Sign Texas Profit Sharing Agreement Template Easy

Digital signature amendment to llc operating agreement

hi my name is rick fair i'm a business organizations attorney with the fair law group based out of waco texas today i want to talk about a common issue i hear people forming llcs talk about and it's how to go about filling out the texas llc application or as attorneys typically call it the form 205. there's a lot of misconceptions about what goes in the form what shouldn't go in the form how exactly you file it and today i want to spend some time talking about that and hopefully get some of those questions answered so if you're looking for the form the first place you go is sos.state.tx.us this is the texas secretary of state's website and if you look down here there is under sos direct under popular links you see find a form so let's click on that and then you get here and there's a bunch of stuff here but it's pretty easy the stuff we're looking for the form 205 is right here under business services forms so click business nonprofit entity and now you've got a ton of forms again so let's take a look at the one we need uh form 205 this is a certificate of formation for a limited liability company this is what we need if we're going to form a llc in the state of texas so let's click pdf and it automatically brings you this is all the information about the forum and then here's the form itself well i've got some examples i'm going to talk about and kind of walk through the form so let's um look at some of these examples you can see over here i've got four different examples i'm going to cover and they're gonna deal with various scenarios uh that you would commonly see when forming a llc in the state of texas so let's start with number one this is a fairly common scenario uh where you have say two brothers and they're deciding to start a business together and what we're looking at here is a member manager management structure that uh i'll get into talking about that in a second so first off we're going to take this first examples go slowly through it so you can understand what the forum is article one entity name and type so we're filing llc we've got to find a name that works for the llc and if you watched a previous video i've done on this i've talked about some of the things the texas secretary of state looks for uh when essentially denying a name and i'll be posting a couple more about that our previous example we used in the last video was we were looking for something we could register with abc plumbing well the name we can came up with was abc plumbing services llc so see the llc at the end right here you have to either use this the words limited liability company limited company or this abbreviation llc right here this has to be in the name over the years i've seen a lot of odd permutations with this i saw one llc where they had a three-word name and llc ended up in the middle between the second and third word uh wouldn't recommend that it's kind of confusing but the texas secretary of state really doesn't have any guidance on where exactly in the name that the designator llc limited liability company or limited company goes but you have to have it in there somewhere so there's not much else to talk about that other than that and you can watch the previous video i've done talking about choosing a name and i'll have probably one or two more on that specific subject alone article two is an area that our office gets a ton of questions about this and so i'm not going to spend a lot of time on this because i want to do a separate video just talking about the purpose of the registered agent but let's just get a couple things across about it first if you're forming a llc in the state of texas you have to have a registered agent there there's no option to this you you don't have an option the secretary of state can terminate your llc if you do not have a registered agent full stop they do it all the time so who is a registered agent well you can hire some companies out there if you do a google search for texas registered agent you'll find companies charging from 39.95 all the way to a couple hundred dollars to do this service well real quick a registered agent all they do is accept documents from the state of texas say the the comptroller or the secretary of state and if you ever unfortunately find yourself in a situation where you get sued the registered agent will receive the service of process the documents for the lawsuit um so you can have an organization be a registered agent but you can also have an individual resident of the state be a registered agent and this could be a member of the company now before we move on to talking about the individual residents one last thing about organization you cannot have your llc that you are forming be the registered agent itself so like abc plumbing services here you couldn't go in on a check a and write abc plumbing services put an address there that doesn't work the secretary of state will deny that but you can if you're a member of the llc or manager of the llc you can be a registered agent so in my example here we have two members that are going to be in this llc you've got jim and jo uh joe smith they're both brothers well joe's decided he's going to be the registered agent and not following a great practice but it's acceptable he decided to use his home address at 9764 jeopardy lane in waco texas if anybody knows what that address is from a show back in the 1980s married with children that was al bundy's address no this address doesn't exist in waco but um i just thought that was kind of funny so joe decided he's going to be the registered agent and what this means is he's now essentially got his address even though it's al bundy's address out there on the public record some people choose to do this and that's perfectly okay if you feel your assets are protected