Our work is reader-supported, meaning that we may earn a commission from the products and services mentioned.

2022 Guide to Starting an LLC in Texas

Texas LLC Quick Facts

Texas LLC Costs

Initial Cost:
– State LLC Filing Fee: $300

 

Recurring Cost:
– Annual Franchise Tax Report: $0

Texas LLC Processing Time

– Filing Online: 2-3 business days
– Filing by Mail: 7-10 business days

Not sure about filing an LLC yourself?

Want an LLC, but not sure about filing the paperwork yourself? Let Zenbusiness, IncFile, or IncAuthority help guide you through the LLC formation process, so you know everything was done right.

IncFile and IncAuthority are both currently running a special where you only pay state fees for your LLC formation!

Overview

Guide to Starting an LLC in Texas

If you are looking to start a business in Texas, you may be wondering about the process of forming a Limited Liability Company (LLC). An LLC is a type of business structure that provides limited liability protection for its owners. This means that if the business is sued, the owner’s personal assets are protected.

LLCs are popular among small businesses and startups because they are relatively easy to establish and offer flexibility in terms of management and ownership structure. For example, unlike corporations, LLCs are not required to have a board of directors or hold annual meetings. Additionally, LLCs can be owned by a single individual, making them ideal for sole proprietorships. While there are some disadvantages to operating as an LLC—such as the higher costs associated with filing fees and professional services—the overall benefits make it an attractive option for many businesses.

Related: Guide to starting a business in Texas

Steps to Form a Texas LLC

While it can be intimidating to form an LLC for the first time, with a little research and patience, you can learn how to form an LLC in Texas without an attorney.

Let’s break down the steps to complete the Texas LLC formation process.

Total Time: 10 minutes

Step 1: Choose a Name for the LLC

The first step in forming a Texas Limited Liability Company is to make sure the name you want is available.  

It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Texas. The Texas Secretary of State makes it easy to search and verify if your LLC name is available.  Here is more information on how to do a Texas LLC name search.

In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Company
– L.L.C.
– LLC
– L.C.
– LC

A comma may be used after the business name and before the designator.  “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.

Other naming guidelines include restrictions on using terms such as insurance, bail bonds, surety, bank, trust, engineer, architect, interior design, college, university, veteran, Olympic, and others unless the business is registered with the state to provide those services.

Last, the name can’t imply that the entity is affiliated with a governmental entity unless it is affiliated.

If you plan to use a different name from the legal name that you register (perhaps you want to run multiple businesses under the LLC), you can use an assumed name (sometimes referred to as a fictitious business name, trade name, DBA, or Doing Business As name).  To register the name, file an Assumed Name Certificate with the county clerk in the county where the LLC is located.

If there is an LLC name you want, but you are not ready to register the LLC, you can file the Name Reservation Form (Form 501). The name reservation filing fee is $40 and will hold a name for up to 120 days.

Before settling on an LLC name, you may want to do a domain name search to match your business name.

Step 2: Appoint a Texas Registered Agent

Every LLC in Texas is required to have a Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.

The basic requirements to be a Registered Agent in Texas include:
– The agent must be a Texas resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.

Learn more about the requirements for a Registered Agent in Texas

Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed.  Hiring a company like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.

Step 3: File the Texas Certificate of Formation

The paperwork to officially create an LLC in Texas is called the Certificate of Formation (called the Articles of Organization in many states). To submit the paperwork, either file online through SOSDirect, which is the Secretary of State’s website to file online, or download the Texas LLC Certificate of Formation (Form 205).

Related: How to fill out the Texas Certificate of Formation

When filling out the Certificate of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.

Governing Authority – This article asks if the LLC is Member-Managed or Manager-Managed.
– Manager-Managed LLCs are hired by the members to run the LLC, similar to a CEO of a corporation.  This is generally used when there are passive members in the LLC, and the members do not actively manage or operate in the affairs of the business.
– Member-Managed LLCs have an active involvement in the management and have the authority to act on behalf of the LLC.

Most LLCs are member-managed.

Related: What is the Difference Between a Member-Managed LLC and Manager-Managed LLC?

Purpose – This article asks for some basic information about what the business does.  Sticking with the standard language, “The purpose for which the company is formed is for the transaction of any and all lawful purposes for which a limited liability company may be organized under the Texas Business Organizations Code.” keeps the business purpose open-ended and allows an LLC to operate in any type of business as long as it is legal.

Related: How to Answer the Business Purpose Statement.

Organizer Information – An LLC Organizer is someone involved with the formation of the Certificate of Formation.  The Organizer may or may not become an LLC member, such as a mentor, attorney, or accountant, but any of the LLC members can be listed as an organizer.

Effective Date – This is an optional section if you want the LLC to start on a later date, up to 90 days in the future.  The main reason for delaying the LLC start date is when the filing is made close to the end of a calendar year, and the business isn’t going to have any activity until the start of the year.  By delaying, you can eliminate the need to file a partial-year business tax return by delaying the start date until the following year.

