The practitioner may use this letter to alert the client who has recently formed an LLC of the many requirements of operating the new company.
Client Letter Regarding Postformation LLC Issues
[Date]
[Name and address of client]
Re: [Name of LLC]
[Salutation]
|
Select one of the following. |
Now that the above-named Limited Liability Company has been formed with the Texas Secretary of State and the Company Agreement has been executed, I am writing to provide you with helpful guidance about how to operate your new LLC.
|
Or |
Enclosed please find your draft Limited Liability Company Agreement. Please closely review the agreement and schedule a time to execute the document at your earliest convenience. In the meantime, here is some helpful information about how to operate your new LLC.
|
Continue with the following. |
1.Employer Identification Number. The LLC needs an Employer Identification Number (EIN) in order to file tax returns, open bank accounts, and so forth. You can obtain an EIN online at https://www.irs.gov. The IRS will issue a letter that contains the EIN, which I recommend you print and keep in the LLC’s records.
2.Registered agent. The Texas Business Organizations Code requires that the LLC maintain a registered agent and registered office at all times. The Certificate of Formation contains the initial registered agent and office. The registered office must be located at a street address where service of process may be personally served on the entity’s registered agent during normal business hours. If there is a change to the registered agent, the registered agent’s address, or the registered office, the appropriate forms must be filed with the secretary of state (see SOS Form 401 to change registered agent or registered office and SOS Form 408 to update registered agent address).
3.Documents to keep. The LLC should maintain the following documents in its records:
a.Certificate of Formation (along with any Certificates of Amendment);
b.Consent of Registered Agent to Appointment;
c.Company Agreement (along with any amendments or restatements thereto);
d.EIN letter (see paragraph 1);
e.any minutes or consents of the Members and/or Managers (see paragraph 5);
f.the name and mailing address of each Member of the LLC and the Membership Interest percentage owned by each; and
g.the books and records of the LLC (see paragraph 4).
4.Books and records. The LLC must also keep the books and records of accounts, along with the tax information and tax returns for at least the preceding six years. The members of the LLC have the right to inspect these records (as well as many of the items listed in paragraph 3), subject to the request to do so being reasonable and for a proper purpose.
5.Minutes/consents. The Company Agreement specifies whether the LLC is required to have annual meetings. If not, the LLC may have meetings if so desired or warranted by a particular situation. The minutes of any meetings (or a consent in lieu of a meeting) should be kept in a designated minute book or file for the LLC.
6.Separation of LLC and personal assets. The managers and members of the LLC should be careful not to intermingle the money and other assets of the LLC with the personal money and assets of any member. For example, the LLC should have a separate checking account in its own name. The LLC must conduct business in its own name and not in the individual name of a member or manager. When signing any document on behalf of the LLC, be sure to sign in your capacity as member, manager, or officer of the LLC and not in your individual capacity. Here is an example of a signature block to use when conducting business on behalf of the LLC:
[Name of LLC]
By:___________________________________
Name: [Name of member or manager]
Title: [Manager/Member/Officer]
7.Federal tax return. An LLC can elect to be taxed as a corporation or a partnership. Because of the more favorable tax treatment, most owners will elect to have the LLC taxed as a partnership. If the LLC is classified as a partnership for federal income tax purposes, the LLC itself doesn’t pay taxes on the income but instead “passes through” any income, profits, gains, losses, deductions, and credits to the members of the LLC. In that event, the LLC is required to file a federal tax return (IRS Form 1065) each year. If the taxable year is the calendar year, the return is due on March 15. If other than a calendar year is used, the return is due by the fifteenth day of the third month following the date its tax year ends.
8.Sales and use tax. If the LLC is engaged in the business of retail sales, leases, rentals, or certain taxable services, the LLC must apply for a sales tax permit. More information on what kinds of businesses must have a sales tax permit, as well as applicable forms, can be found on the Texas Comptroller of Public Accounts website at https://comptroller.texas.gov.
9.Franchise tax. The LLC will be subject to the Texas franchise tax and must file a franchise tax report each year with the Texas Comptroller of Public Accounts. However, many Texas companies will not have to pay any franchise tax. For 2018 and 2019, the No Tax Due Threshold is $1,130,000. The annual franchise tax report is due on May 15. A public information report must be filed each year with the franchise tax report. The applicable forms can be found on the Texas Comptroller of Public Accounts website at https://comptroller.texas.gov.
10.Personal property taxes. A personal property tax is imposed on income-producing tangible personal property. The local county appraisal district uses the Texas personal property tax to fund county services. All income-producing tangible personal property is taxable for county appraisal district purposes. Taxable personal property includes equipment and inventory. Nontangibles such as goodwill, accounts receivable, and proprietary processes are not taxable. A rendition of the tangible personal property must be filed with the county appraisal district where the personal property is located by April 15 of each year.
11.Assumed name (“doing business as” or DBA). If the LLC elects to do business under a name other than the one specified in the Certificate of Formation, it must file an assumed name certificate in the county where the principal business is located as well as with the secretary of state.
12.Employees. If the LLC hires employees, there are several important issues that must be addressed, including the filing of required state and federal forms. The Texas Workforce Commission has a valuable resource called “Especially for Texas Employers Publication,” which addresses a variety of workplace issues, including hiring, pay and benefits, independent contractor versus employee designations, work separation, unemployment compensation taxes, and workers’ compensation. This publication is located at http://twc.state.tx.us/news/efte/especially-for-texas-employers.html. Employers must withhold income tax and Social Security tax from taxable wages paid to their employees and file an Employer’s Quarterly Federal Tax Return (IRS Form 941). In addition, the Unemployment Tax Return (IRS Form 940) must be filed each year. Furthermore, it is good practice to have employees sign a confidentiality agreement that prohibits them from disclosing trade secrets and other sensitive information of the LLC. It might also be appropriate to have employees sign a noncompete agreement to protect the LLC upon an employee’s separation from employment.
13.Doing business in states other than Texas. If the LLC does business in a state other than Texas, the LLC must be qualified to do business in that state. Exactly what constitutes “doing business” varies among the states. Examples could include having an office or employees in another state. In order to qualify to conduct business in another state, the appropriate forms would need to be filed with the secretary of state (or similar agency) of that state.
14.Trademarks. The LLC’s trademarks, service marks, and trade names should be protected by filing for registration with the U.S. Patent and Trademark Office. The first step in doing so is to conduct appropriate trademark searches. Although this can be handled by you, this is a complex area of law, and I recommend that you have an attorney with specialized knowledge of trademarks assist you.
15.Amendments to Certificate of Formation or Company Agreement. Any future changes to the Certificate of Formation will require that the LLC file a Certificate of Amendment with the secretary of state. If changes are made to aspects of the LLC addressed by the Company Agreement, such as ownership, management practices, and so forth, you should also revise the Company Agreement.
I encourage you to discuss any questions you might have regarding tax issues or the tax filings mentioned above with your tax adviser.
We appreciated the opportunity to assist with your LLC. If you have any questions regarding the foregoing, please do not hesitate to contact me
Sincerely yours,
[Name of attorney]