enough and it's okay that a potential uh plant's lawyer searches up your information to figure out to how many assets you've got if you want to do that that's okay my recommendation is if you're going to be an individual member of an llc that decides to be the registered agent use a business address i i just wouldn't use my my home address it's just not a good idea but you have to have the registered office address has to be a physical address it cannot be a po box it cannot be a ups store or anything like that i've seen over the years a lot of clients try to think it's okay to use i saw a ups address a number of years ago where they use sweet numbers instead of box numbers i thought that was kind of creative but the secretary of state saw right through it and denied it they they rejected the llc filing and we had to come up with a separate address for so long story short do this right don't skimp on this because it's vitally important in the texas secretary of state takes it extremely seriously every uh form 205 that gets filed with the secretary of state they check them they they'll do google search them i've talked to a couple of the screeners before and they say they do a google search and if it says ups anywhere associated with it any sort of mailbox store or anything like that they deny them just as a matter of course so don't even try that just get a registered address and if you if you don't have a business address you want to use my recommendation would be hire a registered agent there's a lot of them out there you know i don't have any particular recommendations on any one but there's a lot of choices out there here in the state of texas for that and i'm sure you can find one that'll work for you so article three governing authority this is where i see the majority of questions in the state of texas uh about how do we form our structure and management structure i mean this is a vitally important area and there's a lot of misinformation out of this this right here this section is is a video probably a 20 to 30 minute video in and of itself which i'm gonna do um but let's take our example we're going back to example one we've got joe and jim smith they've decided they want to be a member managed llc so let's just talk about these two briefly and see if this works uh for joe and jim option a is the llc will have managers and then it asks for the name and address of each initial manager this is important this will come back when we get some of these other examples option b is the llc will not have managers that's important and then the the company will be governed by its members and then we list the name and address of each member there's lots of confusion over this a ask for managers and b ask for members without really going into the structure too much i'll i'll sum it up pretty quickly if you're a single member llc basically it's just you in the llc that'll be option four well example four we'll talk about here in a couple minutes if you're the only person in the llc long story short there's not a lot you get out of using a manager structure just at all it doesn't really help asset protection there's not really much you're getting out of it so single member llc option b and the member structure typically works the best now here's another example where this works best let's say you're a husband and wife and you're wanting to form a llc and you know you share your property pretty much 50 50 like almost every married couple does and you're going to form the llc you're not going to get anything really out of using the manager structure because the community property rules here in the state of texas that affects both divorce um if you're ever sued any sort of liability there's a there's a lot of overlap with the community property rules i'm not a family law attorney but i've known enough of them to know that they say that the manager structure really doesn't give you anything as far as additional protection for a husband and wife in the same llc so husband and wife llc probably best to use b the member band structure now if you're not husband and wife and there's multiple people like two brothers they could most certainly use the management structure and there's a lot of good things that can come from that especially if you've got a case where let's say let's take joe and jim let's say joe's got a lot of debt yeah he's getting in the llc he's got a little bit of money but he's got a lot of debt he gets behind on some of that debt and he gets sued for say thirty thousand dollar credit card he's got there's a good potential that if the credit card company sues them gets a judgment against them which most of the time in credit card cases they tend to intend to do what can happen is they can try to execute a judgment and take possession of some of his membership interest in the company the manager structure helps add a layer between the economic rights and the management rights of the company that that's a very important distinction that i'll talk about in a different video but long story short it goes like this with the manager structure like option a you've got a situation where you've got people could be more than one typically more than one where the managers have the management rights for the company and they can decide how things get distributed how people get paid all the way to taxing structure and the the management structure the manager management structure still has members members are still there but they only have economic rights which means they have the rights to receive distributions basically getting paid out by the company according to what the manager structure the man manager set up but in option b here uh where it's just a member managed structure the members commonly we call them managing members here in the state of texas not the same thing as a manager but they but they have both economic