITAL RAISING

Many new businesses need access to capital when starting. While borrowing money is the most common option, many business owners opt to raise equity capital by raising money in exchange for issuing ownership interests in the business.

Because the Texas LLC has an ownership structure where members can own defined ownership interests similar to the stock of a corporation, the raising of capital is much easier to structure and document as compared to a sole proprietorship. Plus, most investors will require a legal entity structure for their investments.

MORE TRUSTWORTHY AND PROFESSIONAL IMAGE

Customers are very skeptical today and with reason. After all, there are so many scam and pretend businesses out there trying to take money from customers. It is so easy to say you are a business because anyone can just come up with a business name and call themselves a business.

By taking the time to form a Texas LLC for your business, you are evidencing a significant business planning step which is a sign of a serious and legitimate business. Customers will see the LLC designation after business name and perceive more trust. You can get more customers faster with a TX limited liability company.

FLEXIBLE AND EVOLVING BUSINESS STRUCTURE

Most businesses start out needing a very simple and straightforward ownership and operational structure. The Texas LLC meets these needs because it requires a lesser number of formalities and maintenance requirements than a corporation. The LLC can be set up fairly quickly.

However, any successful business will evolve over time and as it grows, there may be a need to alter the LL structure to account for growth or more complexity. For example, the LLC may hire more employees or managers later or it may need to issue more ownership as new members are admitted to help with the business.

A Texas LLC allows a business to define for themselves, matters of relative rights, powers, duties and voting rights among members or managers. This prevents having a one size fits all management structure that may not be appropriate for your particular business.

CHOICE OF FEDERAL INCOME TAX STRUCTURE

One of the main reasons the TX limited liability company is so popular is because the Internal Revenue Service allows for an LLC to choose its choice of tax structure. Unlike the period prior to 1997, there are no longer any additional requirements to qualify for a single layer of pass through taxation.

When you form a Texas LLC, the default taxation rule is a single layer of pass through taxation. For a single member entity, it is called disregarded entity taxation and for a multi-member entity, it is called partnership taxation. This type of taxation avoids the potentially significant double taxation effect of corporate taxation.

However, in some circumstances, your accountant may deem a corporation tax structure as more appropriate for your business. In these cases, a Texas LLC can elect to be taxed as a C corporation or an S corporation (if it meets the S corporation requirements). No other legal entity has this many choices when it comes to how it will be taxed.

In order to gain all these benefits and not place your liability at risk, insist on a complete and proper Texas LLC formation using a reputable attorney or a Texas experienced LLC formation service provider.
About the Author
For a FREE Texas LLC Guide or Name Search and to Learn More about how to Form a Texas LLC using the fastest, easiest and affordable service from Texas LLC experts, visit http://www.TexasBusinessFormation.com
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