23 Feb How to Protect Your Privacy When Forming an LLC in Texas
Drew EricksonSenior Associate
A necessary part of protecting personal assets in Texas is to form an entity (such as a limited liability company, or LLC for short) to own those assets and shield the business owner from personal liability. One common drawback to forming an LLC in Texas is that the information gets disclosed to the public record for anyone to see. There are a variety of reasons for a business owner to want to limit what information is made part of the public record, whether it be to protect their privacy, prevent harassment from third parties, or just to simplify filings so they all have the same information. This Article will explain which LLC documents are required to be disclosed and made part of the public record, how business owners can protect their privacy from these filings, and detail other LLC documents that are internal, private records and not required to be made part of the public record.
Required Filings That are Made Part of the Public Record
A Texas LLC is formed by filing a Certificate of Formation with the Texas Secretary of State and is made part of the public record. This document requires certain information be included, including the name and address of the LLC’s registered agent, the business address of the LLC, and the names and addresses of the “governing authority” of the LLC. The business owner has the choice of choosing who the “governing authority” is for the LLC, which can be either Managers (similar to a Board of Directors of a Corporation) or Members (the owners of the LLC). Any changes or amendments to the Certificate of Formation will also be made part of the public record, in addition to any Assumed Names (or DBA’s) filed, Name Reservations filed, and any other document filed with the Texas Secretary of State.
Once the Texas Secretary of State accepts the Certificate of Formation, the LLC will officially be formed. After formation, the name of the LLC, the business address, and the names and addresses of the governing authority will all be automatically sent to the Texas Comptroller and made part of the public record again. Then, each year business owners are required to file a Public Information Report with the Texas Comptroller providing the current name, address, and governing authority, as well as listing out all subsidiaries of the LLC (where the LLC owns at least 10% of the ownership interests) as well as any parent companies of the LLC (which own at least 10% of the ownership interest of the LLC). All this information will be part of the public record, but only the most current information reported.
Lastly, any documents filed by the LLC or business owner to certain other governmental agencies, such as filing a deed with the County Clerk, can be accessed by anyone and made part of the public record. However, LLC’s will also need to obtain an Employer Identification Number from the IRS (equivalent to a social security number for an individual). Note though that while you’ll be required to make this filing to the IRS, all filings made to the IRS will always be confidential and not made part of the public record.
Options to Protect Your Privacy
There are a number of ways a business owner can maintain their confidentiality when forming an LLC in Texas. First, instead of using a home address or business address for the Certificate of Formation, you can use a P.O. Box or the address of a professional you have engaged, such as an accountant or attorney. This will prevent a third party from searching the public record for the address and confirming the identity of the business owner. The same can be used for the name and address of the registered agent.
It’s also important for a business owner to choose their LLC’s governing authority to be “manager-managed” and not “member-managed”. This way the ownership of the entity is not disclosed to the Secretary of State and updated annually to the Texas Comptroller.
But even with a manager-managed LLC, the business owner will still need to disclose the Manager of the LLC in the Certificate of Formation and annually in the Public Information Report. One way to ensure confidentiality is to form a revocable or irrevocable trust to be the Manager and name the trust something that doesn’t identify the business owner (e.g., The 2023 Family Trust). Trusts and their Trust Agreements are not required to be filed with any governmental agency (but for the IRS in the event the Trust obtains an Employer Identification Number, which the IRS will maintain confidentiality on the documents it receives), and therefore will not be part of the public record.
Lastly, note that Public Information Reports require the disclosure of subsidiaries of the LLC where the LLC owns at least 10% of the ownership interests in the subsidiary, as well as any parent companies of the LLC which own at least 10% of the ownership interest of the LLC. If there are any parent companies or subsidiaries and those entities have not followed any privacy protections, it can be assumed that those parent companies share a common ownership and/or management to the LLC and therefore can be linked in the public record.
LLC Documents That are Not Disclosed to the Public Record
As a general rule, documents that are not filed with the Texas Secretary of State, Texas Comptroller, or other governmental agencies will be confidential and not part of the public record. This includes the LLC’s Operating Agreement, Minutes and Corporate Resolutions, Ownership Certificates and Ledgers, and any other agreements among the owners of the LLC. Note though in the event a business owner chooses their LLC’s governing authority to be “member-managed”, then the initial owners of the LLC will be part of the corporate record, and you’ll be required to update this information each year with the Texas Comptroller with the Public Information Report.
It should be noted though that even if a document is not filed in the public record, it can potentially be subsequently part of the public record (intentionally or unintentionally) in the event a business owner discloses a private, internal document to a third party. For example, sending the LLC’s operating agreement to a potential investor without having a Confidentiality and Non-Disclosure Agreement (also known as NDAs) signed may tacitly allow that investor to disclose it to others, which may eventually become part of the public record. It is important for any business to make sure that they have robust NDAs in place and signed before disclosing non-public and confidential information to any third parties.
Maintaining confidentiality when a business owner forms an LLC will have to be weighed by the costs and administrative work of accomplishing such confidentiality. Every business owner will have a different opinion on this based upon past experiences, priorities, and the tolerance for the administrative burden associated with maintaining confidentiality. But business owners who align themselves with experienced professionals can have the peace of mind that the goals of privacy protection will be achieved and maintained.
ABOUT THE AUTHOR: Drew Erickson is a Senior Associate at Rapp & Krock, PC in the Corporate Law and Business Transactions group.
Rapp & Krock, PC presents the information in this article for general education purposes only. Although this article discusses legal issues, it is not legal advice. The law and the content of any linked website may have changed since this article was written, and Rapp & Krock, PC makes no warranty or guarantee about the continuing accuracy of the information presented. Use of this article does not create an attorney-client relationship, and Rapp & Krock, PC does not represent you unless and until we are expressly retained in writing.
Copyright © 2023 by Rapp & Krock, PC. All rights reserved.