Entity Formations for TX Small Businesses FAQ

Texas Business Entities

Our firm receives numerous requests from small business owners desiring to form an entity to continue or commence business operations. Some of the frequently asked questions our firm receives are listed below.

1) What are the advantages of forming a LLC or corporation entity as opposed to operating as a sole proprietor or partnership?

The primary advantage is liability and asset protection for the owners of a business. Owners are not automatically liable for the debts and the acts of a corporation or LLC. For example, if a person owns a LLC that owns a rental property where a tenant was injured, the tenant would in theory not be able to recover against the person just because the person is an owner of the LLC.

2) Should I form a corporation or limited liability company?

Most small businesses will be better served by forming a limited liability company as opposed to a corporation. Limited liability companies typically require less formality under the Texas Business Organizations code. For example, Limited Liability Companies are not required to hold annual meetings nor have an operating agreement (although having an operating agreement is highly encouraged).

3) What do I need to provide your firm so that you can form an LLC for me?

Our firm will need the names of all the owners and their percentage ownership, the addresses of the owners, the registered agent name, a physical business address of the registered agent, and the principal business address of the new entity.

4) What do I need to know about names for the LLC?

The name of any LLC in Texas must be unique from other entities in Texas. For example, if there is already an ABC Widgets, INC., your new entity cannot be named ABC Widgets, LLC. Our law firm typically performs a thorough search with the Secretary of State before filing on behalf of clients; however, we encourage prospective clients to run a preliminary entity search with the Texas Comptroller at https://mycpa.cpa.state.tx.us/coa/Index.html.

5) What documents are typically included when a lawyer or your law firm forms an LLC?

We include the Certificate of Formation (filed with the secretary of state), an operating agreement, a unanimous consent, a consent for the registered agent, and an explanatory letter on operating an LLC.

6) How do I get an EIN (employment identification number) for my newly formed entity?

It only takes a couple of minutes to get an EIN by completing some information on the IRS website at https://sa.www4.irs.gov/modiein/individual/index.jsp. When you are done with the application, the IRS website immediately generates a notice with the EIN.

7) Does my new entity have to or should it file for a d/b/a (also known as an assumed name)?

If the entity is going to conduct business in any name other than the exact name of the entity, it has to file an assumed name with the secretary of state and the appropriate county clerk. For most entities our law firm forms (entities that maintain a registered office in Texas with principal offices in Texas), the appropriate county clerk is the county where the principal office is located. For purposes of illustration, ABC widgets, LLC could operate as "Really Cool Widgets" by filing the assume name, "Really Cool Widgets," with secretary of state and the appropriate county clerk.

8) How does my new entity set up a bank account?

In our experience banks usually require certain entity related documents and information to set up a bank account. These documents and information usually include an EIN or tax id number, the entity docs that our firm prepares with confirmation of acceptance from the secretary of state, and some type of resolution or consent from the entity (usually included in our firm's documents as part of the entity formation process with our firm).

9) Can my new entity be an S Corp for federal income tax purposes?

Usually, yes--either a corporation or LLC can elect S corporation status. However, our firm does not give tax advice, and you should consult a CPA or tax lawyer to verify S corporation eligibility. Generally, only a domestic entity owned by 100 or less US persons (as opposed to owners that are entities or non-resident aliens) may elect s corp status. See https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations for more detailed information from the IRS on S corp information. Please also remember there are strict deadlines with the IRS for electing S corp status.

10) Does my new entity have to pay any state taxes?

A Texas LLC or corporation will be required to file annual franchise reports that may require the entity to pay franchise taxes. However, most small businesses currently incur no franchise tax liability because the state's current no tax due threshold is very high at $1,110,000 for reports due after January 1, 2016. See http://comptroller.texas.gov/taxinfo/franchise/faq_rpt_pay.html#rpt_pay32 for a FAQ page on franchise taxes from the state comptroller. Additionally, entities that sell goods and certain types of services may be required to pay sales and use tax (See http://comptroller.texas.gov/taxinfo/sales/questions.html for the Texas Comptroller's FAQ page on sales tax). Entities that have employees will be subject to both federal and state employment tax regimes as well. Entities that own business personal property will be subject to personal property tax. Entities that own real property will be subject to ad valorem property tax. Please remember that the above only lists the major tax regimes for Texas entities, and your specific entity could be subject to other taxes as well depending on the type of business and other specifics.

11) Are there any other business licenses in Texas required for my new entity?

Texas has a broad array of licensing and regulatory bodies for certain business activities in Texas. Typically, advice on licensing requirements for specific types of businesses is beyond the scope of representation by law firms doing entity formations. However, our firm or another law firm can be retained for research on licensing requirements for specific types of businesses. The Texas Department of Licensing and Regulation (https://www.tdlr.texas.gov/) is generally a good starting place to investigate license requirements for a variety of trades. Please remember that TDLR does not regulate all trades, and there are many other licensing and regulatory bodies in Texas.

All information provided on Silblawfirm.com (hereinafter "website") is provided for informational purposes only, and is not intended to be used for legal advice. Users of this website should not take any actions or refrain from taking any actions based upon content or information on this website. Users of this site should contact a licensed Texas attorney for a full and complete review of their legal issues. The Silberman Law Firm, PLLC expressly disclaims all liability for any actions taken or not taken based upon content in this website.

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