and management rights and the way law especially case law has moved over the past 10 to 15 years if you've got people who aren't married and say two brothers and there is an issue with one brother potentially getting sued getting divorced something like that the manager structure can give you more protection if you have an appropriate operating agreement i cannot stress that one enough a lot of people just simply think hey i filed the form 205 i paid 300 bucks i've got a llc well yeah technically according to the eyes of the state of texas you have an llc but if you're ever sued and push comes to shove and uh that plaintiff's lawyer says give me all your documents according to what you've got for your llc and all you've got is this you are going to be in some trouble so i can't stress this enough a good operating agreement can save you and i'm not talking about the the ones you see uh on i've seen some on youtube i've seen some on google and it's not to say they don't have good provisions in them but what i'm getting at is this everybody's business is different it's kind of like a marriage everybody approaches it different and especially if you get in a partnership with somebody else it kind of is marriage the reality is printing a form out on the internet just filling it out signing on the dotted line and saying well we're protected that's not the way to look at it i mean and it's i'm not here hawking off legal services i'm not trying to to go at it that way because i know we're in tough times right now coveted everything going on and i like seeing a lot of people try to start new businesses especially right now it's it's needed we need small business but at the same time i feel like it's sort of my duty as a lawyer to just be honest about the situation say there are a lot of sharks out there there's a lot of lawyers that prey on small businesses and if you don't protect yourself the right way you could lose both your business assets and your personal assets it's something called piercing the corporate veil and i'll do a video on that well i took something i said only take a couple seconds i spent a couple minutes on it yeah we're just going to move on and then we'll have some other videos about this so example one joe and jim are going to be uh a member manage structure so they selected option b right here and so what does it ask us we need uh joe and jim's name and address since they're the initial members right here governing person one there's joe's address and joe is really smart because he put a p.o box here just because the registered agent says you have to have a physical address does not mean you have to have one here it's best practice to use a po box a ups store box something like that why because my opinion i don't want people to know my physical address somebody could look it up give some more ammo to see what kind of assets i've got and sue on it governing person b so here's jim the brother he's smart too he's using the same po box and that's fine both people can use the same po box and they're good to go there so that's all we're gonna talk about in this aspect right here we're gonna move on to article four not much to see here this is pretty boilerplate and it just means that the companies formed for any lawful purpose which they can be organized under the tboc i see a lot of websites there's a fairly big one that kind of laugh at from time to time i'm not going to name names on it but they talk about put the explicit purpose of your llc in the supplemental provisions and i just don't see that as a good idea um that's just giving a plaintiff's attorney ammo to say if you deviated one iota from what you wrote here in this little box then you're not operating according to the tboc because there there's limit limiting factors if you limit the scope of what your business can do it just gives the plant's attorney more ammo to argue that you're not operating in good faith i mean that's just one small argument but most these cases where you see plants attorneys win and they pierce the corporate veil and basically fold an llc and hold the members personally liable you see a lot of aspects where it's just a couple small things and it turns into an avalanche from there so i don't think writing something in there about well my abc plumbing services is only going to do residential plumbing hey what if you get a commercial contract well now you limited yourself and then if you're doing it right you go back and you amend this thing and if you amend it you're looking at pretty much 175 right there 150 175 to amend it so i i just i don't think it's good to do that now if you want to write your purpose of what you're doing in your operating agreement by all means go ahead it's a good idea so what else is this supplemental provisions used for um in my practice i do a ton of series llc's these are llc's that real estate investors use and i'll have videos really talk about that we've have have some videos talking about the series llc on this channel but i'll i'll do some more updated ones um what we have to do with those is we put a provision that has almost five pages talking about what the series llc does it's rights limitations yada yada all that stuff i also put provisions sometimes for creditor recourse citing some of that stuff and and limiting factors or limitations on on transactions if you've got especially multiple members in llc and that's kind of getting to the weeds but for most intents and purposes if you're a single member llc i don't think there's really much you need to put here in that section so next organizer what is the organizer this is basically the person that is filling out this form and once again this is another place to put an address and you can absolutely put a po box here so joe decided he's going to be the organizer on this llc and so he put his po box good job there and this next one