How to Start an LLC in Texas
Thinking of creating an LLC in Texas? Check out this guide on how to start an LLC in Texas to learn about the process and the costs.
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An LLC can open doors for your company that other business entities can't. Especially in Texas, which is widely considered one of the best states for businesses in the country[1].
But the process of starting one can be confusing and daunting. And if you don't do it right, the state will reject your application. Or worse, your business can get into legal trouble. Especially if it fails to comply with the requirements.
The good news is you can avoid that as long as you know how and where to start.
Keep reading to learn more about starting a limited liability company in Texas. From the requirements to the steps to follow after forming one.
6 Steps to Starting an LLC in Texas
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Starting an LLC in Texas is easy enough. You can even do it yourself in 6 steps:
Step 1: Name your Texas LLC
Choosing an LLC name is the first step of the process. The state won't accept your application if you don't have one when you file your formation documents.
Your business name will also serve as your company's identity. So you need to choose yours carefully.
It should be unique, meaningful, and memorable. Something that customers can easily associate with your company. But easy enough to remember so they can easily recall it when deciding which business to go to.
It should also follow the state's naming rules. Because even though LLCs have more leeway when it comes to names, you can't just use whatever name you think of.
Here are some of the most important guidelines you need to know:
- Designators
Texas requires all formally registered businesses to include a designator as part of their business name. It should indicate the company's type of business entity (LLC or corporation).For Texas LLCs, this means adding terms like "LLC," "limited liability company," "Limited Co." etc., to your officially registered business name.
- Similarities with other businesses
Your Texas LLC's name should also be unique. That means you can't use a name already registered by another company. Even if you use suffixes, numbers, or articles to differentiate your business name from theirs.Got a name in mind? Check your choice's availability through the state's online database. You can also call their hotline at (512) 463-5555 (7-1-1 for relay services) or email them at corpinfo@sos.texas.gov. - Use of restricted words
Texas law also forbids businesses from using words like "Olympic," "bank," "college," "veteran," etc. in their LLC name[2]. You need written approval from their respective organizations to include these in your business name. - Implication of government affiliation
Like most states, Texas doesn't allow business entities to use names that imply any government association. For example, business names containing words like "division," "agency," "department," etc. are strictly not allowed. - Offensive names
The state guidelines for what's considered offensive are somewhat vague. So a good rule is to avoid names you can't say to your mother or grandmother without blushing or feeling embarrassed. - False or illegal purpose
Texas business laws also prohibit LLCs from choosing a name that implies they're involved in illegal or criminal business activities. You also can't use a name that indicates a business purpose other than your official one.
Keep in mind that there are more rules to consider. You can check out the full list here.
Domain-friendly LLC names
Of course, the state guidelines aren't the only considerations when picking a name for your Texas limited liability company.
Make sure to also remember your business website's potential URL. Even if creating one isn't really a priority right now.
First, you'll want to know if you can use your exact business name as your domain name. You can use domain name registrars like GoDaddy to see if your chosen LLC name is still up for grabs.
If it is, it's a good idea to secure it by buying and registering it ASAP. That way, even if you don't create your website right now, no other business can use it before you can.
If you want to reserve your preferred business name, you just need to file a Form 501 with the Secretary of State's office and pay the $40 filing fee.
Take note that business name reservations last for 120 days in Texas. But you can renew it 30 days before the reservation expires.
Using a DBA for your LLC
Because Texas LLCs need to add designators, achieving brand consistency (e.g., a logo with your exact business name) can be challenging. So if you want more flexibility with your business name, getting an assumed name (aka a DBA) is your best bet.
A DBA allows your business to operate legally under a different business name. But you need to register it with the state. To do this, just submit a Form 503 with the Secretary of State and pay the $25 filing fee. After that, you're good to go.
You just need to fill out Form 504 if you want to make changes or cancel your DBA name application (it costs $10 per filing). You also need to resubmit your application form with the correct information and pay the filing fee again.
Step 2: Assign a registered agent
Like most states, any business registering as an LLC (domestic or foreign) in Texas needs to list a registered agent in their formation documents to be approved.
Registered agents are who the government will contact if they need to reach your business. So whoever becomes your registered agent must meet certain criteria to qualify. For example, they should be:
- At least 18 years old
- A resident of Texas
- Always available during normal business hours
- Authorized to do business in the state (for third-party services)
But the most important requirement is that they should have a permanent street address in Texas.
They can't use PO boxes or virtual addresses as their registered address. Otherwise, the state won't accept them as your LLC registered agent.
Who can be your LLC's registered agent?
You have three main choices: be your own registered agent, assign someone else, or hire a registered agent service. And each has its advantages and disadvantages.
