Frequently Asked Questions

Limited Liability Company (“LLC”)
Limited Partnership (“LP” or “Ltd.”)
Corporation
General Partnership
Sole Proprietorship

LLC FAQs:

What are the filing fees to form an LLC in Texas?

The Texas Secretary of State charges $300 to file the Certificate of Formation for the creation of an LLC. Click here for Secretary of State’s Fee Schedule.

What is an operating agreement?

The operating agreement (sometimes referred to as a company agreement) is akin to a partnership agreement for a partnership. It is an internal contract amongst the members/owners of the LLC, and it lays out such things as ownership interest, member responsibilities, accounting method, adding or removing members, terms for concluding the LLC, etc.

Is the operating agreement a public record?

No. The operating agreement is a contract amongst the members. It is not typically recorded or filed, but rather kept at the principle place of business within the corporate books.

What are the advantages of a Texas LLC over a Texas corporation?

One of the advantages of forming an LLC in Texas over a corporation is protection against “outside liabilities.” As long as the LLC is distinct from its owners, is adequately capitalized, and is not used to perpetuate a fraud, then, the LLC as well as a corporation will protect its owners from inside liabilities and inside creditors (This means that the member cannot be held personally responsible for the LLC’s debts and obligations and the member’s personal assets are shielded from the LLC liabilities). The multi-member LLC also protects the LLC (and thus the other members of the LLC) from outside liabilities and outside creditors. See the Texas LLC section of our Website for a discussion on “inside liabilities” versus “outside liabilities.” An outside creditor with a judgment against one member of the LLC is only allowed to take whatever actual cash distributions are made by the LLC. Unlike the usual corporation, the outside creditor cannot force a distribution or demand any portion of the assets of the LLC.

What is a Series LLC?

The new Texas series LLC was approved for use in Texas in September of 2009. A series LLC is a Limited Liability Company with more than one series of members, managers, or LLC interests having separate rights, powers, or duties with respect to specified property or obligations of the LLC or profits and losses associated with specified property or obligations. Any such series may have a separate business purpose or investment objective. The Texas series LLC allows different properties and businesses to be held in separate “series” or compartments, each insulated from the liabilities of the other – which is not true of a traditional Texas LLC in which all assets of the company are available to satisfy a judgment. This feature eliminates the need to form multiple Texas LLCs for different properties and projects. A series may own real estate, borrow money, manage property, or operate a business in its own name.

Should I form my LLC in Nevada or Delaware?

Many large businesses will choose the state of incorporation based on the law of a particular state. However, due to the filing fees and compliance issues, most small businesses decide to incorporate in the state in which they will transact business. A foreign entity that is transacting business in Texas must file an application for registration with the Texas Secretary of State ($750 filing fee). Whether an activity constitutes "transacting business" in Texas is often difficult to answer. Texas statutes do not define “transacting business;” however, Texas Business Organizations Code (BOC) § 9.251 lists activities that are not considered transacting business. Case law and Attorney General Opinions are useful in determining whether or not an entity is “transacting business” in Texas.

Can I form an LLC anonymously?

Yes. The only public document (initially) when forming a business entity is the certificate of formation which requires only the name of the organizer, initial members and the registered agent. For a fee, one of our attorneys can serve as the organizer, initial member and registered agent. After formation the membership interests will be privately transferred to you.

LP FAQs:

What are the filing fees to form a limited partnership in Texas?

The Texas Secretary of State charges $750 to file the Certificate of Formation for the creation of the limited partnership. Click here for Secretary of State’s Fee Schedule.

If I want to create a limited partnership with another individual, can we both be limited partners?

Of course. A limited partnership must have at least one general partner and one limited partner. If you both desire to be limited partners, you will need to bring in a general partner. The general partner can be a separate entity that is owned by the limited partners.

Can I form a Limited Partnership in Texas with a single partner?

No. You must have at least two partners for any partnership. Nevertheless, you can fulfill the requirement of having at least two partners by creating a separate entity to be one the partners (typically the general partner). For example, you could be the sole limited partner and the general partner could be a single member LLC owned solely by you. This structure, however, would only be appropriate in rare circumstances.

Corporation FAQs:

What are the filing fees to form a corporation in Texas?

The Texas Secretary of State charges $300 to file the Certificate of Formation for the creation of a corporation. Click here for Secretary of State’s Fee Schedule.

How is a corporation managed?

A corporation is managed and run by its directors and officers. The directors are appointed by the shareholders and are responsible for the overall management and corporate governance of the corporation. The directors appoint the officers who are responsible for the day to management and operations of the corporation. The typical officer positions are president, vice-president, treasurer, and secretary, although there can be more, and sometimes different titles are used.

What are Bylaws?

Bylaws are like an official game plan on how a corporation is to be run and operated. Bylaws also state the rights and powers of the shareholders, directors and officers. Ordinarily, they’re not filed with the Secretary of State are not public record.

What is Par Value?