there's a lot of confusion over this but there's really not much to spell here it's pretty simple a says this document becomes effective when the document is filed by the secretary of state okay so what this means is and this is the box you typically check you send your 300 along with a duplicate copy of form 205 to the secretary of state and this is saying that as soon as the secretary of state receives your money and the document the form 205 they're going to file it they're going to put a stamp on there and they're going to send you a certificate of filing back saying this llc is formed so that's a common option option b i use a lot especially at the the end of the fiscal year i usually around this time of year i see a lull in llc's not a lot of people are are filing them this time of year but there's usually a push in december to because they want their llc to start on the beginning of a new year um have a lot of clients that do that and so option b is the best example because it takes a little bit to set this up and set up all the other documents so you'll have clients coming in december and they'll say hey just make it effective january 1st well that's what we would use option b for right here and it basically says that yeah we're going to send you mr secretary of state we're going to send you the documents right now but we want you to make it effective and essentially officially open the llc and send the certificate of filing on whatever date i write right here so in the case of what a lot of my clients do we start working on the llc get all the documents written in december check b right here go ahead and file it and say it's not effective till january 1. so you're starting with a clean and fresh tax year and you don't have to worry about any last year liability uh with filing with the irs especially in partnership returns which is a ball of can of worms that you could talk probably five hours about option c here i don't recommend this one because this is fairly strange and it's not really common perhaps in the case of a merger a merger of llc but you know for the average person this you wouldn't use option c uh it basically means that the document takes effect after something in the future happens and you've got to list what the 90th day after the signing of this document is there too so by and large most people can disregard this one you're likely going to use option a and if you're at the end of a tax year fiscal year and you want to put it effective january 1st you can use being just right in january first of the next year there okay last execution the secretary of state is very very particular about making sure you we have good legible signatures um you make sure you date it make sure you type your name here and the form 205 on the secretary of state's website is a printed form with a pdf and you can type your name there make sure you give a legible signature because i've had over the years the secretary of state returned signatures that i thought were absolutely legible saying give us a legible signature so your mileage kind of varies on this but it's just best just to get a legible signature and kind of go on with life so that's the end of the form now we'll talk at the end here about how to send this in this will be a little separate section at the end so that's our first example this is joe and jim smith and what they're doing is forming a member manage remember option b here member managed llc so they're both listed here well let's look at example two if i can find it okay example two we're going to see a lot of similarities we're going to move a little quicker through these forms so what we got here abc plumbing still the same company joe is still going to be the registered agent still living in al bundy's address and now they want to use a manager manage structure once again if you're going to use the manager manage structure it is highly highly highly recommended you get a operating agreement specifically written for your llc for the purpose of outlining the rights associated with it there's a lot of agreements i see out there i one of them i broke down recently on a previous video i think i took an hour and 45 minutes on it uh was a manager managed uh operating agreement that was purported by this site to be absolutely usable in the state of texas and it had a lot of stuff that was usable for out of state and just a lot of things that didn't make sense so no at the end of an hour and 45 minutes i said no i probably wouldn't use it but if you're going to use them the manager structure make sure you've got a good operating agreement so in this case when we have we check option a here we have managers they're asking for the address of each initial manager so what do we got here here's joe again there's this po box address and there's jim and his p.o box address as in our example two they're both going to be members and managers and this is only asking for managers it's not asking for the members if you check option a so joe and jim are there once again we're not really anything to put here joe's going to be the organizer and we're going to make it effective when it's filed with the secretary of state date print and sign so that's really the only difference for option two so option three is kind of where we see a lot of questions at least i get in my office this is uh where a lot of people get confused and say well why am i not listed on here and sometimes it's a client and they elected to choose somebody as another manager well we'll see in a second first off same thing uh abc plumbing service is still the same company joe is still the registered agent we're still using managers and once again they're asking for the initial manager and example three here's what happened joe and jim decided they're going to form a company and be the members of it 50-50 but they decided in a pre-organization