In this video, Attorneys Philip Hundl and Kari Wittig talk about what you need to know before forming an LLC for your Texas Business. Ms. Wittig is no longer with the Firm. Call or text 800-929-1725 for an appointment. We offer meetings online, in-person or by telephone.
Summary of What You Need to Know Before Forming an LLC in Texas
[Philip Hundl] Hi, I’m Philip Hundl and I’m back for another WPHK Office Hours. We’re here today with Kari Wittig. She is an attorney at the firm who focuses on a lot of different areas, but she does a lot of entity formation via corporations, limited partnerships, general partnerships, and LLCs,.
So today we really want to focus on LLCs. We had another segment on the various entities that I just mentioned. So if you’d like to know more general information about those other entities, please look at that video. But today, talking about what you need to know before foming an LLCs. So someone stops me on the street and says, “Hey, I want to form an LLC Philip”. What do they need to know or bring when they come to meet with you?
[Kari Wittig] When we have the initial meeting with clients who are interested in starting a business, there are some typical questions they ask. “Should I form an entity?” “What should that entity look like? “What information do I need?”
Before Forming an LLC You Should Think About the Name You Want
If we decide that the LLC is the best structure for that particular endeavor, the type of information that we’ll need from the client starts with what are the names that you’d like to use for your entity? Because in Texas, you can choose a name for an entity, as long as it’s not too similar to the name of an existing entity. So that’s something that we’ll have to check ahead of time.
A DBA or an Assumed Name Might Get You the Name You Want
Another thing to keep in mind is if you have your heart set on doing business under a certain name and that LLC name is not available for whatever reason, don’t fret because we can often get around it by forming the LLC using a different name. Then we file an assumed name certificate in order to allow that LLC. to conduct business under the name that you really want to use. So those are the types of information that we need in terms of creating the entity name.
How Do You Want the Entity to Operate?
The other information that the client is going to have to bring to the table would just sort of be a general idea of how they intend to see the entity operate. For instance, who are going to be the owners of the entity? How are operational decisions going to be made? Is everything going to be determined by majority vote?
If so, do we want to build in some protections for the minority interest holder? Say for instance, if I’m doing business and my partner is 51% owner, I don’t necessarily want the majority owner to have the final say in everything. If that’s the case, I have the potential to get steamrolled in some of the operational decisions. That situation will probably not be to my benefit.
So I may want to have protections built in. So for instance, if my partner wants to incur debt over a certain threshold, he has to get my consent. Perhaps if he wants to sell substantially all the assets, that’s something I’ve got to consent to. So there are a lot of different considerations that come into play when it comes to the interactions between the owners of the LLC.
Will the LLC be Managed by Owners or Members?
Speaking of ownership, the client is also going to need to figure out whether or not they want to have the entity managed by the owners or the members, which would make it a member-managed LLC, or do they want to appoint managers, which as we discussed in a prior video.
A manager-managed LLC is similar to a corporation where you have a board of managers who are making operational decisions. They can delegate that authority to officers if they’d like. Generally the owners aren’t going to have much say if the manager-managed LLC is a structure that the client decides to move forward with.
[Philip Hundl] I know you’ll initially meet with someone, and they had their heart set on a particular name. You do and that name is not available, and there are ways to get permission from someone to allow you to use that name, or maybe they agree to transfer that name to you. I’ve seen this happen before.
I’ve had clients that filed for an assumed name that’s already been used, and the next thing you know, they’re getting all these debt collection letters. So I always say try to find a unique name, a different name. It may not be the name that your heart is set on or was set on, but as you mentioned, you can always do the assumed business name. Just because your LLC is named one thing, that doesn’t mean that’s your storefront sign.
An Assumed Name Does Not Give You a License to Use Another’s Intellectual Property
[Kari Wittig] Exactly, but I do want to point out that just because you choose a name as your DBA, there’s no requirement from the Secretary of State to have that pre-approved. You’re still subject to whatever intellectual property rights there are that are associated with that name.
So for instance, I couldn’t go out and start doing business under Coca Cola Inc, because that’s going to invite a lot of lawsuits. So there are limitations, but that’s definitely an option that we’ve seen clients pursue, if their particular name is not available to use for the name of the LLC itself.
The Texas Secretary of State Is Part of the Process
[Philip Hundl] Now, kind of the steps in the process, you mentioned the Secretary of State being involved because you have to submit something to the Secretary of State. I think the first step is this certificate of formation that gets submitted, right?
And then you went into more of the details of management. A lot of times clients don’t know these details when they start meeting with you. But through that initial meeting or two, they begin to think about the voting rights. They can decide how a particular action of the LLC would require a super majority or a simple majority.
Take Time to Think About Management Structure Before Forming an LLC
A lot of decisions need to be made that are very tailored to the business. So a lot of times that first initial meeting is more of you asking questions and giving the clients things to think about. Then the clients can go and talk to their other members or business partners in the entity.
Well, all very helpful information. Kari. Probably three or four times a week I get stopped and asked about how do I form an LLC? Or can you all form an LLC for me?
One thing I always say is, sure there are easy ways to go online and to pull a form and create an LLC. Probably anyone can do that. But it doesn’t address the business-tailored decisions that really need to be in a company agreement.
These documents used to be called company bylaws, but in general terms it’s the company agreement. If those LLCs that are being formed don’t have the appropriate company agreement, I think people are just inviting a future lawsuit.
So Kari, thank you. This has been very helpful. Hopefully this is very helpful for you all out there. Once again, LLCs have become the entity of the day and so learn more about them. Get information. The Texas Secretary of State has good information on its website about LLCs as well. So with that, good luck.
Get Started in Forming an LLC for Your Texas Business
Call or text 800-929-1725 to get an appointment to get started with your LLC. Or if you already have a business operating as a sole proprietorship, consider shifting your business to an LLC. You can also schedule an appointment by clicking the button.
Wadler, Perches, Hundl & Kerlick has offices in Wharton County, Fort Bend County and Matagorda County. We have clients from all over Texas.