Skip to main content

Texas LLC

Texas LLC a.k.a. limited liability company. Mistakenly referred to as a Texas limited liability corporation.

Single Member LLC: Is It Dangerous To Own One?

By Business Contracts, Business Lawyer

single member llcSome entrepreneurs are mistakenly reluctant to form a single member LLC because they’ve heard the entity is treated like a sole proprietorship.

Yet that’s only partially true. Here’s why.

Tax Treatment Election

When you form a single member LLC, you have the ability to have it treated as a sole proprietorship or as a corporation for taxation purposes. You should consult with your business lawyer and accountant before making the election so that you’re both protecting yourself from a legal standpoint and minimizing the federal and state taxes you will pay.

Related Article: Who Can Sign Legal Documents For A Texas LLC?

However, if you choose tax treatment as a sole proprietorship, that’s not the same thing as having all of the personal liability of an actual sole proprietorship. For example, the single member limited liability company may shield you from personal liability in a civil lawsuit against the business where there would be no shield if the venture was a sole proprietorship.

Can There Be Personal Liability With A Single Member LLC?

Yes. Whether you have a limited liability company (single or multi-member) or a corporation (C corp or S corp), there are certain exceptions to the liability shield that exist. Here are three common areas where there can be personal liability.

1. Environmental Liability

If your business violates federal or state environmental laws (e.g. dumping toxic waste into a local river), you may be personally liable for the cleanup expenses in addition to your business entity also being liable.

2. Taxes

One can’t evade taxes by claiming an entity as a shield. The IRS and your state’s department of revenue will get their pound of flesh no matter what type of entity you use.

3. Alter Ego – Piercing The Corporate Veil

The shield provided by your single member liability company may be pierced to make you personally liable on some civil claims if you’ve engaged in misconduct. For example, if you’re not observing the legal formalities required to maintain the shield.

Now this frequently occurs where an entrepreneur uses a single personal bank account for both personal living expenses and as the business account for the entity. In short, if you act as if the entity doesn’t exist separate from your personal life, chances are the courts will reject the liability shield it would otherwise provide you.

Where To Get A Texas Single Member LLC Set Up

You can try to set up your own Texas single member limited liability company or use an online company. However, both of those options are risky.

Related Article: LLC Operating Agreement – Why It’s Important To Have One

The best method is to use an experienced Texas business contracts lawyer who knows how to form a single member LLC correctly, provide you the legal advice you need, and get you the right legal paperwork run the LLC (customized operating agreement, business contracts, etc.).

Using Multiple Business Entities: Should You Do It?

By Business Contracts, Business Lawyer

Using Multiple Business Entities: Should You Do ItWhether using multiple business entities makes sense is a dilemma that commonly faces entrepreneurs. This is particularly true for online business owners who have multiple sites targeting different niches with products and/or services.

Does Using Multiple Business Entities Make Sense For A Startup?

Rarely. Although the equity owners may consist of a combination of individuals, corporations, limited liability companies, etc., the complexity of starting a venture from scratch as more than one type of entity typically can’t be justified from a time or cost standpoint.

A notable exception to this rule is where there is some extremely valuable intellectual property (e.g. a patent for cutting edge technology) that the entrepreneurs want to protect by placing ownership in one entity and licensing it to a second entity with the expectation the IP will also be licensed to third parties in the future.

Related Article: How To Set Up A Texas Business In Just A Few Steps

Another exception is where the business is already international in nature and it makes sense from a tax avoidance (not tax evasion) or import/export standpoint to place some business operations in a different country.

A third scenario where it might make sense for a startup to have multiple entities is where one entity owns commercial real estate and leases space to the second entity for the startup’s operations. This can be an advantage where the equity owners overlap but are not all the same. For example, there may be an investor willing to put money in the acquisition of commercial real estate while another may have a preference for investing only in tech startups but not realty.

When A Single Entity Makes The Most Sense

When your business is first starting out, the general rule is that a single entity (e.g. a Texas limited liability company or a Subchapter S corporation) is just fine because you get the liability shield of the entity plus your business venture isn’t overcomplicated with legal and tax compliance issues.

When To Set Up A Second Business Entity

When you have separate streams of income flowing into the business that each generates more than $100,000 annually in revenues, it’s time to talk with an experienced business lawyer about whether to separate your nest eggs into different protection baskets by using multiple business entities.