Estimated Cost: 300 USD

Consider using an LLC formation service like Zenbusiness, IncAuthority, Northwest, or IncFile to guide you through the LLC formation process, so you know everything was done right.

IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!

You have a Texas LLC! Now what??

Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.

Prepare a Texas LLC Operating Agreement

The operating agreement is a document that governs the framework of an LLC.  This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.

Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:

  • The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
  • Member’s personal liability protection may be diminished.
  • Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.

Related: Texas operating agreement template

Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number or FEIN) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.

There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

Related: How to Apply for an EIN

Elect the LLC’s Form of Federal Income Taxation

One of the significant benefits of the Limited Liability Company is the tax flexibility it provides.  When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:

  • Sole proprietorship
  • Partnership
  • C-corporation
  • S-corporation

While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.

Related: How can an LLC be taxed?

By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.

In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership.  As a result, the owner will pay self-employment taxes on all business profits.  As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes.  Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.

Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.

Open an LLC Bank Account

Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.

Several documents will be needed to open a business bank account, such as:

  • A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
  • Copies of the original LLC formation paperwork from the state showing the creation of the LLC.
  • Driver’s licenses of the members.
  • Occasionally, the bank will request a Texas Certificate of Good Standing to prove the LLC is active and in good standing with the state.

Related: How to Open a Business Bank Account for your LLC

Apply for Business Licenses and Permits

Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting the business. Some common registrations include:

  • Business License – Some cities require businesses to obtain licensing before they can start.
  • Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
  • Sales Tax Permit – In order to sell products and certain services and collect sales tax, registration with the Texas Department of Comptroller will be necessary.

Related: What Business Licenses are Needed in Texas?

File the Annual Public Information Report

LLCs are required to file a public information report with the Texas Comptroller each year.

File the Annual Franchise Tax Report

All LLCs will need to file the Texas Franchise Tax Report by May 15th each year. The Texas franchise tax isn’t a tax on a franchised business such as McDonald’s. Rather it is a tax on the privilege of doing business in the state. The tax is based on the gross sales of the business and paid to the Texas Comptroller of Public Accounts.

The first report is not due until after the first year of business. For example, an LLC created on January 1st, 2022, wouldn’t file until May 15th, 2023.

Common Questions To Starting An LLC In Texas

How much does it cost to start an LLC in Texas?

The cost to start an LLC in Texas is a $300 filing fee to submit the Certificate of Formation with the Texas Secretary of State.

How long does it take to start an LLC in Texas?

Texas LLCs that are formed online are processed within 2-3 business days or 7-10 business days when filing by mail.

How much does it cost to maintain an LLC in Texas?

There are no annual report fees for Texas LLCs, however every year, an annual Franchise Tax Report must be filed with the Texas Comptroller of Public Accounts. A tax may be due depending on the gross sales of the business.

Related: What is the Texas Franchise Tax?

Can you be your own Registered Agent in Texas?

Yes! Anyone can be the Registered Agent, provided they are at least 18 years old, reside in the state of Texas, and are generally available to receive documents during normal business hours.

Related: What are the requirements for a Registered Agent in Texas?

How do you know if your Texas LLC name is available?

You can check if your Texas LLC name is available by searching for it on the Texas Secretary of State’s website.

If the name is already in use, you will be unable to register your LLC.

Does an LLC need a business license in Texas?

It’s sometimes thought that the LLC and business license are the same in Texas, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.

Related: What business licenses are needed in Texas?

What is a Foreign Limited Liability Company?

A foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state that wants to physically operate in Texas. Physically operating means having a presence, such as having an office or hiring an employee.

Related: What is the difference between a domestic Texas LLC and a foreign LLC?

What is a Professional Limited Liability Company?

Businesses that require occupational licensing in Texas, such as accountants, architects, veterinarians, etc., can file for a Professional LLC (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of an LLC.

Related: What is a Professional Limited Liability Company?

Is an LLC the same as a corporation?

The LLC is one of four main types of business entities. You can learn more about each here:
What is a sole proprietorship?
What is a general partnership?
How to form a Texas corporation

To form a Texas LLC, do you need a business attorney?

No – An attorney isn’t required, though using one will help to evaluate the risks your business faces and find the best ways to protect it.

Sometimes, hiring an attorney is out of the budget, but following our guide, most people will be able to form an LLC on their own, however, LLC formation services like IncFile and IncAuthority will guide you through the process and guarantee it’s done right – and it doesn’t cost any extra to do so!

What is a Series LLC?

A traditional LLC is the most common form of LLC, however, some states allow for the creation of a Series LLC. A series LLC is comprised of a parent LLC with one or more individual series within the umbrella of the LLC. The individual series are protected from liabilities and losses suffered by the other individual series and the holding company.

Read more: What is a Series LLC?

Subscribe Now to the 60-day Startup Challenge!

Subscribe Now to the 60-day Startup Challenge!