A Limited Liability Company (LLC) is the natural evolution a Sole Proprietorship or a small enterprise may take to protect their assets and maximize tax benefits. Forming an LLC in Texas has many advantages.
The most distinct advantage of a Limited Liability Company and the most concerning disadvantage of a Sole Proprietorship is personal liability of assets.
Starting an LLC
If you decide to start an LLC in Texas, it is important to keep in mind what the benefits are compared to starting or staying as a sole proprietorship.
Main Difference Between a Sole Proprietor and a Limited Liability Company (LLC)
A sole proprietor may be personally liable for all actions of a company including the debt. This means personal assets such as property, homes, personal accounts and anything of value remains connected to the owner and thus the business. These personal assets may be used to recover obligations that are business-related.
Limited Liability Company
A Limited Liability Company (LLC) is considered a legal entity that is separate from the business owners and may not create a lien on personal assets. The maximum loss a business owner might endure is the amount invested in the LLC or the LLC’s assets. In other words, an LLC protects personal assets, whereas a sole proprietor’s assets are liable.
Good to know about setting up an LLC in Texas
- Forming an LLC in Texas can be inexpensive and relatively simple.
- There are tax advantages including both the state and federal levels.
- Unlike a corporation, regular meetings of the owners is not required.
- It is referred to as an artificial being created by the state.
Note: An LLC can be considered a kind of a hybrid between a corporation and a sole proprietorship. Simply put, it benefits from the liability protection afforded a corporation with the tax advantages of a sole proprietorship.
Fundamentals of a Limited Liability Company
- It is referred to as an artificial being created by the state, a hybrid between a corporation and a sole proprietorship.
- Once it has been properly created, it will have its own tax identification number, bank accounts, taxes, address, owner(s) and manager(s).
- It is owned by its member(s) and in most cases, it is managed by a manger, who is usually a member.
- Unlike a corporation, regular meetings of the owners are not required.
- It will need to file its own tax return each year.
- It is very similar to a corporation, but is generally considered easier and less formal to operate.
Primary benefits of forming an LLC in Texas
- Asset protection
- Estate and tax advantages
- Raising capital
- Less formal than a corporation
When should you consider forming an LLC in Texas
If you are already conducting a business, you can convert your existing business to a Limited Liability Company. If you do, you will need to make sure you transfer the assets and contracts of your existing business to the new company. You will also need to set up new bank accounts.
- If you are concerned about liability, you might consider forming one to protect your assets from claims made against your business.
- Setting up an LLC in Texas will not prevent claims, but it may help you if you are sued. There are no guarantees.
- There may be tax advantages for setting up an LLC.
- We highly recommend you set up an LLC before you start a business.
LLC for Real Estate
If you own rental property, it is recommended that the property be leased and owned by a Limited Liability Company. This will help protect you from personal liability if something bad happens on the property, although it will not protect you from all claims.
A limited liability company is formed by filing a document with the State of Texas.
The State of Texas issues a Certification of Filing. After you receive the Certificate of Filing, your need to:
- Sign documents prepared by your attorney
- Obtain a Tax Identification Number for the Internal Revenue Service
- Set up bank accounts
- Transfer your real estate to the company
The State filing fee is $325 for expedited service.
The Steinbach Law Firm provides a full range of services for all matters related to business planning.
We prepare the legal documents to set up your LLC for $950.
For all the legal needs of individuals and businesses, our law firm is committed to providing you with the best legal counsel at affordable, common sense rates.
Do you have questions about forming a Limited Liability Company? Speak directly with attorney Scott Steinbach at 972-960-1850 for a free consultation.
R. Scott Steinbach is AV Preeminent rated by Martindale-Hubble. Peer rated for Highest Level of Professional Excellence.