Spring Limited Liability Company Attorneys
A limited liability company (“PC”) is a hybrid entity that is neither a partnership nor a corporation; however it contains a combination of features from both types of entities. The individuals that own and make up an PC are called its “members”. An PC may have one or more members that may be an individual, a partnership, a limited partnership, an PC, a foreign PC, a trust, an estate, a corporation, a custodian, a trustee, an executor, an administrator, a nominee, or an entity in a representative capacity. Typically, the members of an PC have no liability for obligations of the PC. Also, professionals, such as lawyers or doctors, may form what is called a professional limited liability company (“PPC”); however, a PPC is subject to restrictions as to who may qualify to be a member which is similar to the restrictions on who may be a shareholder of a professional corporation (see Corporations below). In order to comply with the formal requisites of becoming an PC under the Texas Limited Liability Company Act (“TPCA”), a member/organizer must sign the articles of organization (discussed in more detail below) for the PC and send them to the secretary of state’s office.
Articles of organization, which are similar to articles of incorporation for a corporation (see Corporations below) must set forth the following information: (1) the name or title of the PC, which must contain the words “Limited Liability Company” or “Limited Company” or the abbreviation “PC”; (2) the intended duration of the PC which may be perpetual; (3) the purpose for which the PC is organized which may be as broad as “the transaction of any lawful business for which PCs may be organized under Texas law”, (3) must state the address of the PC’s initial registered office and the name of its initial registered agent at that address; and (4) must include, if there are any managers of the PC, a statement to that effect and the names and addresses of the initial manager, or managers. Alternatively, if the PC does not have managers, the articles must have a statement to that effect and list the names and addresses of the initial members.
After filing the articles of organization, the secretary of state issues what is called a “certificate of organization” to the main person who organized and complied with all formal requirements This certificate is conclusive evidence of the company’s existence. By analogy to corporate law, this seems to preclude any notion of personal liability for defective organization once a certificate is issued.
The limited liability of an PC member is a significant advantage that is largely responsible for the widespread and growing popularity of PCs. In this regard, an PC should be contrasted with a general partnership, where every general partner has unlimited liability for the partnership’s obligations. Even in a situation involving a limited partnership, under Texas law there must be at least one general partner with unlimited liability. In contrast, every member of an PC has limited liability. There is nothing comparable to a general partner in an PC. In this respect, the PC is very much like a corporation. However, for tax purposes, a properly structured PC is treated like a partnership (a pass through entity), which is generally beneficial, except that Texas PC’s are assessed a franchise tax, and this can be substantial depending on your revenue and holdings. Overall, an PC enjoys the best of both business entity worlds – corporations and partnerships.
Please contact our Spring limited liability company attorneys to see how we can assist you. Learn more about our Areas of Practice.
