A limited liability company is a business entity type that provides protection for the owners like a corporation but offers the flexibility to be taxed either as a partnership or a corporation. You form your Texas LLC by registering with the Texas Secretary of State and paying the registration fee.
Naming Your LLC
The first thing to do when forming your LLC in Texas is pick a business name. For LLCs, the name must include "limited liability company," "limited company," or some abbreviation of those. For example, you couldn't just call your business "Jason's Crab Shack;" it would need to be "Jason's Crab Shack, LLC." In Texas, the name can't be "grossly offense" and can't be the same as or deceptively similar to a name already registered. For example, if "ABC, LLC" is already taken, you can't register as "A/B/C, LLC" or "ABC, Limited Liability Company."
Certificate of Formation
Your certificate of formation creates your LLC as a legal entity with the state. The certificate requires the business name, purpose the LLC will accomplish, name and address of the registered agent and LLC organizer, and indicate whether the LLC will have managers or all members will run the business equally. The registered agent is a person or company that can receive service on behalf of the company, such as when it gets sued, and must consent to serving. You can also include additional terms like how long the LLC will last, and it must be signed by the organizer, which is the person creating the LLC.
Texas doesn't legally require an operating agreement to form an LLC and if you're creating a single-member LLC, it's not a big concern because you can't really get into a fight over running the business with yourself. However, if you have multiple members, an operating agreement can save you significant headaches later on by defining exactly what each member is contributing, what roles the members will play and who will get to make or approve various business decisions. For example, you might want to allow each member to purchase supplies up to $5,000, but for any larger purchases, you could have the operating agreement require consent of all members.
Employer Identification Number
If your LLC has multiple members or employees, or you're the only member but for some reason want the LLC to be taxed as a corporation, the company must obtain an Employer Identification Number from the Internal Revenue Service. You can apply for an EIN through the IRS website. On the other hand, if you're a single member LLC and elect to be taxed as a sole proprietorship, you don't need an EIN.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."