Articles of Organization

Texas law states that you must write up and file articles of organization for your new LLC. The articles of organization must list the LLC's name and business purpose; how long it's planned to last (usually perpetual unless otherwise specified); the name of the registered agent and the address of the registered office; the name and addresses of the organizer(s) and their signature(s); whether the LLC will be managed by a manager or managers; the name and address of each manager or initial member; the signature of a manager, organizer, member, trustee, or fiduciary, and the signer's position; and any other relevant information.

Your LLC is "organized" when an original and one copy of the articles of organization are given to the Texas Secretary of State's office along with the filing fee, and their office confirms that they comply with state requirements. The Secretary of State endorses both copies, keeps the original, and returns the signed copy. The articles of organization are effective as of the date and time they are filed unless a later date and time are specified.

Registered Agent and Office

Texas LLCs must each have a registered agent in Texas—someone designated to receive official correspondence from state administrative or legal agencies. A registered agent for an LLC in Texas can be an individual resident, a Texas LLC or corporation, or an out-of-state ("foreign") corporation or LLC with an office in Texas.

The LLC must keep a business office at the same address as its registered office, and it must be a street address, not just a post office box or answering service.

Operating Agreement

Another very important LLC document is its operating agreement, which can be amended or repealed as specified by the agreement or applicable law. This isn't required by state law, but it's a critical internal document that officially explains how the LLC will operate. It lists the members, how much they have invested, how profits are divided, and how much weight each member has when votes are taken. It may also list standards for meetings (how much notice, what constitutes a quorum, rules for voting, etc.) and so on, but is not required to do so. Usually, though, the operating agreement includes requirements mandated by the state.

Members

LLCs must have at least one member, and each member must be a natural person (as opposed to a corporate entity). To become a member, an individual usually has to make a contribution, pay money, or transfer property to the LLC, or else assume an obligation to do so or render some kind of service.

A member can resign from an LLC, but only in the way specified in the articles of organization or operating agreement. These documents also usually specify a minimum period of time a member can be a member before being allowed to resign. LLCs have the option of penalizing a resigning member for damages suffered by the LLC due to his resignation.

Ongoing Requirements

Texas LLCs are required to keep the following documents at their office or place of business, available for inspection by the Texas Secretary of State:

• Account records and books
• Each member's full name and mailing address
• Federal income tax returns for the last six years
• The filed certificate of formation and any amendments
• The company agreement and any amendments
• Powers of attorney under which the operating agreement, articles of organization, or amendments have been executed
• Documents establishing a particular class or group of members under the operating agreement
• Statement of the amount of cash contribution and/or the agreed-upon value of contributions made or to be made by each member
• Dates any additional contributions are to be made by members
• Events requiring a member to make additional contributions
• Events that would require the dissolution of the LLC
• Dates when each member became a member of the company

Also, it's a good idea for your LLC to keep minutes of the proceedings and committees of the owners or members.

Texas LLCs are required to file an annual report with the Texas Secretary of State including the following:

• LLC name and the state where the LLC was organized (if not Texas)
• Address of the registered office and the name of the registered agent
• Address of the principal LLC office
• Names and business addresses of the LLC's managers

Dissolution

An LLC is dissolved when any one of the following events occurs:

• Event(s) specified in the articles of organization or operating agreement
• There is an agreement to dissolve by the number or percentage of members specified in the operating agreement
• An event that makes it illegal for the LLC to continue to operate
• When a member leaves the LLC, unless the remaining members agree to continue the LLC within 90 days, or the company
continues under specifications set out in the operating agreement
• Judicial decree ordering dissolution

Taxes

An LLC has some tax advantages when compared to a corporation, including the availability of more deductions. However, there is no requirement for an LLC to be a separate tax entity like a corporation. Instead, an LLC can be a "pass-through entity" when it comes to taxes, so that the LLC owner or owners report business losses or profits on their personal tax returns, in the same way that a partnership would.

The IRS treats single-member LLCs as sole proprietorships for tax purposes unless you choose for your LLC to be taxed as a corporation. This means the LLC itself does not pay taxes and does not have to file a tax return. The IRS treats multi-owned LLCs as partnerships for tax purposes, unless you choose for your LLC to be taxed as a corporation. This means that LLC owners each pay taxes on their lawful share of the profits on their personal income tax returns, not the LLC itself.

Your LLC may need to obtain a federal tax identification or employment identification number (EIN). In most cases, you won't need a separate EIN for your LLC if you are the sole owner and the LLC has no employees. However, if you are not the sole owner of the LLC, or if the LLC has employees, the LLC will need a separate EIN to open a bank account and to meet tax filing requirements.

Certificate of Formation

Texas state law contains guidance for forming a domestic (formed in the state) entity in Texas, which first of all requires a certificate of formation, the equivalent of articles of incorporation in other states. The certificate of formation must specify which kind of corporation is being formed—for-profit, professional, or nonprofit.

The certificate of formation must also include information on the organizers and directors, the registered agent, the corporation’s business purpose, and the number of shares the corporation is authorized to issue.

The certificate of formation may also prescribe qualifications or prerequisites for organizers and directors, or those qualifications may be listed in the corporate bylaws.

State law also allows the certificate of formation to include language that formalizes additional requirements, such as rules for managing the business or otherwise regulating the corporation’s procedures.

Registered Agent and Office

Texas corporations must have a registered agent in Texas who is designated to receive official state administrative and legal correspondence. The agent must have the same business office address as the registered office and be either an individual living in the state or a business entity authorized to conduct business in Texas. The registered office has to be more than just a mailbox or an answering service, but it does not have to be an actual corporation place of business.

Bylaws

A corporation is required to keep a copy of its bylaws at its main executive office, but is not required to file them with the state. At its initial meeting, the board of directors should adopt corporate bylaws, and then keep them updated as time goes on. Bylaws describe the corporation’s basic managerial and legal operating principles, including information on:

• Shareholders and directors meetings
• The authority, number, and tenure of directors
• Voting procedures
• The duties, responsibilities, and tenure of officers
• How stock is issued
• How and when annual financial information is provided to shareholders

Directors

The board of directors is required to elect officers in accordance with the corporation’s bylaws; in Texas there must be at least a president and a secretary. An officer may hold more than one office in the corporation unless otherwise prohibited by law.

Required Reports

Texas corporations must file a report annually by May 16 with the Texas Comptroller, except for the year of initial incorporation. The report must include the name and address of the corporation’s agent, officers, and directors, as well as its financial and ownership information for franchise tax calculation.

Taxes

Since Texas does not collect personal or corporate income tax, the corporation franchise tax is calculated based on either the company’s taxable capital or taxable earned surplus, whichever way yields the larger tax amount.

S Corporations

A "subchapter S" corporation or "S corp" is one that chooses to be treated as a pass-through entity for tax purposes in the same way as a sole proprietorship or partnership; tax-related information for the S corp is filed as part of the owner’s individual income tax. Since Texas does not have a state income tax, a subchapter S election when forming a corporation affects only federal taxes for Texas corporations.