How to Form an LLC in Texas

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Texas LLC Quick Facts

Texas LLC Costs

Initial LLC Filing Fee – $300

Recurring State Fee: Annual Franchise Tax – varies by gross sales

 

LLC Processing Time

Online: 2-3 business days

By Mail: 1 week

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Let IncFile or IncAuthority guide you through the LLC formation process, so you know everything was done right. Only pay state fees!

Quick Reference

The Limited Liability Company (LLC) is a popular business structure for many entrepreneurs in the state of Texas.  The LLC provides personal liability protection and has the potential to save money on taxes. With our guide, you can learn how to form an LLC in Texas without an attorney.

Unlike a sole proprietorship or partnership where the small business owner can be personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting personal asset protection for the business owners.

Related: How Does an LLC Protect You?

Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.

Costs to Form a Texas LLC

To form a Limited Liability Company in Texas, file the Certificate of Formation with the Texas Secretary of State.  The LLC filing fee is $300.

Approval for the LLC is typically around one week.

If you have questions, contact the Texas Secretary of State.
Phone: 512-463-5555
Email: corpinfo@sos.texas.gov

Guide to Forming an LLC in Texas

Step 1: Create an Account

The LLC can be created by mail, fax, or online.  This guide shows how to create the LLC online, which is the fastest of the three ways. Begin by creating an account on the SOSDirect, which is the Secretary of State’s website to file online or download the Texas LLC Certificate of Formation (Form 205).

Forming an LLC can be both affordable and is something most people can do themselves. Entity formation companies like IncFile or IncAuthority help guide you through the process and make sure there are no mistakes.

Related: Should you use a Formation Service, Hire an Attorney or Do it Yourself?

Step 2: Name the LLC

Enter the name you want for the LLC.  The LLC’s name also has to differ from other entity names registered with the Secretary of State.  Be sure to check on the available Texas LLC name availability to ensure the one you want is available.

The name of the LLC must also include a designator at the end of the business name, which is one of the following words or abbreviations that describes what type of business entity it is. Available designators include:

  • 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 several others unless registered with the state to provides those services.

Before settling on a name, you may want to do a domain name search to match your business name and website address.

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 a name you want, but are not ready to register the LLC, you can file the Name Reservation Form (Form 501). The name reservation will hold a name for up to 120 days, at a cost of $40.

Step 3: Registered Agent

To have an LLC in Texas, a Registered Agent must be identified.  The Registered Agent can either be a Registered Agent service or provider like an accountant or attorney (Select “Organization”) or a resident of Texas (Select “Individual).  Texas law requires that the agent has a registered office with a physical street address in the state (Post Office Boxes are not allowed), is available during normal business hours, and will be the central point of contact for service of process to receive legal documents, tax notices, summons, subpoenas, etc. on behalf of the LLC.

You are not required to pay for a registered agent. 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 are still employed and don’t want their employer to find out.  Hiring a company like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.

Step 4: Governing Authority

This article is asking 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?

Enter the name of each of the governing persons.

Step 5: 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.

Step 6: Supplemental Provisions/Information

This is an optional section and not used by most LLCs.  Here you would include additional rules for the operation of the LLC.

Step 7: Organizer Information

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

Step 8: Effective Date

If you want the LLC to start immediately, choose

  • A.  This document becomes effective when the document is filed by the secretary of state,” which many people choose.
  • B. This document becomes effective at a later date, which is not more than ninety (90) days from the date of signing.”
  • C. This document takes effect upon the occurrence of the future event or fact, other than the passage of time.

The main reason for delaying the LLC start date is when the filing is being done 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 until the following year, they will reduce the number of end-of-year filings.

Step 9: Execution

Have an organizer accept the terms and conditions and sign.

Step 10: Submit and Send

Hit submit and your LLC is off!

If mailing send to:
Secretary of State
Corporations Section
PO Box 13697
Austin, TX 78705

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Tasks After Forming Your LLC

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.

Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.

Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.

In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership 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?

Get Business Insurance

Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:

General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
Workers Compensation Insurance – mandatory in most states if you have employees, this insurance covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.

Related: 7 Types of Insurance Your Business May Need

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 franchise tax isn’t a tax on franchises, 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, 2021 wouldn’t file until March 15th, 2022.