You’ve set up your LLC! Now what?
It’s official. You’re an LLC (limited liability corporation) in the state of Texas and it’s time to go work. Before you start doing business, make sure you know how to keep your LLC safe and compliant by following these best practices and must-dos:
Establish your employer identification number. The LLC needs an employer identification number (EIN) to file tax returns, open bank accounts, etc. Obtain an EIN online at www.irs.gov.
Designate a registered agent. The Texas Business Organizations Code requires that an LLC maintain a registered agent and registered office located at a street address where service of process may be personally served during normal business hours.
Maintain the following important documents:
- Certificate of Formation (along with any Certificates of Amendment)
- Consent of Registered Agent to Appointment
- Company Agreement (along with any amendments or restatements thereto)
- EIN letter
- Name/mailing address of each Member of the LLC and Membership Interest percentage owned by each
Keep books and records. The LLC must keep the books and records of accounts, along with the tax information and tax returns, for at least the preceding six years. Members of the LLC have the right to inspect these records (as well as many of the items listed in “important documents”) subject to the request to do so being reasonable and for a proper purpose.
Maintain minutes/consents. The Company Agreement specifies whether the LLC is required to have annual meetings. If not, the LLC may have meetings if so desired or warranted by a particular situation. The minutes of any meetings (or a consent in lieu of a meeting) should be kept in a designated minute book or file for the LLC.
Keep LLC and personal assets separate. The managers and members of the LLC should be careful not to intermingle money and other assets of the LLC with personal money and assets of any member. For example, the LLC should have a separate checking account in its own name. The LLC must conduct business in its own name and not in the individual name of a member or manager. When signing any document on behalf of the LLC, be sure to sign in your capacity as member, manager, or officer of the LLC and not in your individual capacity.
Determine how LLC will file a federal tax return. An LLC can elect to be taxed as a corporation or a partnership. Because of more favorable tax treatment, most owners elect to have the LLC taxed as a partnership. If the LLC is classified as a partnership for federal income tax purposes, the LLC itself doesn’t pay taxes on the income but instead “passes through” any income, profits, gains, losses, deductions, and credits to the members of the LLC. In that event, the LLC is required to file a federal tax return (IRS Form 1065) each year. If the taxable year follows the calendar year, the return is due on March 15. Otherwise, the return is due by the fifteenth day of the third month following the date its tax year ends.
Apply for a sales and use tax permit (as applicable). If the LLC is engaged in the business of retail sales, leases, rentals, or certain taxable services, the LLC must apply for a sales tax permit. More information on what kinds of businesses must have a sales tax permit, as well as applicable forms, can be found on the Texas Comptroller of Public Accounts website at comptroller.texas.gov.
File an annual franchise tax report. The LLC is subject to the Texas franchise tax and must file a franchise tax report each year with the Texas Comptroller of Public Accounts. However, many Texas companies do not have to pay any franchise tax. For 2018 and 2019, the No Tax Due Threshold is $1,130,000. The annual franchise tax report is due on May 15. A public information report must be filed each year with the franchise tax report. The applicable forms can be found on the Texas Comptroller of Public Accounts website at https://comptroller.texas.gov.
File personal property taxes on tangible property annually. Personal property tax is imposed on income-producing tangible personal property. The local county appraisal district uses the Texas personal property tax to fund county services. All income-producing tangible personal property is taxable for county appraisal district purposes. Taxable personal property includes equipment and inventory. Non-tangibles such as goodwill, accounts receivable, and proprietary processes are not taxable. A rendition of the tangible personal property must be filed with the county appraisal district where the personal property is located by April 15 of each year.
File an Assumed Name Certificate (as applicable). If the LLC elects to do business under a name other than the one specified in the Certificate of Formation, it must file an assumed name certificate in the county where the principal business is located as well as with the Texas Secretary of State.
File all required federal and state forms if you have employees. If the LLC hires employees, there are several important issues that must be addressed including the filing of required state and federal forms. The Texas Workforce Commission has a valuable resource called “Especially for Texas Employers Publication” which addresses a variety of workplace issues including hiring, pay and benefits, independent contractor versus employee designations, work separation, unemployment compensation taxes, and workers’ compensation. This publication is located at http://twc.state.tx.us/news/efte/especially-for-texas-employers.html. Employers must withhold income tax and social security tax from taxable wages paid to their employees and file an Employer’s Quarterly Federal Tax Return (IRS Form 941). In addition, the Unemployment Tax Return (IRS Form 940) must be filed each year.
Furthermore, it’s good practice to have employees sign a confidentiality agreement that prohibits them from disclosing trade secrets and other sensitive information of the LLC. It might also be appropriate to have employees sign a noncompete agreement to protect the LLC upon an employee’s separation from employment.
File appropriate forms if doing business in states other than Texas. If the LLC does business in a state other than Texas, the LLC must be qualified to do business in that state. Exactly what constitutes “doing business” varies among the states. Examples could include having an office or employees in another state. In order to qualify to conduct business in another state, the appropriate forms would need to be filed with the secretary of state (or similar agency) of that state.
Register trademarks with the U.S. Patent and Trademark Office. The LLC’s trademarks, service marks, and trade names should be protected by filing for registration with the U.S. Patent and Trademark Office. The first step in doing so is to conduct appropriate trademark searches. Although this can be handled by you, this is a complex area of law, and it’s best practice to have an attorney with specialized knowledge of trademarks assist you.
Know when to file amendments to a Certificate of Formation or Company Agreement. Any changes to the Certificate of Formation requires that the LLC file a Certificate of Amendment with the Texas Secretary of State. If changes are made to aspects of the LLC addressed by the Company Agreement, such as ownership, management practices, and so forth, you should also revise the Company Agreement.
For information on setting up your LLC or for information regarding your existing LLC, contact Cassie McGarvey at email@example.com.
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