Forming an LLC in Houston TX

35 Replies

Just a little lost on how to form a sole proprietorship LLC in Texas, wondering if someone knows the cost and some basic knowledge on how to start with this? New at investing and everyday seems I find something new and a new question, I'm really trying to make my first purchase or wholesale as cautious as possible

We are using a lawyer well known in the real estate industry: Steve Newsom at 281-829-2074 or email: [email protected]

Here is an article about him: http://businessinnovatorsmagazine.com/steve-newsom-houston-real-estate-attorney/

Originally posted by @Sohrab Khosravi :

@Juan Perez

Smallbiz.com will be a good place to start.

hop this help.good luck

Thank you I appreciated will check it out 

Yes, I believe he does for a monthly fee. As you'll find any lawyer will charge. Call him and explain what you want and I'm sure he'll give you a price. I'm pretty sure he doesn't charge for consultation. 

Originally posted by @Christine Baldwin :

We are using a lawyer well known in the real estate industry: Steve Newsom at 281-829-2074 or email: [email protected]

Here is an article about him: http://businessinnovatorsmagazine.com/steve-newsom-houston-real-estate-attorney/

Thanks for this link.  We are looking for a Houston RE attorney.  I had heard about Steve Newsome.  The interview really shows his knowledge.

If you are the only member there is no need for a lawyer. Go to the Texas Secretary of State. $300 filing fee. 

Originally posted by @Cory Boren :

If you are the only member there is no need for a lawyer. Go to the Texas Secretary of State. $300 filing fee. 

 That's really bad advice. The plain Secretary of State form is the bare minimum Certificate of formation. I would argue that if you're the only member it's even more important that your documents are rock solid. 

@Juan Perez first, welcome to BP :-)

You can use a lawyer to do that and you can also use self-services such as LegalZoom.com to do that.

If you decide to go with the self-service option I'd highly recommend to start with reading a little more about the different legal entities, understand what kind of protection each offer and what is the pros/cons of each and then decide what is right for YOUR situation.

A good podcast to listen to about assets protection is show 109: http://www.biggerpockets.com/show109

There is also a link to a document prepared by the lawyer to summarize what was discussed in the podcast.

Good luck! 

Originally posted by @Juan Perez :

Just a little lost on how to form a sole proprietorship LLC in Texas, wondering if someone knows the cost and some basic knowledge on how to start with this? New at investing and everyday seems I find something new and a new question, I'm really trying to make my first purchase or wholesale as cautious as possible

 You should absolutely use a lawyer. Non lawyers and DIYers frequently form the entity but do a poor job from an asset protection standpoint, which sort of defeats the purpose of having the entity in the first place. If t's not formed correctly you lose many available limitations of liability. In fact, if you're operating "bareback" with only a certificate of formation, you may have no liability protection at all. 

Ask around and get some referrals for lawyer names and prices. A lawyer formed single member non-series LLC should be a little above or below $1000 out the door with filing fees already included in that price.

Best insurance rates in Texas on Home, Auto, and commercial needs.  [email protected]

You can form your LLC yourself. The fee is minimal or you can have a lawyer do it for you. I had a lawyer do it for me and I think we paid $500.

Originally posted by @James Miller :
Originally posted by @Cory Boren:

If you are the only member there is no need for a lawyer. Go to the Texas Secretary of State. $300 filing fee. 

 That's really bad advice. The plain Secretary of State form is the bare minimum Certificate of formation. I would argue that if you're the only member it's even more important that your documents are rock solid. 

 Of course a lawyer will tell you that you need a lawyer.  Rock solid docs so if you have a dispute between yourself you can refer back to your articles of formation.  I think it's bad advise to assume people are incapable of doing such a simple task. 

Originally posted by @Cory Boren :
Originally posted by @James Miller:
Originally posted by @Cory Boren:

If you are the only member there is no need for a lawyer. Go to the Texas Secretary of State. $300 filing fee. 

 That's really bad advice. The plain Secretary of State form is the bare minimum Certificate of formation. I would argue that if you're the only member it's even more important that your documents are rock solid. 

 Of course a lawyer will tell you that you need a lawyer.  Rock solid docs so if you have a dispute between yourself you can refer back to your articles of formation.  I think it's bad advise to assume people are incapable of doing such a simple task. 

Texas doesn't use articles of formation for LLCs. And the state supplied certificate of formation does not limit any liability, so no, you're incorrect. Here's the form that most non-lawyers and inexperienced lawyers use: 

http://www.sos.state.tx.us/corp/forms/205_boc.pdf

There's no limitation of liability contained in it. If this is all you have in your certificate, and you have a non-lawyer Company Agreement (or no Agreement), you may have no liability protection. If a good lawyer uses that form, he attaches a  detailed addendum to it with additional provisions.

