One of the first significant decisions made as a Texas small business owner is choosing the right entity for your business. A LLC is one type of legal entity that can be formed. LLCs or limited liability companies are increasing in popularity in Texas as people learn that a LLC in Texas offers the protections of corporations with the flexibility of a partnership.
LLC Benefits include:
Protects Owner’s Assets- A Texas LLC provides a barrier between the LLC’s liabilities and the owner’s personal assets. If, for example, the LLC signs and then breaches a contract, the LLC can be sued. The owners, however, will not be personally liable for the LLC's obligations.
Protects LLC’s Assets- A LLC not only protects its owners from the liabilities of business, but also protects the business and the LLC's assets from the personal liabilities of the LLC’s owners. Suppose Tom is a 50% owner in Tom and Friends, LLC. Tom is sued after being in a car wreck and there is a judgment against him. In Texas, the assets owned by Tom and Friends, LLC are protected from Tom’s liability.
Tax Advantages- A LLC brings potential deductions, reduced self-employment taxes, larger contribution limits for retirement accounts and other tax advantages.
Ownership Flexibility- A LLC has few ownership restrictions. A LLC can be owned by one or more owners and the owners can be individuals, foreigners, trusts, corporations, partnerships or other business entities.
Minimal Reporting- The post-formation requirements are minimal.
Although hiring an attorney to form a LLC is not required, not setting up a LLC properly may end up costing your LLC significantly. Forming a LLC through a business attorney in accordance to what the owners want and the business’ future plans is critical to achieving the maximum liability shield, tax benefits, and business efficiencies.
Some of the benefits of using a lawyer to form a LLC include:
You will have an initial meeting to discuss your specific business and your plans for growth with an attorney who will advise on maximizing asset protection.
An attorney will draft your Certificate of Formation and Unanimous Written Consent- formation documents you should have in your possession.
An attorney will draft a customized Company Agreement, which states how the LLC will run from inception and how it will function in the future if specific circumstances arise (for example, death or divorce of one of the members). The Company Agreement is perhaps the most important document associated with starting the business. The Company Agreement will give credibility to the LLC to prevent liability questions, state how profit will be distributed, describe powers of the owners/officers, etc.
An attorney will obtain your EIN and advise on transferring assets to the LLC, structuring accounts and finances.
You will receive advice on any licensing or regulatory issues to be aware of.
You will have a follow up consultation after the LLC formation to discuss your formation documents and answer any questions.
Ultimately, an attorney will make sure that you follow the necessary formalities to protect yourself from liability. As stated above, one of the main benefits of a LLC is liability protection. That protection is only available if LLC owners observe specific formalities. An attorney will ensure you are protecting yourself as much as possible.
Give us a call if we can advise or help you form a LLC!