Are Limited Liability Companies in Texas a Good Idea?

Is the choice of a limited liability company in which to vest real estate a good idea?

When it comes to choosing the form of company to hold a portfolio of
real estate investments there are a number of choices, and they may be
confusing without asking a knowledgeable attorney. Generally speaking,
a good choice for a company intending on vesting real estate holdings
is the limited liability company (LLC).

The major reasons someone might wish to choose a LLC are because it
tends to limit personal liability but maximize asset protection, which
is always a good thing. LLCs are a good choice to confidently organize
an investment business and there may be some nice tax benefits, one of
which is a one-time tax on member’s profits.

A business entity such as a limited liability company is considered
to be a separate legal entity that has a life of its own. It has
certain rights and duties it needs to carry out. It is responsible for
filing a tax return on its own. In other words the limited liability
company is independent, and because it is viewed that way, it needs to
be at arm’s length in terms of being properly “legal.”

In other words, the company “must” have and keep a separate
character because if it does not, the owner of the business runs the
risk of being personally liable for actions taken by the company or its
agents and workers. This is known as the legal doctrine of piercing the
corporate veil.

If the company doesn’t follow these “corporate formalities” such as
maintain all required records, pay taxes, hold meetings and have a bank
account it uses regularly, then the owners may lose the benefits and
protections the company was designed to create. In an instance such as
that, the courts could allow a creditor to go after the owners
personally and disregard the company, as it would be considered to be a
personal “alter ego” of the owners.

This is the one area where most investors go wrong when they set up
their companies. They go through the motions, but don’t really do much
else to make the company a “real” company, thus leaving the door open
for personal liability.

If a client wants to start a business in Texas, we often recommend
that they form a exas LLC because of the legal protections and benefits
it provides. However, the specific circumstances and needs of each
client are different and this is a decision that is best made in
consultation with a business attorney.

The attorney will cover other requirements that may need to be dealt
with such as filing a DBA certificate, choosing the right company name,
separating the company assets from personal assets and other issues
that may arise under the circumstances presented. Clients should also
consult with their CPA or tax attorney about the tax issues related to
the business entity they choose.

Gomez Law Group is a Dallas employment lawyer and Dallas business lawyer. To learn more, visit http://www.gomezlawyers.com.