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    5 Replies Latest reply on May 29, 2009 1:08 AM by Barkri12

    Forming a Texas LLC, question.

    Mike76543 Newbie
      I have some questions regarding the formation of an LLC in Texas. Thanks in advance for any help you can provide.

      1) First, what is the professional I should be asking these questions to? A tax Attorney, an accountant? I guess I'm not sure what to look under in the yellow pages to find an attorney that can answer these (and other) questions regarding formation and running of an LLC.

      2) Is membership limited by any age requirement? i.e., can my daughters, under the age of 18, be members?

      3) I've read that percentage of ownership does not necessarily have to be equal with voting rights percentage, nor distributions percentage. Where is this specified (what document), can it be changed at the members' collective discretion?

      4) Are LLC's allowed to make a profit at the end of the year and still maintain pass-thru tax advantages? For instance, can I not distribute profits from the LLC in order to save up LLC money to do something (like purchase real estate or another business) or do I have to distribute profits annually?

      5) If I'm the managing member, what are my distributions classified as for income tax? Are they earned income? What about for normal members? I think I found this one, as far as taking guaranteed payments (i.e. salary) being earned income, but what about the non-involved members, are their distributions from the LLC taxed at capital gains rate?

      6) Is there a self employment tax applied to my guaranteed payments (salary) for running the company?

      7) If the members specify that additional members can be brought on board by majority vote, where do I, if anywhere, have to specify these additional members? Or is it just by contract that they give money and I give them ownership shares? On that same note, can I also specify that their ownership doesn't have voting rights?
      8) Last but not least, for now, has anyone used one of the many "LLC filing companies" online? Can anyone recommend one that was particularly helpful in getting their LLC filed, or ones to avoid?

      I'm still trying to get my head wrapped around all this. If you need more information to help, please ask, I'll monitor this thread regularly.

      Thanks again,

        • Re: Forming a Texas LLC, question.
          LUCKIEST Guide
          Forming a Texas LLC, Welcome

          Do you know about SCORE?? SCORE is FREE and can help you answer ALL your questions, both in person and online.

          Everybody in business should have both an Accountant and a Lawyer.

          Good luck, LUCKIEST
          • Re: Forming a Texas LLC, question.
            Lighthouse24 Ranger

            If you want to go the source (literally) for most of your answers, it's Title 32, Chapter 18, Article 1528n of the Texas Statutes (The Texas Limited Liability Company Act). It's on the Texas Secretary of State's website.

            Your questions seem to reflect finance/tax concerns more than legal concerns, so I'd be inclined to consult a CPA for advice pertaining to your specific situation and objectives, and the formation of an LLC or Limited Partnership (there are advantages and disadvantages to each). If you're in or near a metro area, you'll likely be able to find several CPAs who specialize in small business formation -- and probably at least one CPA who has extensive experience with your type of business or industry.

            It's my opinion that, relative to forming a Texas business, those "LLC filing companies" you mentioned don't do anything that you can't easily handle yourself once you've done a little reading (or received some professional advice).

            Good luck!
            • Re: Forming a Texas LLC, question.
              Lighthouse24 Ranger

              Here a link to the Texas LLC Statute -- you'll have to scroll down about a third of the way to get to it:

              • Re: Forming a Texas LLC, question.
                dublincpa Scout
                Answers as I see them:

                1. I would have separate CPA/Tax Accountant from Attorney. Clients have not previously done well under one roof unless separate partners for each. I also indicate whom to ask.

                2. Attorney - Usually no minimum age for membership, but there are more issues related to what they can can't do on behalf of the business. CPA - Under 18or19 and up to age 23 if full time student, unearned income is taxed at parent's top marginal rate. It may be hard to argue that the income is earned, unless guaranteed payments for services appropriate to child's ability. A 13yr old as managing partner will not likely fly.

                3. Attorney - These are specified in Operating Agreement to be consistent with state law.

                4. CPA - If taxed as a partnership all income and loss flows to partners per Operating Agreement.

                5. CPA - All flow thru Line 1 income regardless of cash distributions is SE Income for the managing partner in addition to any guaranteed payments. If other partners are not "active" for tax purposes (too long to explain now), there is not likely SE tax however if they are under the ages in 2. above unearned income is taxed at parent's top marginal rate.

                6. CPA - See 5. above.

                7. Attorney - See 3. above.

                8. Attorney - You are not doing vanilla stuff. Get a recommendation for a couple professional attorneys. Get quotes. Get comfortable and pick one. Interview every one in town to find and affordable one you like if necessary. For what you want, cheaping out now will cost in the long run.

                Good luck.
                • Re: Forming a Texas LLC, question.
                  Barkri12 Wayfarer
                  The Texas limited liability company is now the most popular legal entity for the Texas business. Why? Because the Texas LLC gives you:

                  * Limited Liability Protection under Texas LLC laws
                  * More Tax Choices (pass through or corporate)
                  * Incredible Flexibility (operate your Texas LLC business the way you want)
                  * No Ownership Restrictions under Texas LLC laws
                  * Less Formalities than corporations
                  * A Professional and Official Image (which is great for getting new customers in Texas!)


                  But do you know that in order to retain the protections and benefits of a Texas limited liability company.

                  For More Info :