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The short answer is “Yes,” and you can use forms on the Secretary of State website to do so. But the smart answer is “You should think twice about doing so.”
There are many pitfalls for the unwary entrepreneur. The forms that the Secretary of State provides can be deceptively simple. In example, when forming a limited liability company, you are given a choice between “member managed” and “manager managed” entity. If you do not understand the effect of choosing one over the other, you may regret it later . . . usually when there is a major disagreement as to a course of action or actions already taken.
Additionally, formation is not necessarily over once documents are filed with the Secretary of State. If you form a corporation, you will need bylaws. If you’ve formed an LLC, then you'll need a company agreement. And, you will also need to hold an organizational meeting and draft minutes authorizing the formation of the company, the adoption of the formation documents, and the powers vested in the officers / managers to do such things as open bank accounts, etc. Of course, you can operate without all of these items. But not having them puts your company under the default operating provisions of the Business & Commerce Code, some of which you may not agree with, and you’ll wish you had as many formalities as you can find if anyone suing you ever tries to pierce the corporate veil (i.e. disregard the entity and get to your personal assets).
Congratulations—you’re in business and operating as either a sole-proprietorship (one owner) or a general partnership (more than one owner). The good news is that you’re in business, the bad news is, you have no personal liability protection . . . if something goes wrong and the business is found to be at fault, your personal assets can be used to satisfy the wrong. No need to panic, you just need to transform the business into an entity-form offering better liability protection such as a limited liability company, limited partnership, or corporation.
It’s important to pick an available name before you get too far down the formation path. It can be expensive if you choose a name, print marketing materials, invest in website development, and begin pre-launch advertising only to find out that someone else is using the name (or worse, has it legally protected by a trademark or servicemark) or that you can’t register it because it is deceptively similar to another name already in use.
Keep in mind that forming a company with the Secretary of State does not give you trademark or servicemark protection, these are separate and distinct processes with separate and distinct benefits and costs.
Texas has many rules governing the name under which you can register your business or preferred assumed name(s). All of the rules are interpreted and analyzed together when the Secretary of State’s Office determines whether to allow registration or not. In example, similar names can be OK, but deceptively similar names are not. And, you may need to obtain permission from any registered entity using a similar name before the Secretary of State will register your desired name. The rules can be confusing and its best that you do at least a rudimentary search in Texas and at the national level, before selecting your name. At a minimum, places to check are business registrations in the states in which you plan to operate, trademark/servicemark registrations in the states in which you plan to operate, the US Patent & Trademark database, and domain registrations.
HINT: Don’t just rely on a website search, someone could own the domain but not have a site registered “live” under it.
As with formation, you can certainly engage in self-help, but a business attorney can help you efficiently move through this process and recognize potential issues sooner rather than later.
An “Organizer” is typically the person that registers the entity with the Secretary of State. It can be an owner, attorney, or accountant but can be anyone that takes any action on the entity’s behalf before it is formed. Organizers need to take care that they do not inadvertently create personal liability when taking actions before the entity is actually formed.
HINT: An entity cannot enter into contracts until it is formed, so if you enter into any contracts on behalf of an unformed entity, you will likely be held personally liable for those contracts.
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The Law Office of Constance K. Hall, PLLC
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