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Austin TX Business Law Blog

Thursday, October 10, 2019

What Is a Certificate of Formation?

Starting a business is an exciting time and one filled with important decisions to make and tasks to undertake. If you have decided that establishing your business as a Limited Liability Company (LLC) there are certain regulations that you will need to comply with in order to successfully create a valid LLC. While there are specific procedures that you are required to follow and formalities that must be observed, an LLC is a great choice for your company because of the benefits it provides. As the name itself suggests, an LLC will protect your company from certain liability concerns and safeguard it from certain types of litigation.

What is a certificate of formation?

In order to form a valid LLC in Texas, you must make several critical decisions upfront. First, you must select a name for your LLC. The name, pursuant to Texas law, must contain the words “Limited Liability Company” or “Limited Company” or some variation therein. The name must also be different from other businesses that have already filed with the Texas Secretary of State. In addition to selecting a name, you must choose and appoint a registered agent. The registered agent will be the individual or business entity that accepts legal documents in the event your LLC is sued. The registered agent must have a physical address in Texas and the LLC cannot act as its own registered agent.

The name of the LLC and its registered agent will all go into the Certificate of Formation for a Limited Liability Company, Form 205, that will be filed with the Texas Secretary of State. The address of the registered agent must also be included. Additionally, the certificate must state whether the LLC will be member-managed or manager-managed. In a member-managed LLC, all LLC members take part in making decisions for the company and participate in voting for business decisions. Each member is also considered to be an agent of the LLC. In a manager-managed LLC, the members relinquish the right to have authority over business matters to one or more managers. A manager-managed LLC is more common than a member-managed LLC. If an LLC chooses to be member-managed, the name and address of all initial members must be included in the Certificate of Formation. If it is manager-managed, the name and address of each initial manager must be included.

The Certificate of Formation must also include the name and address of the LLC’s organizer, the effective date of the certificate and the signature of the LLC’s organizer. There must also be a general-purpose clause. The general purpose clause essentially states that the LLC will comply with the applicable tax and business laws of the State of Texas. Once completed, the Certificate must be filed either online or by mail with the Texas Secretary of State. There is a $300 filing fee.

Texas Business Formation Attorney

Completing a Certificate of Formation is just one step on the road to establishing an LLC and it alone involves making a great deal of important choice for your business. The Kumar Law Firm is here to help your business get off on the right foot by providing you with trusted legal counsel to help ensure that your business is set up for success. Contact us today.

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