agreement which are highly highly highly recommended if you are going to be in a partnership uh an llc with anybody else absolutely recommend i'll talk more about that in just a second but they decided in this agreement that joe is going to be the manager well well why a lot of people think why well there's a lot of people who become members of llcs mainly because they have the funds to uh help the company get off the ground they don't really want to be involved with the day-to-day activity they want to just you know participate when they need to and let somebody else handle the day-to-day activities and that's the idea another idea why the management manager managed structure so good so in this case the two brothers decide that joe's the best person to handle the day-to-day and so joe gets listed here there's joe's address the p.o box and his name and look jim's not listed well why he's not a manager and a is asking for the managers not the members so you might be thinking well how do we know that jim's even alive and involved with this well it's in two places first the pre-organization agreement and the operating agreement the operating agreement and the pre-order agreement are where you list the members this is where you write that out this is where you spell out the rights of each person how much money they're going to contribute to the company and how much percentage they get the state of texas right here is not asking for the members they're only asking for the managers so real briefly before we move on i want to talk a little bit more about that pre-organization agreement so let's say you are forming a partnership uh an llc with a couple of your friends well a pre-organization agreement does this it lists out why you're forming the llc who the members are going to be how much money they're they're going to contribute all the way down to the nitty-gritty of their percentage interest if they're they're going to be on the hook to contribute more in the future and if you're doing a manager managed structure who the managers are well why is this important this is a contractual agreement before the llc is formed that says these are the rights this is what this company is going to do and this is the people involved and how much they're going to pay to be involved why is this important about every two or three weeks we end up getting a call about an llc that went south with somebody partners didn't agree and they didn't think this person was going to do this and they didn't think this guy was going to be the manager well the sad thing is when you get in that that case you really got a couple options what what do you do well one somebody buy somebody out and usually somebody's not happy in the end of it and it's kind of like a divorce there's nobody happy at the end of the door divorce typically but the other option is litigation and litigation is expensive and it costs the company money and the company's doing well all it does is really drag down the company so those pre-organization agreements are very very very important if there's multiple people in the llc um i have not seen really good ones out there on the internet big surprise there but that's one thing our company drafts and hey you know if you've got the form 205 taken care of and you just need a pre-order agreement or an operating agreement give us a call we'd be happy to help out we we do uh micro services like that just to help out small business as much as possible um so moving on what we've got here is just joe listed once again joe's the only person listed because as an example three right here he's the only manager and nothing really to add or change here the organizer still joe and it's going to be filed effective when it's filed with a secretary of state date type and sign so that's example three and our last example is typically what you'd see i get a lot of questions about about this for uh how do we do is see a single member llc well this is it abc plumbing services joe's decided he's gonna be the registered agent he's the only guy involved in the company so there we go and there's the address and in this one single member like we said the beginning of the video is probably better just to be member managed so managed by the members and just joe lists his information address there and it's pretty much the same all the way down the rest of it so not really much difference there except just listing one person just to kind of tie all this up we'll do some other videos talking about more in depth on specific aspects especially the idea here about um governing authority then and the registered agent but now you might be wondering how do i file this thing well there's a couple options option one is you get on this website right here texas when you go the secretary of state's website sos direct we call it texas sos direct click there you enter the site and uh if you've created an account you just enter your stuff and go forward they'll ask you for a credit card you go forward there you have to make a request for an sos direct account it's not automatic they don't make one just in five seconds at least when i got mine a number of years ago uh it took a couple days to get so if you're thinking uh at least from my understanding how they're doing it right now you're just gonna go click here request an account and and have everything work well it it generally takes a couple days um now they're saying 15 minutes process your request um they're doing it that quick that's awesome i'm glad they've sped this up that's that's a good thing but what they'll ask you for and i'll talk about this specific aspect of how to submit this in a different video it's really not any different than the form they're just asking for the form just on forms on on a web page and that's the only difference there um so there's a couple other options and the question i get the most is what