By placing your investment property into a Texas LLC, you can protect your personal assets and finances from legal claims of others against you. The Daves Law Firm will prepare all of the documentation necessary to organize your new Texas LLC.
Our process is streamlined and fast. We have a special express filing account with Texas Secretary of State which allows us to get your documents processed within 48 hours in many cases.
Contact the Daves Law Firm today to get started on your new LLC
The limited liability company ("LLC") is essentially a hybrid business entity, possessing both corporate and partnership features. It is an attractive alternative to the forms of business traditionally available because the LLC combines two very desirable features: limited liability for all owners and a choice in tax treatment for federal income tax purposes.
Additionally, the LLC is a very flexible vehicle which may be structured with centralized management (along the lines of a limited partnership or corporation) or with management by the owners (along the lines of a general partnership).
One desirable feature of the LLC is its ability to protect the assets of the LLC from creditors of the owners. Because only the economic membership interest is transferable unless the company agreement provides otherwise, judgment creditors of a member are not able to obtain or exercise voting or management rights of a member or force liquidation of the LLC. The remedy of a member's judgment creditor with respect to the member's membership interest is limited to a charging order, which only entitles the judgment creditor to any distributions to which the member would otherwise be entitled.
One of the principal advantages of forming an LLC is to limit or reduce your personal liability for business bills and debts. In some situations, however, the officers, members and managers may be personally liable for the LLC debts. An LLC begins business, many creditors may not extend credit to the LLC unless the member(s) sign a personal guaranty agreement. The guaranty agreement is an express contract that renders you personally liable for the LLC’s debts.
You can also be liable for the company's debts by implied actions or negligent conduct. If you disregard LLC formalities or commingle your personal interests with the company's assets or interests, you can open the door for an adverse party to "pierce the corporate veil" and render you personally liable for the LLC's debts.
Furthermore, it is important to review all contracts and credit agreements prior to signing them to ensure that they do not contain hidden personal liability representations or guaranties and that the LLC is properly named wherever applicable as the party to such contracts and agreements.
The LLC is noncorporate in many fundamental respects. For instance, the basic approach of the LLC towards ownership is based on the partnership model. A member's ownership interest in an LLC is generally referred to as a “membership interest.” There are no shares of corporate stock in the LLC.
In contrast to corporate shares of stock, which carry with them both economic and voting rights when transferred, assignment of a member's interest in the LLC confers on the assignee only the economic rights associated with the interest. A member does not have the unilateral power to transfer the management and voting rights associated with membership. Consent of the other members (or a special provision in the operating agreement or company agreement of the LLC) is required for an assignee to be admitted as a member. This approach is patterned after the partnership model.
Additionally, the capital structure of an LLC is based on partnership rather than corporate principles. Traditional corporate finance concepts of par value, stated capital, and surplus are not part of the LLC regime in Texas.
The liability protection offered by an LLC is more advantageous than that of general and limited partnerships. General partners in a general or limited partnership are personally liable for all debts and obligations of the partnership. Limited partners in a limited partnership may lose their liability protection if they participate in the control of the partnership business. The LLC offers the advantage of limited liability for all of its members without regard to their level of participation in the control or management of the business.
The LLC offers great flexibility with respect to internal organization and management. An LLC may be organized with a centralized or decentralized management structure. That is, an LLC may be (1) member-managed or (2) manager-managed.
Member-managed. If an LLC is member-managed, the management structure resembles that of a general partnership. Per capita voting is the default rule, and most decisions may be made by a majority of the members unless otherwise provided in the certificate of formation or company agreement. The members of a member-managed LLC are agents of the LLC for the purpose of its business and have partner-type power to bind the LLC. The members may also designate officers if they choose. Within the parameters of member-management, the members of an LLC might delegate and allocate decision making in any variety of ways, just as partners in a general partnership might do.
Manager-managed. Management by managers provides a centralized management structure, resembling the corporate model. The managers of a manager-managed LLC are analogous to corporate directors in that management is vested in the managers, with only certain fundamental or extraordinary actions requiring the approval of the members. The managers may designate officers, but the managers are themselves agents of the LLC for the purpose of its business.
Members can subsequently amend the certificate of formation if they determine that they want to change from manager-management to member-management or vice versa.
The Texas Business Organizations Code specifies that a member is not liable for the debts, obligations, and liabilities of the LLC. The statute also provides that a member is not a proper defendant in proceedings against an LLC to collect or pursue a debt or liability of the LLC.
However, the liability protection provided by an LLC will not protect managers or members from liability in tort or contract independent of their status as a manager or member. Oftentimes, owners operate under the misconception that the corporate or LLC form will protect them from all liability incurred in connection with the business. Some creditors, however, may require personal guaranties of the owners as a condition of extending credit to the business. A member or manager who signs a personal guaranty has contractual liability based upon the guaranty notwithstanding the liability protection provided those acting in the capacity of member or manager.
Another context in which a member or manager may incur liability is that in which the member or manager is negligent or otherwise engages in tortious conduct in the course of the LLC's business. The fact that members or managers may be acting on behalf of the LLC does not protect them from liability for their own torts.
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