A Texas limited liability company (LLC) is owned by members and managed by members, managers, or both. A Texas LLC can have one member or more than one member. This article describes Texas law. LLC’s formed in other states may be subject to slightly different rules and filing requirements.
The Certificate of Formation filed with the Texas Secretary of State lists the initial members, but this document does not show what percentage of the company each member owns.
The LLC operating agreement is not filed with the Secretary of State and this document shows the percentage of ownership of each manager. This document can also be called the company agreement or company regulations and is not required by Texas. If there is no operating agreement, then Tex. Bus. Org. Act Sec. 101.201 says “The profits and losses of a limited liability company shall be allocated to each member of the company on the basis of the agreed value of the contributions made by each member, as stated in the company’s records required under Section 101.501.”
The Texas Secretary of State does not maintain any information on the ownership of a LLC other than information on the initial members of a member-managed LLC as shown in the Certificate of Formation. The office does maintain records of an entity’s registered agent and registered office address.
According to the Texas Secretary of State website:
Members of LLCs may assign the member’s ownership interest in accordance with the LLC’s governing statute (Texas Business Organizations Code, Chapter 101, Subchapter C) and its governing documents, such as its regulations, operating agreement or company agreement. There is no filing requirement with the secretary of state when there is an ownership change. If the registered agent or office information has changed after a change in ownership, you must update that information.
https://www.sos.state.tx.us/corp/amendmentsfaqs.shtml#amend3
These documents, which are not filed with the Secretary of State, should show the percentage of ownership in a LLC:
- Operating agreement and amendments to the operating agreement (this document may be titled company agreement, company regulations, or agreement of members)
- Membership ledger or list showing members and their percentage of ownership as required by Tex. Bus. Org. Act Sec. 101.501(a)(1).
- Tax returns and Schedule K-1 – The K-1 is issued to each owner and shows the owner’s percentage ownership in the company as of that tax year. A LLC will file a form 1065 (partnership return), or a company tax return form 1120 (if form 8832 has been submitted designating that the LLC will be taxed as a corporation). For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation. So, usually a single member LLC’s income or loss would be shown on the member’s form 1040 (as schedule C, E, or F)
- Transfer documents such as a membership interest purchase agreement or an amendment to the operating agreement.
- Consent forms if the operating agreement requires existing members to consent to a transfer of membership ownership.
Texas Law allows a member of a LLC to examine and copy the certificate of formation and any amendments the company agreement and any amendments, and any tax returns. Tex. Bus. Org. Code Sec. 101.502 (c).
Statutes:
The Texas Business Organizations Code states:
Sec. 101.501. SUPPLEMENTAL RECORDS REQUIRED FOR LIMITED LIABILITY COMPANIES.
(a) In addition to the books and records required to be kept under Section 3.151, a limited liability company shall keep at its principal office in the United States, or make available to a person at its principal office in the United States not later than the fifth day after the date the person submits a written request to examine the books and records of the company under Section 3.152(a) or 101.502:
(1) a current list that states:
(A) the percentage or other interest in the limited liability company owned by each member; and
(B) if one or more classes or groups of membership interests are established in or under the certificate of formation or company agreement, the names of the members of each specified class or group;
(2) a copy of the company’s federal, state, and local tax information or income tax returns for each of the six preceding tax years;
(3) a copy of the company’s certificate of formation, including any amendments to or restatements of the certificate of formation;
(4) if the company agreement is in writing, a copy of the company agreement, including any amendments to or restatements of the company agreement;
(5) an executed copy of any powers of attorney;
(6) a copy of any document that establishes a class or group of members of the company as provided by the company agreement; and
(7) except as provided by Subsection (b), a written statement of:
(A) the amount of a cash contribution and a description and statement of the agreed value of any other contribution made or agreed to be made by each member;
(B) the dates any additional contributions are to be made by a member;
(C) any event the occurrence of which requires a member to make additional contributions;
(D) any event the occurrence of which requires the winding up of the company; and
(E) the date each member became a member of the company.
(b) A limited liability company is not required to keep or make available at its principal office in the United States a written statement of the information required by Subsection (a)(7) if that information is stated in a written company agreement.
(c) A limited liability company shall keep at its registered office located in this state and make available to a member of the company on reasonable request the street address of the company’s principal office in the United States in which the records required by this section and Section 3.151 are maintained or made available.
(d) All books and records required to be maintained by a limited liability company under this section may be maintained in any form and manner permitted under Section 3.151(b).