is the cheapest way to file this well snail mill yeah you write texas secretary of state use the po box here and submit in duplicate so this form 205 needs to be submitted twice print it out twice and put it in there and send it off to that address right there along with a check for 300 bucks and it might be the cheapest way to do it but it's generally the slowest you're talking a couple weeks to get it back fax is not much better and i'll probably get on my soapbox here for a second say i've had a lot of issues with the secretary of state with faxing uh one notable case is uh when we did a termination for an llc and they try to mistakenly terminate another company yeah these things happen and people sometimes don't fax things in the right order they should be and that's what led to this confusion and it took a lot to work it out we've had some where we fact stuff and they never filed it um so my opinion is this either send it by mail or file it online that's your your two best options send it by mail or file it online i just don't recommend faxing it's it's a world of trouble and there's a better option now because the secretary of state has if you went ahead and you added this um sos direct account made one there's a new option called sos upload this is pretty new but you've still gotta have an account but what you can do on this is say take your form 205 right here say joe wants to form his uh llc and he can take the pdf he filled out of his form 205 put a credit card in there and just upload the pdf i've been using that a lot more and uh the response time generally has been about two to three days i've had one that took four but uh by and large it's been two to three days and that's about the same if you just go on here and use their form on sos direct it's about two to three days so i really like sos upload i think it's a great new addition they've got here and i've been using a lot so just one important thing to note is if you do use a credit card they are going to charge you a nominal fee for a processing fee and it's generally eight dollars and 10 cents so it'll be 308 10. that's going to be the same if you uh use fax or you use sos direct by going here or sos upload one last thing to talk about with fax even though i've kind of dogged on facts if you still want to go that route and you still feel comfortable doing it a lot of people do is you're going to need this form right here with it a lot of people forget this and this is why a lot of people never hear back from the secretary of state you didn't submit this form this is called form 807 if you type in form 807 texas form 807 on google you'll pop up with this this is the payment form so you got two options here at the top regular handling means they're probably going to take a couple probably about a week to maybe two weeks the most expedited handling they usually get it back in two to three sometimes four business days but you've got to pay them an extra 25 dollars if you want to do it this way 25 so when we're talking about what is the cheapest way to file your llc it's not by fax fax has the potential to be the most expensive along with sos upload if you check expedited on there too generally 308 10 is going to be everything you pay with credit card processing fees but if you want to go ahead and do expedite to do things by fax well you can do it this way and pay a little bit extra money so what do you need to do you got to put your information here who you are submitting it be sure to put an email because they they generally will send um an acknowledgement back to the email and a lot of times they'll i'd say most of the time they'll send you electronically filed copies via email so what do you do here you're going to list the name of your company you're wanting to form right here and you're not going to have to put anything for file number because they haven't given you one yet you only get that after they file the llc and what type of document is it's called a certificate of formation and then you just list how many pages you're faxing so what do you do here you put in all your credit card information which in this day and age honestly scares the hell out of me i i don't like giving my card number expiration and cvv all on there i mean they can charge if this gets in the wrong hands and you know i i trust the secretary of state's destroying these after they file them but i would just be very very very certain you send it to the right fax number or they may be getting all your credit card information so another reason i don't like fax but you'd have to fill out all this information right here sign it and then the return to generally we click same as submitter and that means they'll send it back they'll give an acknowledgement and the electronic copies to this email right here um if you have a different address different email address you want to send it change the return to so that's really it right there if you want to fax it what you'll do is you'll form uh you'll fill out form 205 which we've been talking about form 807 put those two together fax them off uh to the secretary of state make sure you use the right fax number and just to reiterate it one more time and then we'll be closing this video is other option is snail mail send it along with a check for 300 to that po box right there and remember to send in duplicate send form 205 twice print two copies we just talked about facts and then the last one is sos direct or sos upload i'll be doing separate videos about that if you want to watch that there'll be another video on that talking about exactly where you go in your sos account to to do all that that good stuff so i appreciate your time today and if you got any questions at all about forming an llc um series llc or just any sort of business award questions feel free to give us a call our information is below and hope you have a good day