Texas Limited Liability Companies

Wyoming introduced the limited liability company through 1977 legislation, and Texas did so in 1991. Texas was the fourth state to have LLCs, and so started a rapid movement as by the end of the 1990's all fifty states and the District of Columbia had enacted LLC statutes. Significant changes were made in the 1993,1997 and 2003 Texas legislative sessions. LLCs created after January 1, 2006 will be governed by the Texas Business Organizations Code, although there will be little substantive change in the law.

Statutory Liability Shield Appears Thorough and Reliable

    LLCs, like corporations, are based upon a state statute. The Texas LLC statute provides for LLCs to have a highly desirable shield of the members from the liability of the entity. If the courts apply the statute as written, a Texas LLC will be even less subject to disregard than Texas corporations have been.
     In addition, the LLC statute also provides the clearest and strongest protection of an owner's interest from seizure by a creditor to pay down a judgment against the member (say, from an auto mobile accident, unrelated to the business).

Pass-through Taxation with Limited Liability for All Owners

    Multimember LLCs offer the favorable pass-through taxation rules of partnerships and S Corporations, plus limited liability protection for all owners without (a) the loss of control issue that affects limited partnerships, (b) the double taxation problem of C corporations, or (c) the ownership and capital structure limitations of S corporations. A further great flexibility is that an LLC can choose—at its option—to be taxed under the partnership rules, C corporation rules or S corporation rules.

Generally Must Pay the Texas Franchise Tax

    An LLC must pay the Texas franchise tax. However, an LLC with gross receipts (not net income) of $300,000 or less pays no franchise tax (but files a report only).

Management and Structure

    The LLC was designed to offer an extremely flexible entity for business owners to organize, run and operate, with an eye more toward their own relationships, and less to particular tax or technical requirements. That design has proved workable. While the default rules of the statute, and our initial form of documents, meet a wide variety of circumstances, the relationships as reflected after negotiations among members can be drafted into the LLC documents, as would be the case with many partnerships, to meet almost any arrangement that is desired.  

This memorandum contains general information and while the information presented is accurate as of the date of its publication, it cannot be relied upon as legal advice, as that can only be obtained through personal consultation with an attorney with whom you share your specific facts.

 Copyright © 2007 by Sterling A. Minor. All Rights Reserved.

Last Updated: March 10, 2007