Overview of the Texas LLC
A versatile and convenient strategy
The Texas limited liability company (LLC) essentially combines the best attributes of a corporation with the best attributes of a partnership. In addition, the Texas LLC incorporates other key benefits such as flexibility and minimal formalities. The overwhelming majority of small business owners choose the Texas LLC over a corporation. In fact, there are currently about 4 Texas LLCs formed for every 1 Texas corporation.
The LLC is a versatile and convenient strategy for owning real estate, insulating assets, or operating a business.
The Basics of a Texas LLC
A Texas LLC is formed by filing a certificate of formation with the Texas Secretary of State ($300 filing fee), executing an operating agreement, and having an organizational meeting. The owners of an LLC are called members. A Texas LLC is managed by its member(s) or alternatively, a manager or group of managers. The managers of a manager-managed LLC do not have to be members, but typically are.
The Benefits of a Texas LLC
The primary reason individuals form a Texas LLC is to obtain the personal liability protection for the owners of the business. The liability protection is a HUGE benefit, but there are many other benefits as well. For example, the Texas LLC provides added credibility & professionalism, perpetual existence, tax savings, tax and governance flexibility, minimal formalities, etc. Read more about the benefits of a Texas LLC.
By default, a Texas LLC has the same tax treatment as partnership (for an LLC with two or more members) or a sole proprietorship (for a single-member LLC). With each of these classifications, profits and losses "pass through" the LLC to the LLC owners, and the owners report the business's income on their personal income tax returns. A Texas LLC can be taxed as corporation or s-corporation, if the members so desire.
History of the Texas LLC
In 1977, Wyoming became the first state in the U.S. to enact a limited liability company statute. Texas enacted its own LLC statute "The Texas Limited Liability Company Act" in 1991. In 2006, the laws affecting the Texas LLC and the various other Texas business entities were consolidated into the Texas Business Organizations Code.
For a detailed history of the LLC, see this great historical article by Professor Hamill.