Par value is a nominal dollar amount given to corporate shares. The par value of a share is the minimum price at which it may be sold to shareholders, and the par value must be the same for all shares of the same class. Par value doesn’t necessarily reflect the real value of the shares. If a value is stated, it is typically set at a low value (i.e. one dollar or one cent). Texas does not require a par value to be stated.

What is an "organization meeting"?

After the filing of a certificate of formation takes effect, an organization meeting shall be held at the call of the majority of the initial board of directors for the purpose of adopting bylaws, electing officers, and transacting other business. If allowed by the corporate bylaws, the organization meeting is typically satisfied when the initial director execute a document entitled "Unanimous Consent of the Directors in Lieu of Organization Meeting."

What is an S Corporation?

An S Corporation is a special form of corporation (Note: The “S” in S Corporation refers to sub chapter S of the tax code). S Corporations are based on C Corporations but they are not treated as a separate tax entity as C Corporations are. Instead, the income of an S Corporation is “passed through” to the personal income of its owners (shareholders) in proportion to their ownership interest. An S Corporation is created by forming a traditional C Corporation and then filing the IRS Form 2553 (The Subchapter S Election) for federal recognition of S Corporation tax status.

Can a single member LLC be a shareholder of an S-Corp?

The IRS issued several Private Letter Rulings (200816002, 200816003, and 200816004) to the effect that an S corporation will not lose its "S" status if it has a shareholder that is a single-member LLC, provided that the LLC is a "disregarded entity" for tax purposes (meaning that it has not elected corporate tax treatment) and is owned by an individual.

Are the shareholders of an S Corporation subject to self-employment tax?

The compensation (salary and bonuses) of S Corporation shareholders is subject to self-employment tax, but not on the profits allocated to them as a shareholder. This can be one advantage over an LLC. As such, you should discuss the pros and cons of the S Corporation with a tax professional.

Can I form a corporation anonymously?

Yes. The only public document (initially) when forming a business entity is the certificate of formation which requires only the name of the organizer, initial directors and the registered agent. For a fee, one of our attorneys can serve as the organizer, initial director and registered agent. After formation the shareholders will privately elect a new director or directors.

General Partnership FAQs:

What are the filing fees to form a general partnership in Texas?

There is no filing requirement for a general partnership in Texas.

How is a general partnership formed in Texas?

There is no filing requirement for a general partnership in Texas. An association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether the persons intend to create a partnership or the association is called a "partnership," "joint venture," or other name. Unless the partnership is formed as a limited partnership (under Chapter 153 of the Business Organizations Code or a predecessor statute), it will be deemed a general partnership.

How do you determine if a partnership is created?

Factors indicating that persons have created a partnership include the persons’:

receipt or right to receive a share of profits of the business
expression of an intent to be partners in the business
participation or right to participate in control of the business
agreement to share or sharing
losses of the business
liability for claims by third parties against the business
agreement to contribute or contributing money or property to the business.

What kinds of relationships do not create a partnership?

The following circumstances, by themselves, do not indicate that a person is a partner in a business:

1. co-ownership of property, regardless of whether the co-ownership: (a) is a joint tenancy, tenancy in common, tenancy by the entirety, joint property, community property, or part ownership; or (b) is combined with sharing of profits from the property;

2. the receipt or right to receive a share of profits as payment: (a) of a debt, including repayment by installments; (b) of wages or other compensation to an employee or independent contractor; (c) of rent; (d) to a former partner, surviving spouse or representative of a deceased or disabled partner, or transferee of a partnership interest; (e) of interest or other charge on a loan, regardless of whether the amount varies with the profits of the business, including a direct or indirect present or future ownership interest in collateral or rights to income, proceeds, or increase in value derived from collateral; or (f) of consideration for the sale of a business or other property, including payment by installments;

3. the right to share or sharing gross returns or revenues, regardless of whether the persons sharing the gross returns or revenues have a common or joint interest in the property from which the returns or revenues are derived; or

4. ownership of mineral property under a joint operating agreement.

Sole Proprietor FAQs:

What is a sole proprietorship?

A sole proprietorship is a single individual who engages in a business activity without a formal business entity. If the business is conducted under an assumed name (a name other than the surname of the individual), then an assumed name certificate (commonly referred to as a DBA) should be filed with the office of the county clerk in the county where a business premise is maintained. If no business premise is maintained, then an assumed name certificate should be filed in all counties where business is conducted under the assumed name.

Can two individuals own a sole proprietorship together?

No. Generally speaking an association of two or more persons to carry on a business for profit as owners creates a general partnership by law.

If I filed an assumed name certificate with the secretary of state, what kind of entity did I create?

The filing of an assumed name certificate does not create an entity. An individual that has filed an assumed name certificate will be considered a sole proprietor.

Does a sole proprietorship have any liability protection?

No. If you are doing business have not created an entity, you should strongly consider utilizing an LLC, corporation or other entity that will protect its owners from the liabilities of the entity.