Starting a Texas LLC is the right decision for any start-up. With a favourable work environment and diverse tax benefits, it is cost-effective to start any business here. Those who are newly setting up their business must know about the procedural steps to start an LLC in Texas.
By following the steps below, one can easily form an LLC. However, it is recommended to seek help from professional services to start your LLC in Texas to handle financial statements and other legal documents. Meanwhile, if you are thinking of setting up an LLC in another state, then do check out Start My LLC.
On this page, you’ll learn about the following:
- How to Start an LLC in Texas
- Why Set Up an LLC in Texas?
- Cost to Starting an LLC in Texas
- Requirements for Setting up LLC in Texas
- Texas LLC Formation Summary
How to Start an LLC in Texas
The following guide is simple but essential for all entrepreneurs, especially for start-ups. All these procedures are to be followed according to the state’s government guidelines. Make sure to be careful while moving forward with the steps.
Step 1: Decide a Name for Your LLC
The first step in your application for an LLC is to decide the name you want to give to your LLC. You have to choose a name that should be related to your business and should also be approved under the state government’s naming norms.
You should check the name you are thinking of giving to your LLC on the Secretary of State online services website or visit the Business Entity Search to check the name’s availability through the list of names.
Here are some of the pro tips that will help you keep a name that will help you grow.
- You should keep the name simple and try not to add some difficult words to the name. It can confuse the audience, and they won’t remember your name for a longer period.
- There are some words like bank, attorney, and university, which you should avoid if not required. This is because such names are going to require an extra set of paperwork through a lawyer.
- The name should also be available for making a website as you should keep the name of your business the same everywhere. Check if the name is still available for use with NameCheap and for web hosting, which is best to get now, check out Kinsta, and Google Suite, for your professional email account.
For more requirements on naming your LLC, see other requirements.
Step 2: Assign a Registered Agent in Texas
After you have decided the name, you must choose a registered agent in Texas. The agent is going to work on your behalf. Agents are professionals and can be a person or a business entity. They will be responsible for receiving all documents. The documents consist of the tax forms, lawsuit notices, legal documents, and internal documents on their registered office in Texas.
Some of the professional service providers that can be your agent and also, are able to handle all your official notices are:
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The best LLC services that would help you ease into operating an LLC or even other business structures in Texas. From handling business license searches and filing to tracking upcoming filing deadlines and acquiring business insurance or professional liability insurance, an agent will answer all your questions and conduct all activities you need to set up your LLC.
It would be so much time saved on your end if you avail of a registered agent’s service. You will have more time to focus on other business matters, not to mention you are guaranteed to meet every state requirement as you have experts handling everything.
Step 3: File Certificate of Formation in Texas
The certificate of formation is the legal document that you are required to start your LLC in Texas. It establishes the type of LLC you are setting up, if member-managed or managers-managed.
Before you file the formation document, you need to attach documents such as name registration certificate, registered agent’s details, and/or employees’ details. The filing fee one has to pay is $300.
- Go to the Secretary of State online services website.
- Choose the option of non-subscriber and then start filling the online form.
NOTE: But in some states, you are not allowed to fill the online form. For such people, there is a second option of sending the form through the mail.
File by Mail:
- Download the original form from the Texas Limited Company Certificate of Formation site.
- Fill out the form and send it through an email to the Secretary of State Office or county judge’s judge.
- With this form, the legal document to be attached will be the above-mentioned formation documents along with your cheque.
Secretary of State
P.O. Box 13697
Austin, TX 78711
More Certification of Formation filing requirements in Texas is mentioned below.
Step 4: Create Your Texas LLC Operating Agreement
There are some major outlines and rules, regulations, and powers of attorney that become the LLC’s foundation. All of these rules and operational procedures are mentioned in the liability operating agreement. Also, when the agreement is formed, all the LLC members should agree with these rules. It will ensure that the limited liability company works smoothly and every person related to the company is on the same page.
If you want to start an LLC in Texas, it is not required legally to form a limited liability operating agreement. But if you want to save your business from any future conflict, it is advised that you should make this effective operating agreement.
Step 5: Filing an Texas LLC EIN
The E.I.N. is also known as the Employer Identification Number, which Internal Revenue Service provides. It is a nine-digit unique number given to businesses, and it is for tax purposes. When you are filing your limited liability company’s taxes, you need this number for the government official and taxation agencies; this is your identity.
You can file for the EIN online through the Texas Internal Revenue Service website under Register an Entity section. Why do you need an EIN? The EIN will help you contact a business bank and will help you process your bank application.
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
To know more details about the documents required, you should jump to the ‘requirement section‘ below.
Why Set Up an LLC in Texas?
What is an LLC in the first place? It is a type of business that protects you and your assets from issues like debts.
