Llc For Law Firms In Texas: What You Need To Know

Texas law allows for the formation of a limited liability company (LLC) with a nonprofit purpose. While it is not a legal requirement to use an attorney when starting an LLC, it is highly advisable to do so. An attorney can help you with the various legal and administrative steps involved in forming an LLC, such as ensuring proper LLC formation and compliance with relevant laws, drafting necessary documents, and navigating the formation process and annual maintenance. They can also help you select your designated registered agent, which is the party who must reside in Texas and who will accept legal notices, SOS communications, service of process, and other official documents on behalf of the business.

Naming restrictions

When forming an LLC for a law firm in Texas, there are several naming restrictions that you should be aware of. These restrictions are outlined by the Texas Secretary of State (TXSOS) and must be followed to ensure your LLC's name is compliant with state law.

Firstly, the name of your LLC must include the words "Limited Liability Company", "Limited Company", or an abbreviation of these phrases, such as "LLC" or "LC". This is a standard requirement for any LLC operating in Texas. You are allowed to abbreviate "Limited" as "Ltd." or "LTD" and "Company" as "Co.".

Additionally, your chosen name must be distinguishable from any other business entities already on file with the Texas Secretary of State. This means that you cannot use the same name as another business, nor can you use a deceptively similar name that may cause confusion in the marketplace. Altering the spelling, adding or removing spaces, or making minor changes will not be sufficient to distinguish your LLC's name.

Furthermore, certain words and phrases are restricted in business names and may require additional approval or documentation. For example, using terms like "bank" or "trust" may imply specific powers that your LLC does not possess, and therefore, prior approval from the relevant departments may be necessary. Other terms, such as "cooperative" or "co-op", should only be used by entities operating on a cooperative basis. Using these terms without authorization is considered an offense and may result in fines or other penalties.

It is important to note that even if the Texas Secretary of State approves your chosen name, there may still be common law rights associated with that name held by another business. Therefore, it is essential to conduct thorough research and, if necessary, seek legal advice to ensure your LLC's name does not infringe on the rights of another entity.

Management structure

Members and Managers:

The first step in establishing the management structure of an LLC is to determine whether it will be member-managed or manager-managed. In Texas, an LLC can be managed by its members or by designated managers. Member-managed LLCs are typically more common in smaller firms, where each member has an active role in decision-making and managing the firm's operations. On the other hand, manager-managed LLCs have a more centralized management structure, with designated managers responsible for the day-to-day operations and strategic decisions.

Certificate of Formation:

The Certificate of Formation is a crucial document in the LLC formation process, and it must be filed with the Texas Secretary of State. This certificate outlines the LLC's legal structure, including the official name, registered agent's information, mailing address, and organizers' names. It is important to note that the management structure, whether member-managed or manager-managed, must be stated in this certificate.

Operating Agreement:

While not legally required in Texas, creating an operating agreement is highly advisable for any LLC. This internal document outlines the governance structure and operational procedures, internal operations, ownership structure, and management of the LLC. It helps ensure that all members are clear about their roles and responsibilities and provides a framework for resolving disputes. The operating agreement should cover aspects such as capital contributions, profit distributions, member responsibilities, and procedures for adding or removing members.

Registered Agent:

Every LLC in Texas is required to have a registered agent who is responsible for receiving official communications, legal documents, and government correspondence on behalf of the LLC. The registered agent must be a resident individual or a business entity authorized to conduct business in Texas, with a physical street address in the state. This could be a member of the LLC, the LLC itself, or a professional registered agent service.

Professional Licenses:

If the law firm LLC intends to provide professional services, it may need to be structured as a Professional Limited Liability Company (PLLC). In Texas, a PLLC is formed by individuals who provide professional services licensed by the state. All members of a PLLC must be licensed to perform the services the PLLC offers, and the business name must follow Texas's special naming laws for PLLCs, including the phrase "Professional Limited Liability Company" or its abbreviation (PLLC).

Series LLC:

Texas law also allows for the formation of a series LLC, which is an LLC that establishes designated series with separate rights, obligations, liabilities, and business purposes from the general LLC. Each series within the LLC has the ability to sue and be sued, enter into contracts, hold title to assets, and grant liens or security interests in its assets.

In conclusion, the management structure of a law firm LLC in Texas can vary, but it is essential to carefully consider the roles and responsibilities of members and managers, comply with state regulations, and seek legal guidance when needed to ensure a solid legal foundation for the LLC.

Compliance and regulations

Regulatory Compliance:

Compliance for a Texas LLC involves adhering to the laws, regulations, standards, and policies set by government bodies and industry regulators. This ensures the LLC operates within legal boundaries, preventing penalties and maintaining its reputation. Non-compliance can lead to legal actions, substantial fines, reputational damage, loss of business opportunities, and even the suspension or revocation of business licenses.

