CONSIDERATIONS FOR SETTING UP A TEXAS LIMITED LIABILITY COMPANY
While I always recommend hiring a lawyer to organize a Texas start-up, a few considerations merit mentioning whether you are heading into a consultation to begin working with an attorney and even if you decide to do it yourself.
If you are operating or considering a Texas LLC in Houston or Austin, contact me by email to set up a consultation about the requirements and best practices for setting up the business and doing business with the public in a way that minimizes risk to you and your business. I draft Articles of Organization, Operating Agreements, and handle intellectual property and employment matters (employees, independent contractors, freelancers). I also draft custom contracts for your business including terms and conditions.
DECIDE ON A NAME FOR YOUR TEXAS LLC THAT ISN’T TRADEMARKED OR IN USE BY ANOTHER COMPANY.
First, you don’t want to use a name that is trademarked or in use by another company. You can do a search of the Texas Secretary of State for trademarks in Texas and I also recommend a search through a search engine for similarly named businesses to consider common law trademarks which may exist. Also, you can do a search for federally registered trademarks to see whether the name of your business is being used or trademarked elsewhere throughout the U.S. The goal here is not to choose a name which may result in a trademark infringement lawsuit for your new business, as this can be expensive for intellectual property litigation.
Assuming the name is available, I should note that your LLC name doesn’t have to be the name you will do business as (a DBA), but usually I advise people to take the LLC name that matches their intended business name so that they don’t have to file a DBA. A DBA is required to be filed when you do business under a name other than your entity name.
You also have probably seen the ‘LLC’ designation after a limited liability company, and this (or some variation) is required to let the public know the entity type.
YOU SHOULD ORGANIZE THE LLC IN THE STATE WHERE YOU WILL DO BUSINESS.
I get a lot of questions about whether an LLC should be set up in other States such as Nevada, Wyoming, Delaware. Typically, these are people who are opening their first business and intend to operate only in Texas. In fact, most of the time the intent is to operate solely in a single large city such as Houston, Austin, or Dallas, and then ideally expand to other areas of Texas when the business is ready to scale up. Organize where you will do business and if and when you need to do business outside of that State, you can file as a foreign company.
YOU WILL NEED A REGISTERED AGENT IN TEXAS.
A registered agent is the person who will receive service of lawsuits on your company’s behalf. Usually, people choose themselves or their attorney but there are also businesses which charge a small yearly fee for registered agent services. A registered agent is required at the time of filing and is public information.
AFTER PUTTING IT ALL TOGETHER, YOU FILE THE ARTICLES OF ORGANIZATION.
To organize the LLC, you file Articles of Organization for your company with the Texas Secretary of State. The document contains the name, purpose, registered agent, duration, when the company is to be officially organized, and whether the company will be member-managed or manager-managed. The filing fee is $300 and you can pay an optional $25 to expedite processing.
AN OPERATING AGREEMENT IS ESSENTIAL TO AVOID ISSUES AND EXPLICITLY ENTER INTO AGREEMENTS AS TO THE WAY THE COMPANY WILL BE GOVERNED.
Once organized, you should draft the operating agreement which will detail the essential information about how the company will be run day to day such as officers, elections, membership interests, voting, meetings and record keeping, distributions, exit rights, termination, office location, banking, etc. This avoids issues and misunderstandings, which can be costly and ruin a business relationship between the members. Even for a single member Texas LLC, an operating agreement shows that you are maintaining corporate formalities and respecting the corporate form. The Operating Agreement is a contract signed by someone with authority on behalf of the entity and by the members of the LLC.
To open a bank account, you will need a Federal Employer Identification Number, which is obtained through the IRS. This is a fairly straight forward, but necessary, step to allow you to obtain banking services in the name of your company to purchases and sales while also maintaining a separation between the members and the entity.
If you are operating or considering a new Texas LLC or corporation in Houston or Austin, contact me by email to set up a consultation – I typically provide a free initial consultation to plan for your business with consideration for your business plan and area of services in light of the risks involved and your work flow.