I will make more money defending a DIY or non-lawyer LLC from a lawsuit than a properly formed LLC by an experienced LLC lawyer, because they don't focus on the asset protection tricks of the trade, and they typically do the bare minimum to get the Secretary of State to say "Voila, here's your LLC". That's not good enough for a capital intensive business such as real estate. Same with CPAs that form LLCs (which is arguably unlicensed practice of law). They tend to focus on the tax side of the entity, and disregard or diminish the liability side of the entity. CPAs should make tax decisions / elections, but a lawyer should be forming the entity.

Further, the state form doesn't allow for a Series LLC formation in its present state. If you're in real estate, you almost certainly want a Series LLC.

Sure, a lawyer is going to recommend a lawyer to form an LLC. Same as a Doctor is going to recommend a Doctor for performing heart surgery. Forming a strong entity structure to protect thousands to millions of dollars is part of doing business in a smart, low risk high reward manner. Anything else is like having sex with a prostitute without a condom; you're going bareback and you just might catch something.

Everyone should go look at their LLC's certificate of formation. I'm willing to bet Mr. Boren's Certificate of Formation is the bare bones state form with no customized language.

Lay persons should be careful about thinking of the law in black and white; rarely is anything black and white. It's a continuous shade of gray, and the correct legal answer 99% of the time is "it depends". Therefore, if you don't have the legal training to understand, evaluate, and make decisions based on "it depends", you need to be using a lawyer. Do you "have" to use a lawyer? No. "Should" you use a lawyer? Yes.

wow a lot of great information, talked to small local lawyer and this is her response

To form an LLC in the state of Texas, sole proprietor or multiple member, you need only to complete the application online with the Secretary of State. If you wish me to complete the application for you we charge $408. $308 is the application fee to the Secretary of State and $100 is my fee to prepare and file it for you. I do not have to serve as registered agent, you may register yourself or any other person as your agent. It does not have to be an attorney. There are no other legal proceedings which need to take place aside from preparing proper corporate documents to protect your LLC status.

I advise you to consult your certified public accountant regarding the tax implications of forming an LLC.

If you add further members to your LLC, you simply change your members by amendment with the Secretary of State. You can keep the same LLC unless you feel that the partnership with you and the new members will be conducting significantly different business than the purpose for which you set up the original LLC.

If you wish me to prepare the remaining corporate documents such as partnership/operating agreement, minutes of the board or any other corporate documents, I can prepare those for you and I price them based on the type of partnership/corporation you are forming.

@James Miller

If you have a large net worth spend the money and make sure you are protected. Better yet, get a trust attorney to seperate each property in individual land trusts. If you plan to wholesale and purchase a few rental properties, an individual is more than capable of forming it themselves. Forming a sole member LLC is more like putting a band aid on a cut not heart surgery. I feel it is unprofessional to specifically bash someone else's comment or talk about prostitution on an open forum such as this.

Originally posted by @Cory Boren :

@James Miller

If you have a large net worth spend the money and make sure you are protected. Better yet, get a trust attorney to seperate each property in individual land trusts. If you plan to wholesale and purchase a few rental properties, an individual is more than capable of forming it themselves. Forming a sole member LLC is more like putting a band aid on a cut not heart surgery. I feel it is unprofessional to specifically bash someone else's comment or talk about prostitution on an open forum such as this.

I'm sorry if I hurt your feelings; I didn't intend any bashing. I was just making my point that there is a generally held misconception among lay persons, and many lawyers even, that forming an entity properly is this simple endeavor that anyone can do. I take asset protection very seriously.

On the prostitution issue, I feel that taking asset protection seriously is as important to a REI as avoiding contracting a deadly disease. REIs should make low risk high reward choices, or high risk higher reward choices. Not the other way around. I had no intention to offend and assumed that we were adults here. I'm sorry if that offended you.

That being said, I still stand by my point that the default certificate of formation as supplied by the secretary of state is nothing more than the bare bones minimum you can do when forming an LLC. Sure, anyone can fill out the bare minimum form. But they don't realize that they're not getting the protection they could have if they used a good lawyer. And, they find this out the first time they're sued.

FYI: Trusts in and of themselves don't have any liability shield, especially if they are self settled. Trusts are more useful for anonymity than liability protection (excluding spendthrift protections). The trustee will still be personally liable for their actions and an LLC can't be the trustee.

Land trusts have several possible objectives, typically to simulate a lease-option in TX (lease options are effectively dead in TX since early 2000s), to avoid due-on-sale issues of a subject-to transaction, or to provide anonymity to the owner. Liability protection isn't typically the goal and is usually not even possible with a trust with respect to the settlor.