Data Privacy and Cybersecurity:

With the increasing importance of data protection, Texas LLCs must prioritize cybersecurity and regulatory compliance. This includes implementing measures to protect sensitive data and prevent security breaches. Texas Compliance, LLC, for instance, specializes in helping businesses navigate the complex landscape of data privacy and cybersecurity regulations.

State and Federal Laws:

Understanding state and federal laws is essential for compliance. For instance, Texas law requires filing a certificate of formation with the Texas Secretary of State to establish an LLC. Additionally, while Texas law doesn't restrict ownership, it's important to understand the regulations around ownership interests, as outlined in the Texas Business Organizations Code (BOC).

Management Structure:

The management structure of an LLC, whether managed by managers or members, must be stated in the certificate of formation. This structure determines the decision-making process and the distribution of responsibilities within the LLC. It is important to note that the Texas Secretary of State cannot provide advice on management structures.

Taxation:

LLCs in Texas must comply with tax regulations, such as filing annual franchise tax reports. The structure of the LLC will impact its tax obligations, with some structures providing more flexibility than others. It is important to consult with an accountant or tax advisor to ensure compliance with tax laws.

Intellectual Property:

While Texas law doesn't provide for the registration of trade names, it's important to protect intellectual property. LLCs doing business under an assumed name or "DBA" (Doing Business As) must file an assumed name certificate with the county clerk in each county where business premises are maintained.

In summary, establishing a law firm as an LLC in Texas requires a comprehensive understanding of compliance and regulations. By staying informed about state and federal laws, management structures, taxation, and data privacy, law firms can effectively navigate the legal landscape and avoid potential pitfalls associated with non-compliance.

Tax advantages

A Texas limited liability company (LLC) is a distinct type of entity that has the powers of both a corporation and a partnership. LLCs offer the same limited liability as a corporation but with less formality of creation and operation.

Flexible tax treatment

For federal tax purposes, an LLC has choices regarding how it will be taxed. An LLC with only one member will be taxed as a sole proprietorship unless it elects to be taxed as either an S corporation or a C corporation. An LLC with two or more members will be taxed as a partnership unless it elects to be taxed as either an S corporation or a C corporation.

Pass-through tax treatment

The owners of an LLC, also called members, 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 favourable tax treatment.

No double taxation

If you choose to be taxed as an S corporation, there cannot be more than 100 members. While a C corporation can have more members, the business will then be subject to double taxation, as well as more regulation regarding its operations.

No annual reports

Texas does not require LLCs to file annual reports with the Secretary of State, but you must file annual franchise tax reports.

No requirement for annual meetings

There is no requirement under Texas law for an LLC to hold annual meetings or to keep detailed minutes, as there is with a corporation.

No restrictions on the number of members

There are no restrictions on the number of members of an LLC.

Cost considerations

When forming an LLC for a law firm in Texas, there are several cost considerations to keep in mind. While Texas does not require LLCs to pay renewal or annual fees, there are other expenses to be aware of.

Formation Costs

To create a Texas LLC, you must file a Certificate of Formation with the Texas Secretary of State. The state charges a filing fee when a document is approved and filed. The cost of this fee is not specified. However, if you want to check the availability of your desired LLC name before filing, you can pay a $1 fee per name search if you have a SOSDirect account. Alternatively, you can call the state's name availability hotline at 512-463-5555 for a free search.

Operating Agreement and Other Legal Costs

In addition to formation costs, you may incur expenses related to legal services. While it is not mandatory to hire an attorney when forming an LLC in Texas, it is highly advisable. An attorney can assist with various legal matters, such as drafting an operating agreement, selecting a registered agent, and ensuring compliance with state laws. Legal fees will vary depending on the complexity of your law firm's structure and specific needs.

Annual Reporting and Tax Costs

Although Texas LLCs are not required to file annual reports with the Secretary of State, they must file annual franchise tax reports. Additionally, every Texas LLC must submit an annual report to the Texas Comptroller by May 15 each year, with no associated filing fee.

Other Potential Costs

There are other potential costs to be aware of when forming an LLC for a law firm in Texas. For example, if you need to make changes to your LLC's information after formation, you may need to file a Certificate of Amendment (Form 424), which has a $150 filing fee. If you need to correct inaccuracies or errors in previously submitted documents, you can file a Certificate of Correction (Form 403) for $15. A Statement of Change of Registered Agent (Form 401) incurs a $15 filing fee.

Furthermore, if your law firm operates under an assumed name or "DBA" (Doing Business As), you must file an assumed name certificate with the county clerk in each county where your business premises are maintained. This applies if your LLC does business under a name other than its legal name.

In conclusion, while forming an LLC for a law firm in Texas does not have annual or renewal fees, there are various cost considerations throughout the process. These include formation costs, legal fees, annual reporting and tax expenses, and potential fees for making changes to your LLC's information. It is essential to consult with legal and tax professionals to ensure you understand all the cost implications specific to your law firm's LLC formation and operation.

Frequently asked questions