Tired of making other peoples’ drinks? Dreaming of big boats and small cars? Well, you’re not going to get that done working your 9 to 5. Like anyone who’s made it, you’re going to need to start your own business and be your own boss if you’re going to get ahead. How, pray tell, can that be done? Beats me. I’m not an ideas guy; I’m just a lawyer (lawyers are unimaginably unimaginative). But let’s say you have an idea for a business. The very first thing, if not the thing you want to do before you even have an idea, is incorporate.
You might ask: Why would I incorporate? Why can’t I just start a business and bill my customers personally with payment to my personal account? You can do this, of course. But if you are ever sued, everything you made plus any other assets you have (i.e., car, house, savings, etc.) are potentially subject to collection by your creditors. Another reason to incorporate is…it’s just cool man, and it looks much more professional.
I use the term “incorporate” loosely. Most people don’t actually form corporations. Instead, forming a Limited Liability Company, or LLC, is the preferred business entity because it has the best of both worlds of a partnership and corporation. Plus, the tax consequences are generally easier to figure and are something you will want to discuss with the accountant you don’t have but will want when you get the business running.
Your best friend in this venture will be the Texas Secretary of State. No, not Rolando Pablos, the current Texas Secretary of State — he won’t be returning your frantic calls. It’s the Texas Secretary of State website. There are some very helpful instructions on the website and the form you will need to fill out to get started (see here: form). It’s surprisingly easy. The form is a whopping three pages long — if you can’t handle that, maybe you should consider keeping that 9 to 5.
One big and potentially confusing decision is whether you will want a member-managed or manager-managed LLC. A member-managed LLC essentially means the owners — the people who invest (what we call “capitalize” the company) — also run the day-to-day operations like sign contracts, open banking accounts, write checks, etc. A manager-managed LLC is where the investors generally do only that, invest money, and other people, the managers, actually manage the day-to-day. A manager-managed LLC is more complex and generally isn’t needed for a small business. It also requires a Company Agreement so you can spell out who is responsible for what, how they will be compensated, and the like.
Another couple notes are to ensure you choose a registered agent. This is the person who will receive all official notices for the company, such as notices from the state or, Zeus forbid, a notice from a claimant that you’ve been sued. This person will need a physical address with a physical presence (no PO Boxes) so that a real person can be found if needed. You will also need to identify the “Organizer,” who is generally you or whoever fills out the form. It is not uncommon for a small business to have the same person be the sole member, the registered agent and the organizer. Finally, don’t forget the fee, which is $300. It is a one-time fee.
With that, I wish you all luck in your new endeavor.
Until next time….