Many companies are reluctant to form a Limited Liability Company (LLC) because of some obvious reasons. However, forming an LLC has many benefits especially in Texas, the US.
In this blog, we will tell you some of the most apparent reasons for forming an LLC in the state of Texas in 2020.
If you are someone who is operating their own business but has not filed for an LLC certificate, then this is the right time to do so.
What Is an LLC?
An LLC is a legal entity that gives your business protection from copyright infringement, tax breaks, and a legal cover to turn your gig into a profitable business without any fear.
Like any corporation or a partnership, an LLC will allow you to identify your business as a taxable company.
So, now instead of conducting the business on your name, you will be able to get the tax done on the name of the company. This would mean filing your taxes through your company account, opening a bank account on your company’s name, and accomplishing all other tasks under the banner of an LLC.
LLCs are regarded as a haven for conducting business legally. They are less stringent than a corporation and offer much more liberty. The partners in an LLC are bound to abide by specific rules. It allows them to trust and conduct business transactions pleasantly and honestly.
Why Form an LLC?
You will either need to form an LLC or a sole proprietorship to conduct business individually. However, if you are doing business with more than 100 members (partners), you will need to form a corporation. No other way is available to conduct business legally.
Business Structure of LLC
The business structure of an LLC differs from a Corporation in the following way:
- An LLC that has one member is called a sole proprietorship
- An LLC with less than 100 members is called a partnership LLC.
- An LLC with more than 100 members is a corporation.
The structure of these LLCs and their tax brackets will differ because of their different categories.
Requirements for Forming an LLC
For Texas LLC formation, you will need the following ready:
- The name of your company that you will register with the Texas LLC board.
- A valid street address of your current office
- LLC form submission and paperwork should be done by the registered agent of the Texas LLC Secretary of State.
- Name, valid identity card, and address of each member you are registering for your LLC.
- A completed Certificate of Formation
- The state will charge a one-time LLC registration fee of $300
Benefits of Registering LLC in Texas
LLCs have Limited Liability: You, as the owner of the LLC, will not be liable for the debts of the business. This includes debts resulting from lawsuits, lack of payments, and other similar debts.
Many people form LLCs just because of this reason but it is just one of the many advantages. It is recommended that your LLC pays the other company in full if it incurs debt.
Similarly, Texas LLC formation will also provide asset protection for your business and its members.
Note: There is no limited liability for sole proprietors and general partnerships.
One-Time Registration Cost: A limited liability company only has to pay a one-time fee of $300 for its formation. On the other hand, Limited Liability Partnerships (LLPs) have to pay $750 and $200 per partner registration. Moreover, Texas charges no annual fee for registering an LLC. Only a one-time payment of $300, and you are good to go.
Flexible Tax Payments: Due to the differing structure of LLCs, they have varying tax slabs. For example, an LLC that has only one member will be taxed separately, while an LLC that has more than one member will be taxed according to limited liability.
Moreover, LLCs that are in loss don’t have to file any tax at all with the state. They can file a return stating that the company incurred a loss in its business year.
LLCs falling in the ‘C’ category are called Corporations, and they are taxed separately.
No Formal Requirements: LLCs in Texas are not required to hold annual meetings about their business. Nor are they needed to keep a record of meetings in written format.
Flexible Membership: Texas is pretty lenient when it comes to adding members to an LLC. Companies can easily add new members to their business.
The formal way to add a new member is to notify the Secretary of State office. They will ask for the details of the new member and update the details in the LLC record.
An LLC can add as many as 100 members. During a ‘C’ level LLC can have more than 100 members. However, a corporation will be subjected to double taxation and more regulations.
Copyright Infringement: An LLC legally protects your company name from any copyrights in the country. This means no one in any part of the country can replicate either your product or your brand name. All of it is protected under the Secretary of State. By forming an LLC, companies ensure that their assets, reputation, and brand image remains protected.
Secretary of State Support: Doing business without state support can be a nightmare, especially if you get entangled in an altercation.
By registering your brand with the state, you get security for your business. This can help protect your reputation and assets and in filing lawsuits against other companies. Texas protects LLCs under the Texas Business Corporation Act (TBCA) and the Texas Miscellaneous Corporation Laws Act (TMCLA).
Whether you are just stepping into the business world or turning a small gig into a full-fledged business, an LLC will provide you legal protection for all activities you do under it. Forming an LLC has many advantages that we have already discussed above.
Now that you are aware of everything there is to know, you can start searching for a good lawyer to contact for the formation of your LLC in Texas that provides advice on everything one wants to know about conducting business operations.