Yes, but not in the way that you think.  There is a growing sentiment among popular online advice columnists and bloggers that LLCs can help you avoid a large amount of tax, and that therefore everyone should have an LLC, even if they are not running an actual business from the LLC.  I receive numerous inquiries about forming an LLC for clients and structuring the best way to avoid taxes.  In general, the structure of the LLC doesn’t affect the taxes that you pay, but rather the tax strategy that you might employ.

The idea of tax savings using an LLC seems to stem from the fact that you can, with certain structures such as those LLCs utilizing an S-Corp election, take advantage of the tax savings of “distributions” versus “salary”.  The point here being that salaries are taxed higher than distributions of company profit to owners or members of the LLC, therefore, why wouldn’t you do this and save a boat load of money on taxes??

Texas LLC Formation Attorney Nathaniel Gilbert works with clients to structure their LLC in the best from for their business.

Two Reasons Not To Form an S-Corp:

1. Complexity

It is complicated. Like, really complicated.  If you make the S-Corp Election, you will now be filing a separate tax return for your business instead of your Schedule C, running payroll and withholding, and determining the numbers (how much will you determine is reasonable for a salary?). For the average individual LLC, the savings don’t even show up until you are making significant amounts of money. Larger corporations with multiple members and significant assets? Sure, the savings might start to show up on the balance sheets, especially when things like payroll and tax strategies are handled in-house.

2. Schedule C Deductions

You can generate significant tax savings through your Schedule C on your 1040 if you have an individual LLC without the necessary complications that go with an S Corp election. If you work with your accountant or CPA, you would be surprised at the level of deductions that apply to your business through an LLC structure that allows for it.  Maxing out the deductions for your business and applying those principles going forward is a much more cost effective route to saving money on taxes than expanding into an S-Corp Election. Additionally, from speaking with other attorneys and accountants, the Schedule C deductions for business expenses draw much less ire from regulatory authorities than the LLC paying a $20,000/year salary and $100,000 in “distributions” on an annual basis.

Of course, there are countless success stories of people and businesses that have thrived under an LLC S-Corp structure and experienced significant tax savings because of that decision.  The point of this page is not to talk you out of it entirely (I don’t give tax advice as a general rule), but to give you something to think about before jumping in with both feet because you saw a video on social media where a guy drew a chart that says you can save tens of thousands of dollars a year by making an S Corp election.  Your accountant or CPA can usually run the numbers effectively on their end to see if an S-Corp elections will actually save you any money in the long run.

If you are looking to form an LLC in Texas, Attorney Nathaniel Gilbert in San Antonio works with clients on a flat fee basis forming their Series LLCs, PLLCs, or LLCs.  To learn more about LLC formation in Texas, Click Here. To contact Nate directly, Click Here.

Why Do You Want To Change The Name Of Your LLC?

There are a myriad of reasons that you may want to change the name of your business, with the most basic being, well, you thought of a better name.  Without getting into the weeds on if changing the name of your business is a wise business decision, this is generally as good a reason as any.  Another reason would be that you are converting your LLC into a PLLC—maybe when you formed your business you either didn’t know about PLLCs or didn’t think you qualified.  Finally, you may be changing the name of the LLC to prevent a lawsuit—Sometimes new businesses can get notification from other similar companies regarding infringement on their own business name such as when your business sells similar products or offers similar services, and the other business thinks your LLC name is too close to their own.  Before making this change, it is important to consult with an attorney.

Change can be uncertain and a little scary. Make sure you have an attorney, like Texas LLC Formation Lawyer Nathaniel Gilbert, to help make significant changes to your business and “Bear Proof” your business and documents.

When Should You NOT Change Your Business Name?

If you want to use a different name for your business, make sure you differentiate between “I want to change the entire name of my business” and “I want to use a different name for my business in certain situations.”  For the latter, registering a DBA for your business is a much quicker, cleaner, and useful alternative to changing the name of your LLC altogether.  A “Doing Business As” registration allows you to conduct business under a different name than the one your LLC is registered as, but keeps the original LLC name intact.  For a registered DBA, if anyone needed the business information they could look up the DBA, and it would lead them to the original LLC.  We see this done frequently for Series LLCs, where each Series has a DBA registration tied to the original Series LLC.

