Texas Limited Liability State Law
A relatively new form of business, the limited liability company, or LLC, has become a popular option for business formation throughout the United States. As a hybrid between a partnership, or sole proprietorship, and a corporation, business owners can enjoy the best of both worlds: limited liability and pass-through taxation. Almost every state has adopted a statute that allows the formation of limited liability companies and limited liability partnerships, including Texas.
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Limited Liability
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The term "limited liability," as applied to business, means that the personal assets of the business owners are protected from the liabilities of running the company. Such liabilities include debts and other claims against the company, such as lawsuits. In a sole proprietorship, the business owner's personal assets are not protected from liability. Essentially, the business owner is the business. However, the owners of a limited liability company are treated as separate entities for the purposes of liability.
Pass-through Taxation
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The other major benefit of forming a limited liability corporation is pass-through taxation. In a corporation, profits are taxed first at the corporate level, and then as profits are paid to the business owners or shareholders, either by salaries or dividends, the funds are taxed at a personal level. Limited liability company owners are treated as sole proprietors or partners for purposes of taxation. That is, the profits of the business are taxed only at the personal level as income of the business owners.
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Limited Liability Companies in Texas
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Chapter 101 of the Texas Business Organizations Code governs the formation and operation of a limited liability company. However, unlike other states, Texas has gone a step further and created limited liability partnerships. Sections 152.802 and 153.351 of the Texas Business Organizations Code govern the formation and operation of limited liability partnerships. The differences are not significant and reflect largely on the management side of the businesses.
Forming a Texas LLC or LLP
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Forming a Texas limited liability company or limited liability partnership is fairly simple. To form a limited liability partnership, the business must file Form 701, which can be downloaded from the Texas Secretary of State's website. Form 205 must be used to form a limited liability company, and it can also be obtained from the Texas Secretary of State's website. Simply complete the form and enclose the requisite filing fee, and the LLC or LLP will be documented by the Secretary of State.
Disclaimer
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Though processing the forms is simple, there are many factors that should be considered before choosing a business format. Persons seeking to create a business should consult an attorney licensed in their jurisdiction before filing to form a business. This article is for educational purposes only and should not be construed as legal advice.
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