The “big three” for-profit entities that can be formed under the Texas Business Organizations Code (“TBOC”) are corporations, limited partnerships and limited liability companies, with LLCs as the clear “entity of choice” today.
The Limited Liability Company Law under the TBOC provides significant flexibility in structuring management and ownership of the LLC. A manager-managed LLC can provide the management control that a client usually desires over the LLC’s business, with limited interference from the members (owners) of the LLC. The title “Manager” is also generally accepted and recognized as the title conferring presumptive authority to bind an LLC. No officers need to be elected unless the Manager decides it is expedient, so the LLC can be more streamlined than a limited partnership or even a corporation.
Under the TBOC, the Managers manage the business and affairs of the LLC pursuant to its company agreement and the TBOC provides flexibility by allowing an LLC’s company agreement to control over its certificate of formation as to whether the LLC is Manager-Managed or Member-Managed.
Most provisions of the LLC law under the TBOC can be modified by the company agreement, except where the TBOC delineates a handful of provisions of the TBOC that cannot be modified or waived. All other provisions of the LLC Law under the TBOC are fair game for waiver or modification under the LLC’s company agreement.
Payroll taxes can affect the use of an LLC because a single-member LLC is considered a “disregarded entity” for federal income tax purposes and a multi-member LLC is considered a partnership for federal income tax purposes. This can lead to self-employment tax issues and other payroll concerns, so we encourage involvement of the business’s accountant in the process of forming and structuring a new entity so that the planning includes tax implications going forward.