What Is The Process For Changing Your Business Name

To change your Texas Business name, you’ll be filing an Amendment to your original Certificate of Formation that you submitted to the Texas Secretary of State when you first formed your business.  This is done very quickly and easily on the SOS website under your business profile.  You can also make other changes at the same time, such as to the name or location of the Registered Agent or the principal place of business of the LLC.  Remember that yes, legally, this is all that is required for making changes to the business name (and other details if you so choose), but that in order to remain in compliance with your Operating Agreement and avoid potential liability down the road, you’ll need to amend your Operating Agreement to reflect these changes, and be sure to follow the Operating Agreement rules on amending the Operating Agreement when doing so.

A PLLC in Texas protects you, as a Member from the malpractice of any of the other members in your Professional Limited Liability Company.

A Professional Limited Liability Company is specifically provided for professionals looking to offer their services through an entity in Texas.  Professional services, as defined by the Texas Statutes, means  “any type of service that requires, as a condition precedent to the rendering of the service, the obtaining of a license in this state, including the personal service rendered by an architect, attorney, certified public accountant, dentist, physician, public accountant, or veterinarian.” Put simply, if your position require you to have a license issued by the State of Texas to perform that service then you are rendering professional services.  For professionals of all kinds, a common concern when going into private practice is malpractice, and a PLLC can add a layer of protection to the individual professionals rendering their services.

There are two important factors to remember here:

1) The PLLC itself, as an entity, can still be held liable for the malpractice of a Member.  This is specifically laid out in the Texas PLLC Statutes authorizing the formation and use of PLLCs by professionals in Texas.  Subsection A of that Statute provides:

A professional entity is jointly and severally liable for an error, omission, negligent or incompetent act, or malfeasance committed by a person who: (1)  is an owner, managerial official, employee, or agent of the entity;  and (2)  while providing a professional service for the entity or during the course of the person’s employment, commits the error, omission, negligent or incompetent act, or malfeasance.

Texas Business Code 301.010

2)     The member committing the malpractice has no protection from a malpractice suit based on his membership in a PLLC.  The benefit of the PLLC lies in a situation where one of the Members of the PLLC commits some form of malpractice: the other members do receive protection from a malpractice suit.  This is different than in, say, a Partnership where partners may be held liable for the malpractice of a partner. The Texas Business Code provides that:

An owner, managerial official, employee, or agent of a professional entity other than an owner, managerial official, employee, or agent liable under Subsection (a) is not subject to the same liability imposed on the professional entity under this section.

Texas Business Code 301.010

There are a variety of reasons to choose a PLLC for your business formation, but the considerations of malpractice should weigh heavily on the decision to choose this structure for your professional service providing organization.  When considering your PLLC formation in Texas, consult with an attorney familiar with the workings of entity formation and management, Attorney Nathaniel Gilbert in San Antonio.  To learn more about PLLCs and LLC formation, Click here.  To contact Nate directly, Click Here.

Regardless of the form of LLC you decide on (Series LLC, PLLC, or regular old LLC) you will need to make the decision of whether your new Texas entity will be Manager Managed or Member Managed.  For the sake of this page, we are going to assume the owners of the LLC have chosen to have the company be managed by one or more Managers—Manager-Managed.  But now that we’ve made that decision, who should have what role in your LLC? What is the difference between those individuals who will be Managers and those who will be Members?

Who Should Be A Manager?

Our first consideration in looking at people’s roles in the new LLC, is to determine who will be running the business and making decisions a majority of the time.  Often times, there is a clear person in the group who is the “tip of the spear” in the business and more or less is the front man for the LLC.  This person will be a Manager, and tasked with the day to day operation of the company: entering into contracts, signing on behalf of the LLC, paying bills, and overseeing the operations of the company.  Having a capable Manager with at least a modicum of business acumen can save a larger group of Members from being bothered with having to vote and draft corporate resolutions for every little thing that comes up in the daily life of a Texas LLC.

Who Should Be A Member?