There are three common methods of expanding from one entity to multiple entities when your income and protection needs justify it.

Related Article: LLC Operating Agreement – Why It’s Important To Have One

First, there’s the creation of a sibling entity. Each entity is separate from the other, neither a parent nor a subsidiary.

Second, one can create a subsidiary entity with the first entity serving as the parent.

The third option requires setting up multiple additional entities at once. Typically, it will mean the creation of
a parent entity for the existing business. The parent will form a second subsidiary in which to spin off some of the operations from the first (sibling) entity. As the business continues to grow, the parent can form new subsidiaries that are siblings to the existing ventures.

Where To Get Legal Help For Your Business Entities

You’ll want to retain an experienced business contracts lawyer who understands technology to help you set up the entities you’ll need and put the right legal documents in places to protect you.

Related Article: Who Can Sign Legal Documents For A Texas LLC?

If you’re interested in setting up a Texas limited liability company or a Texas for-profit corporation, book a phone consultation with Dallas Business Lawyer Mike Young.

Who Can Sign Legal Documents For A Texas LLC?

By Business Contracts, Business Lawyer

Who Can Sign Legal Documents For A Texas LLCWhen you set up a Texas LLC, someone needs the authority to sign business contracts, tax filings, and other important documents for running your limited liability company.

Member Managed Versus Appointed Manager

When forming a Texas LLC, you’ll have the option to designate a manager who can sign legal documents and handle other important duties. This is common where there are multiple members with one actively running the company while the others are passive investors.

Related Article: How To Set Up A Texas Business In Just A Few Steps

The other option is elect to have management decisions made by the members instead of appointing a manager. If you elect to do this, typically the LLC operating agreement will state who has to authority to do what, including signing legal documents.

Single Member Limited Liability Company

When your LLC only has a single equity member who is an individual, it’s that person who usually signs docs on behalf of the company. This is true whether or not stated in the operating agreement.

However, if the LLC’s single member is another business entity (e.g. another LLC or a corporation), it’s common to have one or more officers of the parent company have the power to sign contracts, etc. on behalf of the subsidiary LLC.

Related Article: LLC Operating Agreement – Why Limited Liability Company Members Should Use One

If identified in the subsidiary’s operating agreement, it’s usually by title (e.g. President) rather than the individual’s name who holds the position in the parent company. The reason for this is that the person who holds a title may change over time but the position will continue to carry the authority without having to amend the subsidiary LLC’s operating agreement..

Multi-Member Texas LLC

When your Texas limited liability company has more than one member, you can designate a manager as described above.
However, if LLC management is left to the members, you’ll usually find the operating agreement identifies which members can act on behalf of the company.

And, if one or more of those authorized members is another business entity, the entity will designate who has authority to act on its behalf as a member of the Texas LLC.

LLC Tax Issues

Both the IRS and the Texas Comptroller permit a written power of attorney (POA) that authorizes a taxpayer to designate a third party to do various things, including signing tax filings. The IRS’ power of attorney is Form 2848 (PDF file) and the State Comptroller’s limited POA is Form 01-137 (PDF file).

Where To Get Legal Help For Your Limited Liability Company

An experienced Texas business lawyer can set up your Texas LLC to handle these issues correctly.

Recommended Book: How To Form A Texas Limited Liability Company (by  Business Attorney Mike Young)

And if you’ve already formed a Texas limited liability company, the attorney can answer your questions about who has authority to sign contracts and other legal docs.

Books for Website Owners – September 1, 2015

By Internet Lawyer

Title: How to Form a Texas LLC (10-Minute Legal Guide Series)

Author: Mike Young, Esq.

Reason to Read:

As explained in the book, running your online business as a Texas limited liability company (LLC) has many advantages. This guide walks you through the steps to take to quickly get the benefits of a Texas LLC working for you. One of the 10-Minute Legal Guide series, you’ll be able to read the key parts of the book in about 10 minutes and come to a decision whether or not it makes sense for you to set up an LLC in Texas.

Key Quote:

“Your LLC operating agreement is a written contract between the LLC and its owners (members) that serves as a guide for how you will run your Texas limited liability company. Because it is a legally binding agreement that affects your rights, responsibilities, and potential liabilities, you’ll want to have the contract prepared by a qualified business lawyer who understands Texas limited liability companies.”