Limited Liability Company

A limited liability company is created by filing a certificate of formation with the Texas Secretary of State. The Secretary of State provides a form that meets minimum state law requirements.

The limited liability company (LLC) is neither a corporation nor a partnership; rather, it is a distinct type of entity. It is an unincorporated business entity which shares some of the aspects of Subchapter S Corporations and limited partnerships, but has more flexibility than more traditional business entities.

The owners of an LLC are called “members.” An LLC may have one or more members. A member can be an individual, partnership, trust, and any other legal entity. Unlike the partnership, where the key element is the individual, the essence of an LLC is the entity, which requires more formal requirements in terms of registration.

The limited liability company is designed to provide its owners with limited liability and pass-through tax advantages without the restrictions imposed on Subchapter S Corporations and limited partnerships.

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, and LLC can achieve both structural flexibility and favorable tax treatment.

Nevertheless, persons contemplating forming an LLC should consult with an attorney as to whether this structure is suitable for their business needs.¹

LLCs are subject to state franchise tax. Filing fee for a certification of formation for an LLC is $300.

_{1 An LLC is governed by title 3, chapter 101 of the Texas Business Organizations Code. Title 1, chapter 3, subchapter A of the Texas Business Organizations Code governs the formation of an LLC and sets forth the provisions required or permitted to be contained in the certificate of formation.}