In Texas, the most common structure for real estate enterprises is an LLC. This is due to the ease with which a limited liability corporation (LLC) may be formed and operated.
If your real estate company is sued, an LLC is a distinct legal organization that may safeguard your personal assets (vehicle, home, money). LLCs also provide credibility and tax-saving possibilities.
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It Is Simple to Form a Real Estate LLC in Texas
In Texas, you may form a real estate LLC by filing the Certificate of Formation with the TX Secretary of State. In Texas, forming a real estate LLC costs $300.
Important: Before transferring title to a new LLC, make sure you understand your lender’s requirements if you currently own property and have a mortgage.
Step 1: Give Your Real Estate LLC a Name
The first step in organizing a real estate LLC is to choose a firm name. You must offer your company a distinct name that complies with Texas naming regulations.
When you submit your Certificate of Formation, you will formally register your name.
Choose a name that complies with Texas naming guidelines:
The word “limited liability corporation” or one of its acronyms must be in your name (LLC or L.L.C.)
Your LLC’s name cannot include terms that imply it is associated with a government entity (FBI, Treasury, State Department, etc.)
For further information, see the complete list of Texas name requirements.
Determine if the name is available in Texas. Make sure the company name you choose isn’t currently in use by doing an online LLC name search.
Examine if your company’s name is accessible as a web domain. You may choose to purchase the URL in order to prevent others from using it.
Step 2: Select a Registered Agent for your LLC.
A registered agent must be included when you submit your Certificate of Formation.
The role of a registered agent is to receive legal papers such as service of process and tax notifications on behalf of your LLC.
A person or a registered agent service might serve as the registered agent for your real estate LLC. Although you may serve as your own registered agent, many company owners choose to employ a registered agent service.
Consider the following factors when selecting a registered agent:
Availability: You must be accessible during regular business hours (Monday through Friday, 9 a.m. to 5 p.m.) at the address you indicate.
Public Documents: If you conduct your company from home, you must make your home address public.
Privacy: A lawsuit might be served on you in front of your family or workplace.
Step 3: Submit the Certificate of Formation for your LLC.
You must submit Form 205 – Certificate of Formation with the Texas Secretary of State to register your Texas LLC. This may be done in person, via mail, or online.
Consider incorporating your real estate LLC as a S Corp. As an IRS tax classification, a S corp may give certain tax advantages to your real estate firm.
Step 4: Draft an Operating Agreement for a Real Estate LLC.
An LLC operating agreement, also known as a business agreement in Texas, is a legal document that details the ownership and member responsibilities of a real estate LLC.
An operating agreement may benefit even single-member LLCs.
Your operating agreement should include the following provisions:
Responsibilities of each member
How will new members be admitted?
How may current members transfer or cancel their membership?
How will earnings and dividends be distributed?
When and how will capital calls be made?
Manager liability for errors made in good faith
Tax and reporting deadlines
Members have first right of refusal and interest transfer if the property is sold.
You may include conditions in your real estate LLC operating agreement as long as they do not violate Texas law.
Step 5: Obtain an EIN
The US Internal Revenue Service (IRS) uses an Employer Identification Number (EIN) to identify and tax firms. It’s essentially a business’s Social Security number.
Following the Formation of a Real Estate LLC
Following the formation of your real estate LLC, you must perform the following:
Establish a Business Bank Account. Personal and corporate money are legally separated via a business bank account. This separation is essential to keep your LLC’s corporate veil intact (i.e., your limited liability protection).
Transfer Existing Real Estate to Your New LLC If you already possess property that you want to transfer to your new LLC, you must register a deed reflecting this change. This may be done with or without the assistance of a title firm. To begin started, we suggest contacting a title business or your county clerk.
You should update your lease. If you are transferring existing rental property to a new LLC, your residential lease agreement must be updated to reflect the new ownership.
Fill up and submit your Texas LLC annual report. Each year, by May 15, file with the Texas Comptroller of Public Accounts. Reports do not have to be submitted the same year an LLC is created.