You also don't want to mix wholesaling and rental properties in the same entity for tax reasons.

Do you have any case law that you can share with us that says that having a LLC protected somebody assets other than having a really high umbrella policy?

Hi:

Disclosure: I am not an attorney. 

I just attended a 2 day seminar on this subject and I agree in different ways with both @Cory Boren and @James Miller . I just had a conversation today with a friend who has high net worth. Her CPA formed her single member LLC with the state. Apparently, she has no operating agreement in place. My understanding is that one of the key reasons for intiating an LLC (as opposed to a sole proprietorship) is to provide asset protection to the member so that a judgement cannot be attached personally. You have to dot your I's and cross your T's on the paperwork to get proper asset protection. Formimg it, paying your yearly fee and ignoring the requirements will put you at potential risk.

In the case of my friend, if she is sued, with no operating agreement in place there is the possibliity that a judge could rule that the LLC was invalid and that "the veil could be pierced", thus she could end up with a judgment against her personally.

If you are a newbie and have no assets, I agree there may be little risk as there are no assets to attach. But if you  go down this road and become more successful without becoming educated, there could be negative ramifications in the future. Best to have a complete understanding which hopefully you will get from all of us posters! 

Best of luck!

Originally posted by @Chris D. :

Hi:

Disclosure: I am not an attorney. 

I just attended a 2 day seminar on this subject and I agree in different ways with both @Cory Boren and @James Miller. I just had a conversation today with a friend who has high net worth. Her CPA formed her single member LLC with the state. Apparently, she has no operating agreement in place. My understanding is that one of the key reasons for intiating an LLC (as opposed to a sole proprietorship) is to provide asset protection to the member so that a judgement cannot be attached personally. You have to dot your I's and cross your T's on the paperwork to get proper asset protection. Formimg it, paying your yearly fee and ignoring the requirements will put you at potential risk.

In the case of my friend, if she is sued, with no operating agreement in place there is the possibliity that a judge could rule that the LLC was invalid and that "the veil could be pierced", thus she could end up with a judgment against her personally.

If you are a newbie and have no assets, I agree there may be little risk as there are no assets to attach. But if you  go down this road and become more successful without becoming educated, there could be negative ramifications in the future. Best to have a complete understanding which hopefully you will get from all of us posters! 

Best of luck!

 At least in TX, you're exactly right that having no good operating agreement in place + a bare-bones Certificate of Formation may mean there's no liability protection. 

But, I disagree about the newbie not needing protection. A judgment against you personally can be for much larger than your assets, and at least in TX, lasts for an initial period of 10 years and can be renewed for another 10 years. 

What's at risk when you operate a RE business is not just the value of the business plus the value of your personal assets: it's your credit score and your ability to buy a home / car for 20 years, or you go the bankruptcy route. Wouldn't you rather file bankruptcy on your LLC instead of your person?

Originally posted by @Yoochul C. :

Do you have any case law that you can share with us that says that having a LLC protected somebody assets other than having a really high umbrella policy?

 Last one I was reading lately was Shook v Walden, a Texas third court of appeals case. Probably not applicable to your situation. But, there are hundreds if not thousands of cases about LLCs protecting Members. High Umbrella policies may actually encourage litigation against you (the Plaintiff's lawyer knows someone will be paying), OR your high umbrella policy may not cover your issue. You'd probably be amazed at the things insurance polices won't / don't cover. 

@James Miller Well counselor, you have just made your case as far as I am concerned. You have proven your argument. Case closed for me. Great response!

Welcome to BP.

I have an Illinois series LLC. It cost me $1000 to get one plus $800 to file, etc thru a real estate attorney. I strongly recommend using an attorney because LLC's primary usage is protection and you need good one.

Spend some money up front and you will be fine in the long run. Of course I am strictly talking for Illinois. Don't know Texas laws.

Hope it helps.

well as I don't have the money to pay an attorney upfront, I will form an LLC, do some whole selling and then get the necessary protection needed, I believe its the best route for me and my situation, now comes the hard part a name lol, since an LLC can be used in other types of business, I just want a name that is not directed towards home investing but rather something in general

Originally posted by @Juan Perez :

well as I don't have the money to pay an attorney upfront, I will form an LLC, do some whole selling and then get the necessary protection needed, I believe its the best route for me and my situation, now comes the hard part a name lol, since an LLC can be used in other types of business, I just want a name that is not directed towards home investing but rather something in general

If you aren't going to do it in a way to actually provide protection why bother spending the money on the LLC in the first place? What benefit are you receiving?

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