Question 1: Does a Texas LLC need to file a Texas Franchise tax return each year, even in years when it has no (zero) gross income?
Question 2: Will the Texas Secretary of State cause a Texas LLC to forfeit its right to conduct business in Texas if it fails to file a Texas Franchise tax return?
Question 3: Does a Texas LLC still provide asset protection when it has forfeited its right to conduct business in Texas?
Answers at the end of this blog post!
If you Google “Texas Comptroller Franchise Tax Status” the first link should be a website that eventually leads to the “Taxable Entity Search” hosted by the Texas Comptroller.
This search engine lets you search for the status of your LLC(s).
If your LLC has forfeited its right to conduct business in Texas then that LLC is NOT providing your assets any protection against creditors.
Example: Dr. Howser is concerned about being sued for malpractice. He has a rental condo in downtown Austin that he knows is subject to creditor claims if he were to be sued for malpractice.
Assume Dr. Howser deeded the rental property into the name of his LLC and has followed the LLC formalities correctly up to now.
If Dr. Howser gets sued in this case (with a valid LLC) it will be very hard for the creditor to force Dr. Howser to sell the rental condo to pay a judgement against Dr. Howser. Typically the creditor will be limited to a “charging order” which restricts the creditor to waiting for Dr. Howser to authorize LLC distributions before collecting on a judgment.
However, if Dr. Howser fails to file the Texas Franchise Tax return for his LLC then it could forfeit its right to conduct business in Texas.
If the LLC has forfeited its right to conduct business in Texas then the LLC can no longer protect Dr. Howser’s rental condo if he loses a malpractice lawsuit.
Moral of the story: make friends with your CPA and make sure your CPA has filed the Texas Franchise Tax return for all your LLCs!
If you wish to “trust but verify” then check the Texas Comptroller website and look up the status of all your LLCs!
We hope this has been helpful! If you need help setting up or revising an LLC or have questions concerning Wills, Trusts, or probate administration, please feel free to contact our firm at (512) 263-5400 or firstname.lastname@example.org
By: Christopher Ha, Staff Attorney
Board Certified in Estate Planning and Probate, Certified Financial Planner ®
Q1: Yes. A Texas LLC must file a franchise tax return each year or it risks losing its right to conduct business in Texas.
Q2: Yes. Absent an exception, failure to file a franchise tax return (along with the public information report) for a Texas LLC will result in that LLC forfeiting its right to conduct business in Texas.
Q3: No. Once a Texas LLC has forfeited its right to conduct business it no longer provides asset protection for the LLC’s assets.