What is a Certificate of Formation?

When you decide to start a business in Texas, there are many things to do and consider before opening. First is thinking about the structure and form of your business and how to set it up legally. An LLC is one of the most popular types of business formations. With an LLC, you gain the many advantages of a corporation while keeping the organizational structure simple, as with a partnership. Let’s look at this certificate of formation and how you can file it for an LLC in Texas.

What is a Certificate of Formation?

A certificate of formation is simply the document you file with the secretary of state in Texas to set up your LLC. It is mandatory to file a Texas Certificate of Formation when forming an LLC (limited liability company) in Texas. Once you file this certificate with the Secretary of State, the state of Texas officially recognizes your LLC. 

How Do I File the Certificate?

You can file your Certificate of Formation online or by mail. You can click the link and use a pdf fill-in software to write in your answers. Once finished filling out the form, you can file it online at SOSDirect for  $300.

How Long Does It Take to File?

SOS Direct is the secretary of state site where you file your certificate in Texas. However, due to a high volume of filing activity and an increased demand for business services, the Secretary of State site may experience delays in processing. If you submit your documents through SOSDirect and SOSUpload, the secretary of state’s office should process them in 4-5 business days. You can file your form 24 hours a day 7 days a week.

How Do I Fill Out the Answers?

Article 1—Entity Name and Type

Here is where you put your company name and what type of entity you want to be—for example, Jones Brothers, LLC. You’ll need to choose a name that is not too similar to other LLCs in the state. 

Designations such as “S,” “C,” or “501(c)(3)” refer to federal tax provisions. Consulting your attorney is the best bet for information on federal tax issues, including how to fill out your certificate of formation with the best federal tax filing status.

Article 2—Registered Agent and Registered Office

The limited liability company cannot act as its own registered agent. Here, you’ll want to put the name of the person to contact in the LLC. The agent should be someone with a street address who agrees to serve as the registered agent. Alternatively, it can be a domestic or foreign entity that is registered to do business in Texas. Whatever addresses you enter into this document are public, so consider using a business address for privacy.

An LLC must maintain a registered agent and a registered office address in Texas. If the agent or address changes, it is essential to file a statement with the secretary of state. Otherwise, the state may terminate your LLC. 

Article 3—Governing Authority

The certificate of formation must state whether the LLC will or will not have managers.

• Option A:  If the LLC will have managers, provide the name and address of each manager.
• Option B: If the LLC does not have managers, provide the name and address of each initial member of the LLC in the space provided.

If the governing person is an organization, set forth the legal name of the organization. Do not include both the name of an individual and the name of an organization. 

An LLC can be structured as managed by managers or managed by its members. The LLC and its members decide how this will best work within the organization. Talking with an experienced business attorney can help you make this decision if you are inexperienced in business. The Secretary of State does not advise about management structure.

Article 4—Purpose

Explain the purpose of your business. As long as it is a legal type of business, just state your general objective. You can read more about what kinds of specific language you may need at the IRS website if your organization files for tax-exempt or tax-deductible status. If you need the state to grant a license for your business, you must also use specific language and, in addition, obtain eligibility for the permit.

Supplemental Provisions/Information

Use this space to set forth additional optional provisions for your LLC. One of these options is setting a date for the LLC to dissolve or to begin. You can plan for the LLC to open 90 days in the future instead of immediately upon receipt. 

Execution

As the person filling out the form, the state recognizes you as the organizer. You must sign the certificate of formation. Filing a false document could bring a misdemeanor Class A charge if you intend to harm another. 

How Do I Know My LLC Is Official?

You’ll receive communications from the secretary of state when your LLC is officially filed as a business.. On filing the document, the secretary of state will return the appropriate evidence of filing to you. 

What Now?

Shareholders own corporations while they are managed by a board of directors. Members own LLCs while they are managed by members, managers, or both. 

According to the state of Texas State Business Structures page, “The limited liability company (LLC) is not a partnership or a corporation but rather is a distinct type of entity that has the powers of both a corporation and a partnership. 

An LLC is like a general partnership with limited liability or a limited partnership where all the owners participate in management and have limited liability. An LLC can file federal taxes as an “S” corporation, but without the federal tax restrictions…

As a result of federal tax classification rules, an LLC can achieve both structural flexibility and favorable tax treatment.”

Staying Above of the Law

The secretary of state website specifically states that “the forms and information provided by the secretary of state are not intended to provide legal advice or to substitute for the advice of an attorney. If you have specific legal questions, consult your attorney.” (2)

When forming an LLC, it makes sense to consult competent legal counsel to ensure that your tax strategies are sound. Laws that affect LLCs change yearly, but with a knowledgeable attorney, you can stay on top of the latest changes. 

We Can Help

At Jarrett Law, our business formation law team analyzes your purpose, articles of organization (governing document), and business formation documents with an eye for well-developed and planned objectives. It may not seem like a big deal to just fill out a few forms, but what you do now sets the tone for your LLC’s entire future. Contact us today and find out how we can help.