Sec. 101.502. RIGHT TO EXAMINE RECORDS.
(a) A member of a limited liability company or an assignee of a membership interest in a limited liability company, on written demand stating a proper purpose, is entitled to examine and copy at a reasonable time at the limited liability company’s principal office identified under Section 101.501(c) or another location approved by the limited liability company and the member or assignee, any records of the limited liability company, whether in written or other tangible form, which are reasonably related to and appropriate to examine and copy for that proper purpose.
(b) The examination and copying under Subsection (a) may be conducted by the member or assignee or through an agent, accountant, or attorney. An agent, accountant, or attorney who conducts an examination and copying under this section is subject to any obligations of the member or assignee with respect to the records made available for examination and copying.
(c) On written request of a member or an assignee of a membership interest, the limited liability company shall provide to the requesting member or assignee without charge copies of:
(1) the company’s certificate of formation, including any amendments to or restatements of the certificate of formation;
(2) if in writing, the company agreement, including any amendments to or restatements of the company agreement; and
(3) any tax returns described by Section 101.501(a)(2).
(d) A demand or request made by a member or assignee under Subsection (a) or (c) must be made to:
(1) the person who is designated to receive the demand or request in the company agreement at the address designated in the company agreement; or
(2) if there is no designation, a manager or managing member at the limited liability company’s principal office in the United States.
Sec. 101.503. PENALTY FOR REFUSAL TO PERMIT EXAMINATION OF CERTAIN RECORDS.
(a) A limited liability company that refuses to allow a member or an assignee of a membership interest to examine and copy, on written request that complies with Section 101.502(a), records or other information described by that section is liable to the member or assignee for any cost or expense, including attorney’s fees, incurred in enforcing the member’s or assignee’s rights under Section 101.502. The liability imposed on a limited liability company under this subsection is in addition to any other damages or remedy afforded to the member or assignee by law.
(b) It is a defense to an action brought under this section that the person suing:
(1) has improperly used information obtained through a prior examination of the records or other information of the limited liability company or any other limited liability company, under Section 101.502; or
(2) was not acting in good faith or for a proper purpose in making the person’s request for examination.
Sec. 3.151. BOOKS AND RECORDS FOR ALL FILING ENTITIES.
(a) Each filing entity shall keep:
(1) books and records of accounts;
(2) minutes of the proceedings of the owners or members or governing authority of the filing entity and committees of the owners or members or governing authority of the filing entity;
(3) a current record of the name and mailing address of each owner or member of the filing entity; and
(4) other books and records as required by the title of this code governing the entity.
(b) The books, records, minutes, and ownership or membership records of any filing entity may be:
(1) in written paper form; or
(2) maintained by or on behalf of the filing entity on, or by means of, an information storage device or method or one or more electronic data systems, provided that any books, records, minutes, and ownership or membership records so maintained can be converted into written paper form within a reasonable time.
(c) The records required by Subsection (a)(2) need not be maintained by a limited partnership or a limited liability company except to the extent required by its governing documents.
Sec. 3.152. GOVERNING PERSON’S RIGHT OF INSPECTION.
(a) A governing person of a filing entity may examine the entity’s books and records maintained under Section 3.151 and other books and records of the entity for a purpose reasonably related to the governing person’s service as a governing person.
(b) A court may require a filing entity to open the books and records of the filing entity, including the books and records maintained under Section 3.151, to permit a governing person to inspect, make copies of, or take extracts from the books and records on a showing by the governing person that:
(1) the person is a governing person of the entity;
(2) the person demanded to inspect the entity’s books and records;
(3) the person’s purpose for inspecting the entity’s books and records is reasonably related to the person’s service as a governing person; and
(4) the entity refused the person’s good faith demand to inspect the books and records.
(c) A court may award a governing person attorney’s fees and any other proper relief in a suit to require a filing entity to open its books and records under Subsection (b).
(d) This section does not apply to limited partnerships. Section 153.552 applies to limited partnerships.
Sec. 3.153. RIGHT OF EXAMINATION BY OWNER OR MEMBER. Each owner or member of a filing entity may examine the books and records of the filing entity maintained under Section 3.151 and other books and records of the filing entity to the extent provided by the governing documents of the entity and the title of this code governing the filing entity.
Sec. 3.101. GOVERNING AUTHORITY. Subject to the title of this code that governs the domestic entity and the governing documents of the domestic entity, the governing authority of a domestic entity manages and directs the business and affairs of the domestic entity.