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.

Texas is considered one of the best states for businesses in the country. And starting an LLC here can give you access to its many benefits, like the broad talent pool, diverse economy, and highly competitive tax climate.

But it's a good idea to familiarize yourself with how it works so that everything goes as smoothly as possible. After all, there's a lot to consider.

Keep reading to learn more about how to start an LLC in Texas.

6 Steps to Starting an LLC in Texas

Starting an LLC in Texas is easy enough. You can even do it yourself. Just follow these 6 steps:

1. Name Your Texas LLC

Before doing anything else, you need to choose a business name for your LLC. But you can't just use whatever name you want - it has to adhere to the state's naming guidelines.

Here are the standard rules you need to follow when naming a Texas LLC:

• Should be unique - You can't use something that another business has already registered. You also can't use articles, suffixes, numbers, etc., to differentiate your company's name from another business.
  
• Should indicate it's an LLC - This means adding terms like "LLC," "Ltd.Co.," or "Limited Liability Company" to your chosen business name.
  
• Can't imply an association with government institutions or agencies
  
• Doesn't use or contain profanity or anything offensive
  
• Must not imply that it's conducting illegal or criminal business activities

Aside from those, you also can't use these words in your business name:

• Olympic, Olympiad, Citius Altius Fortius
  
• Bank, trust, trust company, etc.
  
• College, law school, university, etc.
  
• Veteran, Spanish, disabled, war/world war, etc.

These are reserved for specific institutions, so the Texas Administrative Code restricts their use.

DBAs for Texas LLCs
Businesses that want to operate under another name can get an assumed name (aka a DBA).

Like your official company name, your assumed name must be unique to your business and not similar to any existing registered business in Texas. You can use the same database to double-check your preferred name's availability.

Once you confirm it's available, just file Form 503 with the Texas Department of State (online, by mail/fax, or in person) and pay the $25 filing fee to register it.

DBAs or assumed business names last 10 years in Texas. But you can renew it before it expires. Just submit the completed form and pay the filing fee again.

2. Assign a Registered Agent

In Texas, any business filing to become an LLC (domestic or foreign) must list a registered agent in their formation documents to be approved.

Anyone can be your registered agent as long as they meet the following criteria:

• At least 18 years old
  
• A resident of Texas with a permanent street address in the state (P.O. Boxes and virtual addresses aren't allowed)
  
• Always available to receive legal documents during regular business hours
  
• Authorized to conduct business in the state (for third-party services)

If you're assigning the role to someone else, you need to get their signed consent using Form 401-A. You don't have to file it with the state (just with your company's records).

But you can still file a copy for record-keeping purposes. This costs $15 per filing.

3. File Your Certificate of Formation

Once you have the requirements ready, the next step is filing your Certificate of Formation. It's called "Articles of Organization" in other states. And it serves as your LLC's official paperwork.

To create an LLC in Texas, you just need to fill out Form 205 (for domestic LLCs) or Form 304 (for foreign LLCs). Some of the details you need to provide are:

• Business name
  
• Registered agent and their office
  
• Governing authority (aka management structure)
  
• Official purpose of the company

After filling it out, you just have to file it with the Secretary of State's office through one of the following methods:

• Online via the Texas SOSUpload System
  
• By mail
  
• 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.

How Long Does It Take to Start an LLC in Texas?
In Texas, LLC 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 costs $25 per filing.^[2]

Expedited filings are usually processed within the day or the next business day.

4. Apply for an EIN

You can apply for an Employer Identification Number (EIN) after you receive your LLC's certificate of formation.

Federal law requires all LLCs to have an EIN if they have more than 1 owner/member.^[4] 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.

Getting an EIN is free if you apply directly with the IRS. Some third-party services charge extra if you choose to get one through them.

5. Draft Your LLC's Operating Agreement

Texas LLCs aren't required to have an operating agreement. But it's strongly encouraged to create one for your LLC. It can help your company run as smoothly as possible, especially when conflicts arise.

Some of the usual information you need to include 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

Since an operating agreement isn't mandatory in Texas, you don't have to file it with the state. You can just keep it in your company's official records.

6. File 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 - This is mandatory, even if you don't pay a franchise tax. You just have to file a "No Tax Due" report instead.
  
• Public information report - This is to ensure your LLC's records with the state are always accurate and up to date.

Both of these are mandatory. 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' official website.

Important Steps to Follow After Creating 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 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. So you can check that out as well.

Open a business bank account.
LLCs are legal separate entities from their owners. So you need a separate business bank account. This way, you maintain a clear line between your personal and business finances.

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.

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File and pay business taxes.
Like in most states, Texas LLCs can choose their tax classification. They can retain their default status or opt for something else.

Single-member LLCs are taxed like sole proprietorships by default. Meanwhile, 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' personal tax returns. Check out this article to learn more about how LLCs are taxed.

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 be required to pay a franchise tax if you meet specific criteria. Still, you'll need to file an annual franchise tax report even if you don't need to pay.

Also, depending on your specific 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.

Creating an LLC in Texas - DIY vs. Lawyer vs. Formation Service

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.

  Do I need a lawyer to start an LLC in Texas?
  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 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.
  Which option do you prefer to form your LLC?

  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.

Bottom Line

Texas offers an excellent environment for businesses. And starting an LLC in the Lone Star State can provide your company additional benefits.

But familiarizing yourself with how to start an LLC in Texas is a must if you want to avoid costly mistakes or delays for your business.

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