FORMATION OF A LIMITED LIABILITY COMPANY - FORM A LLC
LLC - Definition and General Overview of a Limited Liability Company
The Texas legislature created a new business entity in Texas with the Texas Limited Liability Company Act which was repealed in favor of the new Texas Business Organizations Code. The Texas Business Organizations Code now regulates limited liability companies created on or after January 1, 2006. The Limited Liability Company commonly referred to as LLC resembles a corporation and in other ways the LLC resembles a general or limited partnership. A limited liability company LLC resembles a corporation in the following ways:
1. The company is an artificial person separate and apart from its owners, who are known as members. See Texas Business Organizations Code 101.106. A member has ownership interest in the limited liability company – LLC but not in specific company property.
The limited liability company (LLC) is not a partnership or a corporation but rather is a distinct type of entity that has the powers of both a corporation and a partnership. Depending on how the LLC is structured, it may be likened to a general partnership with limited liability, or to a limited partnership where all the owners are free to participate in management and all have limited liability, or to an “S” corporation without the ownership and tax restrictions imposed by the Internal Revenue Code. Unlike the partnership, where the key element is the individual, the essence of the limited liability company is the entity, requiring for its creation more formal requirements. 1 William D. Bagley & Phillip P. Whynott, The Limited Liability Company, §2.10, (2d ed. 2d rev. James Publishing, 1995).
The owners of an LLC are called “members.” A member can be an individual, partnership, corporation, trust, and any other legal or commercial entity. Generally, the liability of the members is limited to their investment and they may enjoy the pass-through tax treatment afforded to partners in a partnership. As a result of federal tax classification rules, an LLC can achieve both structural flexibility and favorable tax treatment. Nevertheless, persons contemplating forming an LLC are well advised to consult competent legal counsel.
A limited liability company can be managed by managers or by its members. The management structure must be stated in the certificate of formation. Management structure is a determination that is made by the LLC and its members. The Secretary of State cannot give advice about management structure.
Limited Liability Company LLC - General questions and checklist when forming a LLC:
1. Will the company be governed by its Members or its Managers?
2. What is the proposed name for the LLC? It is best to provide your preferred name and two a
alternatives. Limited Liability Company LLC names must include the words “limited liability company”
or "limited company" or an abbreviation such as "LLC".
3. What is the purpose of the LLC? Most LLCs that I assist in formation are formed for “any lawful purpose".
4. Who will be the Registered Agent for the LLC and what will be the registered office street address for the LLC?
5. Who are the initial Managers or Members of the LLC and what are their complete addresses?
6. Are there any special clauses that need to be added to the Certificate of Formation?
7. Will the LLC need corporate books and/or Membership interest certifcates?
8. When will be the Organizational Meeting for the LLC?
9. Who will be the Organizational Meeting chair person?
10. Will the LLC have officers such as President, Vice-President, Secretary, Treasurer?
11. What are the units of membership interest (ownership) issued to each of the initial Members?
12. Does the LLC have a banking resolution?
13. How will the members vote on future issues arising with the LLC?
Contact me to discuss the general questions and checklist for forming a LLC and an office appointment with me to begin formation of your Limited Liability Company LLC.
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