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Avoid “Do It Yourself” LLCs. But If You Can’t, Here are Some Tips.
With the provision for online legal documentation in place, many new entrepreneurs opt to take the easier “Do it yourself” path. They do all the groundwork online and pay a small fee to form a Texas Limited Liability Company, also known as LLC. Completing the online Certificate of Formation through the office of the Texas Secretary of State is quite simple. All you need to do is;
- Complete the form
- Pay the stipulated fee
- Create a formal legal entity
The formal legal entity must be eligible to engage business in Texas.
While most business owners form business entities for purposes of protecting their personal assets, failure to treat the business as a separate entity as well as failing to run it accordingly exposes your assets and subjects them to huge risks.
Requirements for business entities
#1. Company Agreement – each business entity must have a Company Agreement whose purpose is to list all the governing rules and procedures for running the LLC. The agreement is subject for review in the event that the LLC intends to take a particular action. Similarly, the Company Agreement can also be amended when deemed necessary during the course of the entity business.
#2. Minutes of the Organizational Meeting of the Managers of the LLC – Minutes are taken from the Organizational meeting of the LLC managers highlights the steps taken by the previous managers to steer the organization. A record of attendance and an updated written document profiling all the items discussed, as well as actions taken during the meeting, must be produced. One of the steps taken must be adopting the Company Agreement.
With the necessary documentation in place, the next hurdle lies in meeting all the compliance requirements set by the respective city, county, and the state. Should you fail to meet any of those laid down compliance requirements on time, your LLC is likely to suffer major consequences.
It is prudent to think about your tax obligations before forming an LLC as it may have a direct impact. To be on the safe side, engage your accountant in a comprehensive review of all the tax aspects of your entity. Pay special attention to the following;
- Which status to elect
- The Texas Franchise tax
- FICA taxes and withholdings
In a nutshell, creating an LLC for purposes of asset protection is a very noble idea. It is, however, very important to separate your personal assets from the LLC assets. Consequences of non-separation can be dire and you might find yourself embroiled in energy-consuming legal tussles. All that can be avoided by equipping yourself with the necessary information beforehand. As always this is not legal advice and we advise you consult with an attorney.
If you would like a FREE Business Formation Strategy Session with Attorney Kathleen Cassidy Goodman, fill out our form below.