The first thing many founders/entrepreneurs think of when starting a new business is, “I need an LLC.” The establishment of a Limited Liability Company (LLC) in Texas can be a strategic maneuver for entrepreneurs and businesses aiming to leverage the benefits of limited liability and operational adaptability. In fact, a quick Google search will direct you to a myriad of websites offering step-by-step instructions, as well as online service companies offering to help you start an LLC for free.
However, at a time when personal privacy is cherished more than ever, privacy is a crucial consideration when starting a business entity. While establishing a business requires some public disclosure, several strategies can be used to preserve privacy and maintain anonymity.
Information that becomes public record when forming an LLC under Texas law includes:
- The LLC’s name and registered office address (BOC §5.201);
- The name and address of the registered agent (BOC §5.201);
- Names and addresses of the LLC’s managers or governing persons (BOC §3.010); and
- The name of the “organizer” (BOC §3.063).
According to the Texas Business Organizations Code, this information is accessible to the public through the Texas Secretary of State’s office. Further, The Texas Comptroller of Public Accounts collects this information as part of its role in administering tax laws under the Texas Tax Code. Tex. Tax Code §171.001.
A handful of U.S. states do actually provide more anonymity to LLC owners than Texas. Notably, members’ and managers’ identities can generally be kept out of public filing in Delaware, Wyoming, Nevada, and New Mexico. However, as previously discussed, if your LLC is going to be “transacting business” in Texas, your foreign LLC will eventually be subject to Texas reporting requirements, regardless of the state where it was originally formed.
Per the Texas Business Organizations Code (BOC) §3.005 and 3.010, forming a Texas LLC requires filing a Certificate of Formation (COF) with the Secretary of State. This document must include the LLC’s name, the name and address of the registered agent, the LLC’s purpose, the entity’s initial mailing address, the LLC’s management structure, the LLC’s governing persons, and the name of the organizer signing the COF. Additionally, Texas LLCs must file an annual report containing the names and addresses of the managers or governing persons.
At the moment, there are a few steps a founder can take to keep identifying information out of the public record:
- Ensuring that the LLC is organized to be a “manager-managed” LLC as opposed to a “member managed” LLC
Texas LLCs have the flexibility to opt for either member-managed or manager-managed structures. A member-managed LLC offers each owner direct involvement in management, while a manager-managed LLC designates specific individuals or entities for management roles. However, if the LLC declares that it will be managed by members, the COF must state the name and address of each initial member of the LLC. (BOC §5.201). Although the form of management can easily be changed down the line, doing so will not remove the original filing from the public record (BOC §5.201). For instance, if a founder lists him or herself as the initial member of an LLC and includes a residential address in the original COF, that information will still be available online even after the LLC’s management structure is amended.
- Appointing a third-party registered agent service
Under §3.005 of the BOC, an LLC’s COF must list the registered agent’s name and address, and this information will become publicly accessible, which might raise privacy concerns if you serve as your own agent or if you list your residential address on the COF. To maintain privacy, a founder should consider appointing a professional registered agent service. These services will receive any legal correspondence on behalf of your company, keeping personal details confidential.
- Establishing a separate business entity to serve as the manager.
Founders often circumvent Texas public disclosures by listing a foreign LLC, ideally from one of the states permitting anonymity, as the LLC’s manager. However, Texas foreign registration requirements as well as recent legislation (see below) will limit this route’s effectiveness in the future.
- Signing the Texas Certificate of Formation.
Under Texas BOC §3.004, the Certificate of Formation must be completed and signed by a named individual called the “organizer.” This person can be anyone authorized by the forming members, and it’s not mandatory for them to be a member or manager of the LLC. It has been common practice for attorneys or paralegals to sign the Certificate of Formation on behalf of the members, acting as the organizer. However, with the Corporate Transparency Act (CTA)[1] becoming effective on January 1, 2024, many attorneys and law firms are no longer offering to act as “organizers” when filing Texas COFs on behalf of their clients.
Although organizers such as attorneys who sign the Certificate of Formation on behalf of the members will not be considered a beneficial owner unless they meet the “substantial control” or “ownership” criteria under the CTA, they may be considered an “applicant.” An “applicant” under the CTA is an individual who files the application to form an LLC or registers it to do business in the U.S. Therefore, any individual signing the Certificate of Formation as an organizer could potentially be considered a “company applicant” under the CTA.
Forming an LLC in Texas involves careful consideration of state laws, especially regarding privacy and anonymity. In addition, the landscape of business transparency is changing, with federal laws like the CTA likely impacting how LLCs operate. It is always recommended to consult with a knowledgeable attorney to ensure you understand these laws and regulations’ implications on your specific situation. Striking a balance between necessary public disclosure and privacy protection is crucial.
[1] https://www.ascendwithwinstead.com/2023/08/the-corporate-transparency-act-part-1-an-overview/
