What You Need to Know Before Forming an LLC in Texas
Forming a Limited Liability Company (LLC) is a smart move for many Texas entrepreneurs looking to protect personal assets, streamline management, and add flexibility to their business operations. However, before you jump into creating an LLC, there are important factors to consider. Here’s a guide to help you prepare for the process and make informed decisions.
What Is an LLC, and Why Is It Popular?
An LLC is a business entity that combines the limited liability protection of a corporation with the simplicity and flexibility of a partnership. This structure shields owners (called members) from personal liability for the business’s debts or legal issues while allowing them to choose how they want the business to be managed.
Key Considerations Before Forming an LLC
1. Choose a Name for Your LLC
Selecting the right name is one of the first steps in forming an LLC. In Texas:
- The name must be unique and not too similar to existing entities.
- If your desired name is unavailable, you can use an alternative legal name and file an assumed name certificate (DBA) to operate under the name you want.
Tip: Be cautious when selecting a name. Ensure it doesn’t infringe on someone else’s intellectual property rights, such as trademarks. Using a well-known name like “Coca-Cola” without authorization could lead to legal trouble.
2. Define Your Management Structure
Before forming your LLC, decide how it will operate:
- Member-Managed LLC: Owners directly manage the day-to-day operations.
- Manager-Managed LLC: A designated manager (or managers) handles operations, similar to a board of directors in a corporation. This structure is ideal if you want to hire managers with expertise while limiting owners’ involvement in daily decisions.
Consider the following questions:
- Who will own the LLC?
- How will decisions be made—by majority vote or unanimous consent?
- Should certain actions, such as incurring significant debt or selling assets, require unanimous approval?
Tailor your company agreement to address these details and protect the interests of all members, especially minority stakeholders.
3. Understand the Role of the Texas Secretary of State
To officially form your LLC, you must file a certificate of formation with the Texas Secretary of State. This document includes basic details about your LLC, such as its name, purpose, and management structure.
The company agreement (sometimes called bylaws) is a separate internal document outlining operational rules, member roles, and other tailored business decisions. While not required by the state, it’s essential for preventing future disputes.
4. Consider Future Legal and Operational Needs
While forming an LLC can be as simple as filling out an online form, generic templates often fail to address the unique needs of your business. A well-drafted company agreement helps:
- Define how profits and losses are distributed.
- Establish procedures for adding or removing members.
- Set guidelines for resolving disputes among members.
Skipping this step could lead to costly legal issues down the road.
Why Work with an Attorney?
An experienced attorney can guide you through the process of forming an LLC and help you:
- Select a unique and legally compliant name.
- Draft a tailored company agreement that meets your business’s specific needs.
- Understand the implications of management and ownership decisions.
- Avoid common pitfalls that could expose your business to liability or conflict.
Get Started Forming Your Texas LLC
At Wadler, Perches, Kerlick, we specialize in helping business owners create LLCs that align with their goals and protect their interests. Whether you’re starting fresh or transitioning from a sole proprietorship, our team can guide you every step of the way.
📞 Call or text 800-929-1725 to schedule an appointment. We offer in-person, online, and phone consultations.
With offices in Wharton County, Fort Bend County, and Matagorda County, we proudly serve clients across Texas. Take the first step toward protecting your business and future today!