Secondly, those individuals in the business taking on the role of Member, must understand their roles and limitations.  A Member in a Manager-Managed Texas LLC will not have the authority to bind and act on behalf of the LLC without the written authorization of the LLC as a whole.  More often in a Manager-Managed LLC, the Managers run the business while the Members act as silent investors.  This structure most commonly occurs in entities like Series LLCs used to invest in real estate, where members looking to invest and accumulate passive income rely on Managers to oversee the buying, selling, and operating of the real estate investments.  Members may, however, be involved in the running of the business, but must understand their limitations on authority when acting on behalf of the business.

The Operating Agreement: Members and Managers

When consulting an attorney about your new LLC, the discussion about who will be Managers and who will be Members is an important one, and you and your colleagues may have some tough decisions to make regarding your roles.  Importantly, the Operating Agreement can also be tailored to the needs and wants of the group at large regarding the Management of the LLC—Exactly how passive or active Members want to be versus how much overall authority the Manager(s) are given can be drafted into the document by your attorney.

Regardless of your decisions on management for your business, your Series LLC, PLLC, or LLC should have an Operating Agreement that the Members and Managers of your company understand and are willing to abide by in the running of your business.  San Antonio LLC Attorney Nathaniel Gilbert helps individuals and groups form their business with a vision of success and efficiency, operating on flat fee, comprehensive representation for all of your Texas LLC needs. To learn more about Texas LLC Formation and Management, Click Here. To get in touch with Nate directly, Click Here.

New business owners in Texas often form LLCs to start their company, but this process can be full of pitfalls and sometimes even the most careful of small business owners can make a mistake. When consulting with clients that have formed their own LLC, these are the most common mistakes that I see that can be easily fixed.

1. Wrong Entity: Is An LLC Right For You?

   A lot of people form LLCs because they are familiar with the term and not because it is the best entity for their business.  A limited liability company is a great entity choice when it is the one that suits your business needs, but this is not always the case.  An LLC has formal requirements, for instance, that may be less beneficial than something like a Partnership, where you can have a more fluid relationship with your partner and the business venture.  A corporation may seem a little a daunting at first, and the easier LLC formation may sway your thinking, but sometimes a little work up front to form your Corp. can mean avoiding the headache of reincorporating later on.  Lastly, a sole proprietorship may be fine for what you are doing, especially in the case of a single member LLC—Sole proprietorships are a great tool for entrepreneurs or small business owners without a lot of capital to start.

   SOLUTION: Reincorporate the business with the Secretary of State, Wind up the LLC and start fresh with a new entity, or simply file a name change form. Whatever the case may be, it is usually a straightforward process to switch entities if we determine that is the solution to the client’s problem.

2. No Operating Agreement

   An operating agreement is NOT required by law in Texas.  However, starting your business without one is not a very good idea and not the way that will be advised to you by an attorney.  An operating agreement is a contract, and without one, you are entering into a business deal without a contract—doesn’t sound so good when you put it like that, does it? Having a custom drafted operating agreement for your LLC drafted by an experienced attorney will pay dividends later on in the management of your business.

   SOLUTION: Draft an Operating Agreement for the LLC. Working with the existing Members and Managers, we will draft a new operating agreement that spells out the business operation plan.

3. Too Many Members—Keep it Simple

   Sometimes when forming businesses, people want to have others involved in the business and the immediate thought is to make them Members.  While this can be tempting when forming your new LLC, you should consult with your attorney about how you want the LLC to be run.  Are you looking for passive investor members who may not have a full say on the day to day running of the business, or are you looking for input from other Members who have a reliable business acumen? Both are right answers, but you need to consult with the attorney forming your LLC about what kind of structure to setup within your LLC and what that looks like from a membership standpoint.

   SOLUTION: Amend the Operating Agreement to more accurately and specifically reflect the actual role of the Members and Managers in the operations of the company, and consult with the existing Members of the LLC to determine if they would like to be bought out of their ownership.