- Being your own registered agent
Being your own registered agent means you don't need to pay someone else to do it. But that also gives you less freedom over your schedule. And you risk being served by a process server in front of friends, family, and customers. - Assigning it to someone else
Assigning someone else to the role can be a good alternative. But it has the same downsides as the first option. And you need to get their written consent for the assignment to be considered valid.Whoever you assign as your registered agent needs to fill out Form 401-A to officially accept the assignment.You don't need to submit it with your formation documents. Just keep it with your company's other important records. If you want to file it with the state, you need to pay a $15 filing fee.
- Using registered agent services
Registered agent services are a good middle ground because they handle everything for you. That way, you can focus on running your business without worrying about missing important documents.Some LLC formation companies offer free registered agent services (usually the first year) if you use them to start your Texas LLC. After that, you need to pay the fee if you want to continue using their services.
Yes. Just submit a Form 401 to the Texas Secretary of State and pay the $15 fee.
Step 3: File your Certificate of Formation
Once you have the requirements ready, the next step is filing your Certificate of Formation.
This is also known as the "Articles of Organization" in other states. And it will serve as your LLC's official application and paperwork.
To create a domestic Texas LLC, you need to fill out Form 205. If you're registering a foreign LLC, use Form 304 instead.
Some of the details you need to provide in the forms are:
- Business entity type and name
- Registered agent and registered office
- Governing authority (aka management structure)
- Official business purpose
- Mailing address
Make sure all the provided information is accurate and correct to avoid rejection and having to make changes later on.
To make changes to your formation documents, you need to submit a Certificate of Amendment (Form 424) and pay a $150 filing fee. You can send them to the Secretary of State's office online, via mail, in person, or by fax.
After filling it out, you just have to file it with the Secretary of State's office using one of four ways: online through the Texas SOSUpload System, by mail, via fax, or in person.
You also need to pay the state filing fee via personal checks, major credit cards, LegalEase debit cards, and money orders.
After you've submitted all the needed documents, you just need to wait until the state approves your registration. They'll issue your LLC's certificate of formation after approval.
Make sure you keep it in a safe place since this will serve as your LLC's official document.
The state filing fee in Texas is $300 for domestic LLCs and $750 for foreign LLCs. You may need to pay additional fees if you need other services.[3]
For example, reserving a business name, registering an assumed name, and getting third-party registered agent services can increase the total cost by $25 to $500 or even higher.
How long does it usually take to start an LLC in Texas?
In Texas, Certificate of Formation filings are usually processed within 5 to 7 business days. But if you want them to prioritize your filing, you can opt for expedited processing. This service costs $25 per filing.[4]
Expedited filings are usually processed within the same or next business day.
Because of the current high demand, it now takes 70 to 72 business days to process regular filings. Expedited applications take 12 to 14 business days. And online submissions take 13 to 15 business days.[5]
Step 4: Create an LLC operating agreement
After the state approves your registration, the next step is creating an operating agreement (also called a "company agreement").
Some of the information you can include in one are:
- Official company name, address, and purpose
- Management structure (manager- or member-managed)
- Members' details (names, roles, duties, responsibilities, etc.)
- Contributions
- Distribution of company profits and sharing of losses
- Voting rights and protocols
- Membership changes (admission of new members, role changes, ownership transfers, etc.)
- Terms for the LLC's dissolution
Keep in mind that you can add as many provisions in your company agreement as long as it complies with Texas law.
To dissolve a domestic Texas LLC, you need to file a Certificate of Termination (Form 651). And pay the $40 filing fee. For foreign LLCs, you need to submit a Certificate of Withdrawal of Registration (Form 608) with the $15 filing fee instead.
An LLC operating agreement can help your company run as smoothly as possible, especially when conflicts arise. It also reinforces your company's liability protection. So you don't have to worry about losing your personal assets.
Aside from that, some banks and investors will look for one before considering granting your request for business financing. You also need to present this when applying for a sales tax license.
So even though Texas LLCs aren't required to have an operating agreement, creating one for yours is strongly recommended. Even if there are no other LLC owners.
Here are 3 tips you can follow when creating an LLC operating agreement:
- Be as clear and specific as possible.
This can prevent any misunderstandings among the LLC owners when enforcing its terms and conditions. - Have all LLC members agree to and sign it.
There should be no missing signatures. This proves that all members have agreed to uphold the company's rules. - Ask a professional to go over it.
This way, you can ensure everything's accurate and that no important information is overlooked.
Step 5: Apply for an EIN
You can apply for an Employer Identification Number (EIN) once your LLC is approved. It's a 9-digit ID number used for business tax purposes.
