LLCs - How to Form an LLC

LLCs - How to Form an LLC

You're up to date on all of the Tax TeleGraf's articles on LLCs and have come to the conclusion that you want to form an LLC. Congratulations! Forming an LLC is a big deal because it represents your progression as a small business owner. Progression is something to celebrate so give yourself a pat on the back.

Information on forming an LLC is literally everywhere on the internet. This is going to add to the pile but because I don't push setting up an LLC as a service, you can trust me. However, I am going to reference a company that offers LLC formation services.

Disclaimer: I don't make money referring to these companies. Again, you can trust me.

Another Disclaimer: This article is strictly for forming an LLC in Texas. Howdy, y'all!

Another Disclaimer (Last one!): This article is geared towards single (not relationship single) member LLC entities.

Filling Out a Certificate of Formation (Form 205)

Here is the form

Article 1 - Choose a Name

• Check if the entity name is already being used:

  • Call 512-463-5555, or

  • Search entity name here: https://mycpa.cpa.state.tx.us/coa/, or

  • Search entity name through your SOSDirect Account here ($1 fee): https://direct.sos.state.tx.us/corp_inquiry/corp_inquiry-find.asp?:Norder_item_type_id=9, or

  • Email corpinfo@sos.state.tx.us

• Make sure you add, LLC in the name
  

  • For example my LLC would be called Tax TeleGraf, LLC

Article 2 - Registered Agent and Registered Office

• You can be your own Registered Agent
  

  • Recommended for one owner LLCs

• Hire a business to be your LLC's Registered Agent
  

  • That's unnecessary unless you have cash to burn and you hate keeping track of mail

• Your Registered Office can be your home (or your actual office)
  

  • Head up: It costs money to change the Registered Agent/Office location

  • Whatever address you use will be on public record

Article 3 - Governing Authority

• Manager Managed or Members Managed?

• If it's just you running the LLC you'll most likely go with Member Managed
  

  • Option B

  • Whatever address you use will be on public record

• Manager Managed means there are designated persons managing and not all of the members of the LLC
  

  • If you have passive investors consider Option A

Article 4 - Purpose

• You may add specific verbiage of the purpose/function of the LLC in this section

• If you are a licensed professional (like a CPA) then Form 206 is for you, not Form 205
  

  • PLLC - Professional Limited Liability Company

Organizer

• This is you, the person creating the LLC

Effectiveness of Filing

• Depends on when you want to be in business

• You may try to time it for January 1st of the next year to avoid a Texas Franchise filing

• You may want to be in business immediately

Execution

• Must be signed by the Organizer (see above)

Filing a Certificate of Formation (Form 205)

Filing a Certificate of Formation can be done online or through the mail. To file online you must set up a SOSDirect account - Click Here: https://direct.sos.state.tx.us/acct/acct-subscribe.asp. Just a heads up - you'll need to give your credit card information as part of the verification process.

Once you have applied for an SOSDirect account you will receive an email with your User ID. You'll then login for the first time and reenter your credit card information. Try not to get worried by the user interface/web design features that looks like you're on a webpage created in the late 90s.

Payment and Delivery

Filing fee is $300. If you're filing online then you can use a credit card through your SOSDirect Account: https://direct.sos.state.tx.us/acct/acct-login.asp. If you're mailing in the form you must send 2 copies of the Certificate of Formation with payment/payment information form (Form 807). The form may be mailed to P.O. Box 13697, Austin, Texas 78711-3697.

Now just wait 3 business days if you filed online or 5 to 7 if you mailed the form in. Boom, you're a legit LLC owner now!

What Else?

• Get an Operating Agreement
  

  • Not required by law if you are the only member but is recommended for increased credibility and upkeep of limited liability status

  • Highly recommended if there are multiple owners

  • There are free operating agreements out there but make sure you pass it by your CPA before you sign anything

• Get an EIN
  

  • Needed to open a business bank account

  • Used for hiring employees/payroll

  • Used for Federal/State tax purposes

  • https://sa.www4.irs.gov/modiein/individual/index.jsp

• Get a business bank account/credit card
  

  • The more separated your personal spending/income from your LLC spending/income the better

• Get insurance

• Get necessary Permits

• Get registered for sales tax if you're required
  

  • https://comptroller.texas.gov/taxes/permit/

• Get registered for unemployment taxes if you have employees
  

  • https://twc.texas.gov/businesses/unemployment-tax-registration

• Get accounting software/excel
  

  • Keep track of your income and expenses so you can file an accurate tax return and know your financial picture

"Starting and running a business is easy" -No one, probably. That being said, you may see forming an LLC as something you have no time for. If that's the case, LegalZoom has some affordable options in creating an LLC that should simplify this part of business ownership. Check out their options here: https://www.legalzoom.com/business/business-formation/llc-pricing.html.