If you’ve started looking to form an LLC in Texas and think you want to speak to an attorney about your questions, LLC Formation Attorney Nate Gilbert can help guide you and your business in the right direction.  Nate can help form your LLC online, for a flat fee, in a timely and efficient manner, setting you up for success in the years to come. If you would like to read more about LLCs in Texas, Click Here. If you would like to get in touch with Nate directly, Click Here

Yes, you may convert your Texas LLC to a Texas PLLC if you qualify for a Professional Limited Liability Company.

Converting your LLC to a Texas PLLC may be done for a number of reasons, but the truth of the matter is that it doesn’t necessarily matter what your reasons are.  For a discussion of the differences between PLLC vs LLC in Texas, Click Here. The purpose of forming a PLLC in Texas remains the same, essentially, as converting to one: maintaining the protections provided to owners of a PLLC.  To learn more about those benefits, and more in general about PLLC malpractice protection, Click Here.  If you are ready to form your PLLC, there are Four Easy Steps to convert an LLC to a PLLC in Texas.

1. Determine if you qualify for a Professional Limited Liability Company

Do you meet the Texas PLLC statute requirements for being a PLLC? You must offer a service that requires a state-issued license to do so, AND there must be no members of the LLC that are not qualified to render that service.  The LLC may employ individuals that do not possess the license, such as administrators and support staff, but they cannot be members of the LLC or you may not convert to a PLLC. There are also different combinations of “joint practices” that may be established by owners of a Texas PLLC, per again, the Texas PLLC Statute. For more on qualifications for PLLC owners and joint practices, check out this article by Attorney Nate Gilbert.

2. Create your company resolution to effect the change

As an LLC, you must follow the guidelines set out in your company’s Operating Agreement on making a change in the name of the LLC.  The steps to creating a change will be listed in your Operating Agreement such as, how many votes it takes to effect a change, how a meeting where those votes will take place must be announced, etc. It should be noted that even if you are a Single Member LLC, you must absolutely create these kinds of business records–Business records for LLCs are a chief concern in maintaining the liability protection that an LLC or PLLC provides. Once you have determined the steps necessary to create the change, you may create the LLC Corporate Resolution to effectuate the name change and file with the other company documents.

3. File the required paperwork with the Secretary of State of Texas

Changing the business from an LLC to a PLLC is, for all intents and purposes with the Secretary of State, merely a change in the name of the business.  To register a change of name with the Secretary of State, you must file Form 424- Certificate of Amendment, stating the change in name of the LLC to a PLLC.  You will also need to fill in the “Purpose” section of the Certificate of Amendment and provide the State with the Professional Service that you will now be providing. What is the new purpose of the Texas PLLC? What services will you be providing under the name of your company? It is critical to remember that a PLLC is not the same as an LLC in Texas in regard to the “purpose,” as PLLCs have a very limited scope of purpose.

4. Make the necessary changes in your PLLC Operating Agreement

Now that the company has become a PLLC, you will need to amend your Operating Agreement to reflect this change.  Depending on the type of service you are offering and the number of members of the PLLC, this may mean different amendments to different parts of your Operating Agreement. Amending your Operating Agreement will again be a process determined by the structure of your Operating Agreement. Remember, the OA is the contract between you and your company, so don’t let yourself become in breach of that contract.

Converting to a PLLC in Texas is a relatively straightforward process, but you may save some time and energy by working with an attorney who understands the complexities and nuances of the requirements.  San Antonio LLC Attorney Nathaniel Gilbert works with business owners in a variety of ways and can help manage your LLC or PLLC in an efficient manner.  If you would like to learn more about LLCs and PLLCs in Texas, Click Here.  To contact Nate directly, Click Here.

Creating an individual Series for your Series LLC is a straightforward process, but there are some critical steps that you need to take.  When creating the new Series, you are effectively creating a new LLC, for all intents and purposes, and just as when we are forming a new LLC, failing to follow the proper procedure can mean losing the protections an LLC provides.

First, Are You Authorized to Create Series for Your LLC?

In order to form individual Series for a Series LLC, your Operating Agreement and Certificate of Formation from the Texas Secretary of State MUST identify your LLC as a Series LLC, AND spell out the authority of the LLC to create individual Series for the LLC.  More information on the required language can be found here: How Do I Form A Series LLC?