Besides taxes, your LLC needs an EIN for the following reasons:
- Open a business bank account
- Hire employees
- Apply for business financing
Federal law also requires all LLCs to have an EIN if they have more than 1 owner/member.[6] Only single-member LLCs can use the owner's Social Security Number (SSN) as their EIN.
You can apply for an EIN directly with the IRS via fax, mail, or online. If you apply online, you'll get your EIN immediately after the session if you're eligible.
A Texas taxpayer number is an 11-digit tax ID number from the Texas Comptroller. It's issued to individuals or businesses that want to hire employees or sell taxable goods/services. You need to get your EIN before you can get one in Texas because you have to present it during the application.
Getting an EIN is free if you apply directly with the IRS. Third-party services usually charge extra to apply for one on your behalf.
Step 6: File the Annual Reports
All LLCs formed in Texas have to comply with the state's annual filing requirements. Most states usually require an annual report.
But in Texas, it's divided into two types:
- Franchise tax report - All Texas LLCs that earn more than the annual tax threshold are required to submit a franchise tax report annually.
- Public information report - This is mandatory, even if you don't owe any franchise tax. This is to ensure your LLC's records with the state are always accurate and up to date.
If your LLC's total revenue falls at or below the no-tax-due threshold, you are not required to file a franchise tax report. However, you must still file a Public Information Report.
Your LLC can lose its right to do business in Texas if you fail to file these with the state. They're due every May 15 after you create your LLC. So make sure you mark the date on your business calendar to avoid missing it.
You can access all the required forms via the Texas Comptroller of Public Accounts' website.
What to do after starting a Texas LLC
After you've successfully created an LLC in Texas, there are a few other things you need to do, like:
- Obtain the required business permits and licenses.
Texas doesn't require LLCs to get a general business license to conduct business activities in the state.Still, depending on your company's industry and its specific activities, you might need to apply for other permits or business licenses before you can operate in Texas.
You can check the state's online guide to learn if your business needs additional permits, licenses, or certifications. The Small Business Administration (SBA) also has a convenient list of federal permits and licenses you can check out. - Open a business bank account.
LLCs are separate legal entities from their owners. So you need a separate business bank account.This way, you maintain a clear line between your business and personal assets. This will protect you from personal liability in case your company gets sued or goes into debt.
Plus, it'll let you keep track of your business expenses and make taxes easier. You can also get a business credit card more easily if you have a dedicated business bank account.
Should I get a business credit card for my LLC?
A business credit card can help your new LLC create and build its own credit score. It can also cover business expenses when cash flow is slower than usual. Just make sure you do your research beforehand.
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- File and pay business taxes.
Like in most states, Texas LLCs can choose their tax classification. Meaning they can retain their default status or opt for something else.Single-member LLCs are taxed like sole proprietorships by default. While multi-member LLCs are taxed as partnerships.
Both are considered "disregarded entities" and enjoy pass-through taxation. So even if an LLC is a separate legal entity, its income is reported through the owners' tax returns.
More about LLC taxes here: What Is an LLC?Aside from income tax, Texas LLCs also need to pay an annual franchise tax. This is to recognize their right to exist as a separate legal entity and do business within the state.
The total amount varies from company to company because it mainly depends on their total generated revenue. So you might not need to pay the franchise tax if you don't meet the minimum specified amount.
Only businesses with a total annual revenue of more than $2.47 Million need to pay a franchise tax and submit the annual franchise tax report.[7]Also, depending on your business activities, you may need to pay other taxes, like:
- Sales and use tax (if you sell taxable goods/services or sell/lease physical properties)
- Employer tax (if you have employees)
You can check out this link to see what other taxes your business might need to pay.
- Sales and use tax (if you sell taxable goods/services or sell/lease physical properties)
- Get business insurance.
Even if you have liability protection as an LLC, you still risk losing your business assets without insurance. Especially if you're in a high-risk industry like construction, manufacturing, or agriculture.The most common types for businesses are:
- General liability insurance
- Workers' compensation insurance (aka workers' comp)
- Professional liability insurance
Some insurance companies offer bundled packages, like the business owners' policy (BOP). Which usually combines general liability, commercial property, and business interruption insurance policies in one.
- General liability insurance
- Build a business website.
Establishing a solid online presence with a business website is still important. Even when most of your business transactions are done offline.A business website solidifies your company's credibility and makes it appear more professional. What's more, customers will find your business more easily when you have a website. Especially if it's well-optimized for search engines like Google.
Need help building your business website? Consider using a website builder to make it easier and more convenient for you.
