Business Formation and Startup Counsel in Texas

Most Texas small businesses choose between a limited liability company (LLC) and a corporation. Both protect owners from most business debts when run properly. An LLC is flexible: owners set their own rules in a company agreement and can be taxed as a sole proprietorship, partnership, or, by election, an S or C corporation. A corporation has a more formal structure of shareholders, directors and officers, and is often preferred by venture investors or companies planning to issue stock options. Tax treatment, number of owners, investor plans and exit goals all matter. Talk with both your lawyer and your CPA before deciding. Kennedy Sutherland LLP helps owners choose and form the right entity.

The cost of forming a Texas LLC with a lawyer has two parts: the state filing fee for the certificate of formation, which is $300 with the Texas Secretary of State, and the lawyer's fee for advice and documents. A lawyer-prepared formation usually includes an entity-choice conversation, the certificate of formation, a company agreement tailored to the owners, an organizational consent, and guidance on the EIN and first-year filings. Multi-member LLCs cost more because the company agreement must cover each owner's rights, money and exit. Compare packages by what documents are included, not just the price. Fixed-fee packages available. Call 210.259.3885 for a quote.

A Texas LLC company agreement should cover who the members are and what each contributed; how profits, losses and cash distributions are shared; whether the company is managed by members or managers and how decisions are made; which decisions need unanimous or supermajority approval; whether and how members can transfer interests; buy-sell terms for death, disability, divorce, departure or deadlock; non-compete and confidentiality duties if any; tax matters, such as tax distributions; and how the company is dissolved. Without an agreement, the Texas Business Organizations Code supplies default rules that may not fit your business. Single-member LLCs also benefit from an agreement to support liability protection and plan for succession.

A SAFE, or Simple Agreement for Future Equity, gives an investor the right to receive shares later, usually when the company raises a priced equity round, often at a discount or subject to a valuation cap. A convertible note is a loan that converts into shares in a later round, but it also carries interest and a maturity date. Startups use these tools for early, smaller raises because they are faster and cheaper than a priced round and postpone setting a valuation. Founders should understand how caps, discounts and multiple SAFEs or notes will dilute their ownership. Both are securities, so securities law exemptions still apply. Kennedy Sutherland LLP helps startups with early financings.