A New Series Requires An Amendment to Your Operating Agreement

Creating a new Series for your Series LLC will require amending the operating agreement to reflect the new Series.  Usually, this is done via Addendum or Attachment, and the Addendum spells out the details of the new Series: The Series name, the Managers or Members, the purpose of the Series, and any other information that would be different than the original operating agreement.  This Addendum is, after all, the operating agreement for the new Series (in a roundabout way).

Optional, But Good Practice: DBA for the Series

For my clients, I provide the service of registering a DBA (Doing Business As) name for the Series under the original LLC.  So, anytime someone looks up the name of the Series LLC on the Secretary of State of Texas website, the names of each individual Series are listed along with the original LLC.  This is not required for the formation of a new Series, but seems to be good practice in putting the public on notice of the existence of the Series, and showing its relationship to the original Texas Series LLC.

If you want to learn more about Series LLC Formation in Texas, San Antonio Attorney Nathaniel Gilbert ca help answer your questions and guide you through the process.  To learn more about LLC formation, Click Here.  To get in touch with Nate directly, Click Here.

In this video, Texas LLC Formation Attorney goes through the functions of an Operating Agreement, and why this contract is so important in the management of your small business. Operating Agreements are just that: contracts. This contract explains how you, the members and managers of the LLC, are to operate the business. Your obligations through this contract are extremely important to uphold, or you will find yourself in breach of contract with the LLC, and subject to piercing of the corporate veil or shareholder derivative suits.

Video Recap:

What is an Operating Agreement?

A contract between the members and the company governing how the company is to be managed and operated.

How Do I Use the Operating Agreement?

The Operating Agreement is the tool that you use to run the business: every time you want to make a substantial change, or have the membership agree to something, that decision will be governed by the Operating Agreement and the rules, guidelines, and formalities that are contained therein.

What Happens If We Don’t Follow The Operating Agreement?

Failing to follow the rules or guidelines in your Operating Agreement will result in the members (or membership at large) to be in breach of contract with the LLC. Being in breach of contract means that the LLC is exposed to liability through shareholder derivative suits. Additionally, especially if there is only one member or manager, the personal assets of that single member of the LLC are put in jeopardy through “piercing of the corporate veil” by creditors.

Consider these other articles on LLCs and their Operating Agreements in Texas:

Top Three Reasons NOT To Use A Form Operating Agreement

What Happens If I Don’t Have an Operating Agreement For My LLC?

LLCs and Personal Liability: Avoiding Liability in LLC Management

Do you have questions about your LLC Operating Agreement, or general business law questions you’d like to review with an attorney, Click Here to get in touch with San Antonio Attorney Nathaniel Gilbert.

Passing expenses through a business is one of the easiest ways to achieve write offs on your tax return.  Making more items and services “business expenses” allows those costs to be written off of your total profit at the end of the year; the amount you spend on the business is deducted from your total taxable income so that you pay less in tax for the year.

For a single member LLC that does NOT make an S-Corp election, this is done on IRS form Schedule C, and attached to your household Form 1040.  Schedule C is a worksheet that will ask you several questions about the categories of expenses that you had for your business such as business use of your home, office equipment and furniture, travel, and any costs to maintain your business or professional license.  After taking into account all of your deductions and income from the business, you will report the final number on your 1040 as your “Profit or Loss From a Business”.  In summary, the income from the business passes through to you personally, by way of Schedule C.

For an LLC that DOES make an S-Corp Election, these business expenses are reported by the business itself on an S Corp reporting form, Form 1120-S.  This is different than a Schedule C, in that the income is not passing through to an individual, but being reported directly by the business as business income.  Making an S-Corp election may save you and your business some money on certain tax items, but you should discuss making this election with your CPA or accountant—it is definitely not for everyone, and a decision to do so should be based on the advice of a qualified professional

If you have any questions about your LLC and how the business should be reporting, San Antonio LLC Formation and Management Attorney Nate Gilbert can help point you and your business in the right direction.  To learn more about LLCs and Texas Business Law, Click Here. To contact Nate directly, Click Here.