Ways to start an LLC in Texas
If you want to start an LLC in Texas, you typically have 3 options to choose from:
Doing It Yourself
This can be the best choice if you have a limited budget. You only have to worry about the starting costs (like the state filing fee). It's also a great option if you're already familiar with the LLC formation process in Texas.
But doing it yourself means exactly that - you have to do everything yourself. That includes completing the forms, ensuring all information is correct, paying the fees, etc.
Working with a Lawyer
Working with a lawyer can be a good idea if you have more complex needs because of their expertise and knowledge. They can better guide you through the process.
But attorney's fees vary and can be very expensive. This is especially true if they need to handle more complex issues or if you need ongoing/long-term legal assistance.
No, a lawyer isn't necessary to start an LLC in Texas. But hiring one can be convenient, especially if you need more in-depth legal assistance.
Hiring a Formation Service
A third-party LLC formation service can be a great alternative to the first two. They're already familiar with the process but don't cost as much as a lawyer. They can help you start your Texas LLC without costing an arm and leg.
But you still have to pay for their services. And the costs can pile up if you want them to handle more than just filing your formation documents with the state.
Some of the top LLC services you can try are Northwest Registered Agent, ZenBusiness, and LegalZoom.
| LLC Service | Main Features | Pricing |
|---|---|---|
| Northwest Registered Agent |
| $39 + state fees |
| ZenBusiness |
| Starts from $0 + state fees (Starter) |
| LegalZoom |
| Starts from $0 + state fees (Basic) |
Set Up Your LLC - $0 + State Fees
- Free business plan included (no credit card required)
- Lifetime compliance alerts
- Comprehensive name check
- Lifetime customer support via email and phone
Business Formation Service - $39 + State Fees
- Form Your LLC, Corporation, or Nonprofit Today
- A Fully-Formed Business
- Registered Agent Service
- Business Address
- Mail Forwarding
- Privacy by Default
Economy Package at $149 + State Filing Fees
- Name check service
- Business consultation
- Digital welcome packet
- Customizable WIX website
Starter - $0 + State Filing Fees
- Includes 1 optional free year of Worry-Free Compliance that renews at $199/year
- Standard filing speed
- 100% accuracy guaranteed
- Other services are available with additional costs
Benefits of Starting an LLC in Texas
As mentioned, Texas is one of the top states for businesses. Starting a company here will give you access to its broad talent pool, diverse economy, and competitive tax climate.
And forming an LLC can offer more benefits, like:
- Liability protection
A limited liability company establishes what's called a "corporate veil." This establishes a clear distinction between your business and personal assets. Which prevents you from losing any personal property if your business gets into trouble. - Support from the state
The Texas Secretary of State ensures businesses under the state's jurisdiction become successful by providing plenty of resources to help them out. This includes online guides and accessible funding for qualified companies. An LLC can make it easier to qualify for these funding options. - Tax benefits
Limited liability companies are considered disregarded entities by default. So they only pay taxes on their business income once. More than that, they can choose their tax classification to enjoy more tax benefits. - Flexibility
Unlike corporations, LLCs have less stringent rules when it comes to membership. So you don't have to sell company stocks just to add a new LLC member when needed. You just need the other LLC owners' approval. You can also choose how you want your company to be run. - Fewer requirements
Texas LLCs also retain the simplicity of informal business structures like sole proprietorships and partnerships. So you have fewer requirements to worry about overall. For example, you don't need corporate by-laws or a board of directors with an LLC, unlike corporations. Recordkeeping requirements are also less strict with an LLC.
There are other benefits besides these. For example, an LLC will increase your company's credibility and make it easier to open business bank accounts or get a business credit card.
What the Experts Say
CreditDonkey asked a panel of industry experts to answer readers' most pressing questions. Here's what they said:
Bottom Line
Texas offers an excellent environment for businesses. And starting an LLC in the Lone Star State can provide your company with additional benefits.
But familiarizing yourself with how starting an LLC in Texas works is critical if you want to avoid costly mistakes or long delays for your business.
References
- ^ CNBC. America's Top States for Business 2023, Retrieved 07/16/2023
- ^ Texas Secretary of State. Entity Names, Retrieved 07/16/2023
- ^ Texas Secretary of State. Business Filings & Trademarks Fee Schedule, Retrieved 3/11/23
- ^ Texas Secretary of State. Filing Options, Retrieved 3/11/23
- ^ Texas Secretary of State. Filing & Other General FAQs, Retrieved 3/11/23
- ^ Internal Revenue Service. Do You Need an EIN?, Retrieved 3/11/23
- ^ Texas Comptroller of Public Accounts. Franchise Tax, Retrieved 05/11/2024
Write to Alyssa Supetran at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.
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