An LLC is a limited liability company. In Texas, LLCs are legal business entities.
In this video, I'm going to explain what a legal entity is, how to start your own LLC
in Texas, and a few points on how to properly manage your LLC.
A legal entity is a person or business who is authorized to hold title to property, enter
into contracts, sue, or be sued.
A person is a natural legal entity. People can hold title to property, enter into contracts,
sue, or be sued.
Businesses can also be legal entities. Although, not all businesses are legal entities.
Sole proprietorships and general partnerships are not their own legal entities.
In a sole proprietorship, an individual person is doing business as the name of that person's
business. The property, contracts, and law suits are all in the name of that individual
person.
In a general partnership, you have a group of individuals conducting their business as
the name of their partnership. The title to property, the contracts, and the law suits
are all in the names of the individual partners doing business as the name of their partnership.
An LLC, however, is it's own legal entity. The LLC can hold title to property, enter
into contracts, and sue or be sued.
So, in Texas, to start your own LLC, you need to complete a Certificate of Formation, and
this Certificate of Formation is filed in the Texas Secretary of State's office.
And, the certificate needs to have the name of the LLC, and the name can't be one that's
already being used or deceptively similar to one that is already being used.
It can't be misleading, and the name has to have either "LLC" or "Limited Liability Company"
or an abbreviation in the name.
The certificate also has to have the name and address of the registered agent, the person
who is authorized to accept service of process on behalf of the LLC.
The certificate also has to have the names and addresses of each initial member if the
LLC is going to managed by the members.
If it's going to managed by managers, then the certificate requires the name and address
of each initial manager.
The certificate for the LLC also has to have the purpose of the LLC, which is generally
to conduct any and all lawful business in the state of Texas.
The certificate can also contain additional terms by which the LLC is going to conduct
its business.
And finally, it will have the name and signature of the person organizing the LLC.
When you send your Certificate of Formation to the Texas Secretary of State's office,
they will review it to make sure that the name is one that can be used and that the certificate
has all the necessary information.
Once it's been reviewed and approved, then they'll send you confirmation that the certificate
has been filed.
Once you receive the confirmation that the certificate has been filed, you can apply
for a federal employer identification number from the IRS, open a bank account, and begin
operating the business on behalf of the LLC.
One thing you need to consider for properly maintaining your LLC is to have an Operating
Agreement.
That Operating Agreement acts like a partnership agreement in a partnership or the Bylaws of
a corporation.
It establishes what the roles are between the owners and the managers.
If the owners are the managers, then the LLC functions like a partnership. If the owners
are not the managers, then the LLC functions more like a corporation.
The Operating Agreement should carefully express the terms by which new members are included,
how contributions are to be made, how distributions are made, and how decisions are made.
Decisions are usually made by the members and managers voting on major decisions that
the company has to decide on.
Another important aspect of properly maintaining your LLC is capitalization.
When you start conducting business on behalf of the LLC, you want to make sure that the
LLC has sufficient capital to meet its operating expenses.
If the LLC doesn't have sufficient capital to meet its operating expenses, then you as
an owner could face potential personal liability to satisfy those financial obligations.
Also, if the LLC were to make any distributions of its profits in a way that would prevent
it from being able to meet its financial obligations, then you can also become personally liable
for those financial obligations.