Best taxation climate around
The state is famous for providing the best environment of taxation to the LLC owners. The tax for operating the business is meager in the state as compared to other states. On the other hand, you will also get freedom from the personal income tax. The tax is only imposed on your LLC.
The main motive of this task is to motivate you to hire the best quality employee, which is best for two-way growth. Also, depending on the type and size of the business, the tax rate may vary, making it suitable for small LLC start-up companies.
Texas Enterprise Fund (TEF)
The program is designed to provide various tax grants to small businesses. This is provided when either the LLC is establishing, wants to expand, or is hiring the best talent around. The program quickly grants every amount related to the mentioned tasks.
Texas Enterprise Zone Program
The program is designed for those people who start their LLC in the enterprise zone that are distressed. The incentive given to the LLC is sales and use tax refund based on jobs that you will create in these areas. If your LLC is creating 250 jobs, then you can receive a refund of up to $625,000.
Pros of LLC
- LLC does not have detailed formalities like minutes of shareholders’ and directors’ meetings like other corporations.
- No restriction on LLC regarding the members and shareholders. One can structure the company as one are willing to.
- Unlike corporations, the cash method of accounting is easy as LLCs don’t use the accrual method.
- In an LLC, due to personal liability insurance, no shareholder and investor can possess the personal asset of the member.
- Tax benefits such as unemployment insurance taxes on any coverage for employees, and have different tax classification options.
Cost to Starting an LLC in Texas
The Texas government will charge you some amount for every step of LLC formation for providing the services. These charges are discussed below.
- There is a fixed cost of reserving the name of your Texas LLC, which is around $40.
- After that, you have to pay $300 plus a convenience fee of 2.7% for filing the articles of formation to the Secretary of State.
- You are required to hire an agent also in the state. The agent’s charges depend on the services that you ask out for. That is why before hiring, you should check the best service providers and their charges.
Top Businesses in Texas State
The knowledge of the economy of the state where you are about to start an LLC is essential. That is why the list of top businesses established in the state and their contribution to the Texas LLC are discussed below.
Manufacturing businesses of Texas are the main reason behind the employment generation of state giving jobs to 909,000 people. Chemical-producing units of the state are very famous due to the huge reserve of petroleum. If we look as a whole, then the contribution of manufacturing businesses is around $234.05 billion.
Oil and Petroleum Businesses
Texas is accountable for one-third of the USA’s petroleum, which is more than 8 billion barrels. Due to the vast reserves of oil, the contribution of these businesses is more than $233.08 billion.
The state is famous for cattle production and its products, with more than 16 million cattle in the state. This number makes it a leading cattle producer in the country. Along with that, the state is famous for grapes, watermelon, and cantaloupes. If we look at the total contribution, then it is around $25.9 billion.
Some small investment businesses of Texas State are discussed below.
- Fitness center
- Food Truck Business
- Gadget repairing business
Requirements for Setting up LLC in Texas
When you are setting up your LLC in Texas, then there are some basic requirements that you have to fulfill. They are mentioned below in detail.
First of all, you have to think of a name for your LLC. When you think of the final name, you should get it registered through Texas state’s official web portal. Before finalizing the name, it would be better that you check the availability of the name and also that it is feasible for your business or not. It would help if you thought from the customer’s perspective that you would attract with such a name.
Directors or members
When you start an LLC, you must be some people in your mind that you want to do work with as members. You should have the current list of all those members with their approval to be a part of your LLC venture. Some points that you must always have in your mind when working for the list of directors is:-
- The LLC can be started with one or more members. There is no restriction on the business owners.
- It is not required for the member to have a permanent residence in Texas to be a part of the LLC.
- The minimum age of the member should be 19.
- The complete legal name and address of the member must be required for Articles of Incorporation.
The articles of formation should be ready when you are forming an LLC. In these articles; you should mention the details about the business services, the members who are going to be part of the business, and the profit division structure. The last one should be approved by every member so that there is no future conflict.
Along with that, there should be the agent certificate that you have appointed to help you with the step guide. The last thing that should be attached with the certificate of formation will be the services list. There must be some offering of your business which should be mentioned in detail.
Also, there should be a fixed value of stock required to be mentioned in articles of formation and the address of the registered agent mentioned below. While selecting the business agent, you should ask them to always be available during office hours or not because they have to handle all the legal and tax documents.
Texas state’s demand is a bit different from the other states. Here the business entity needs to submit the form to the Judge of probate instead of the state’s secretary.
The Texas LLC has to different corporate reports before setting up. This included the initial reports that include the initial business privilege tax filing returns and annual reports. Both of these reports should be filed within two and one-half months after they start functioning. The next is the county filing that the business has to file before its incorporation. They must be submitted to the principal office for reference. With time, the requirement increases, which is discussed below.
- If any member has taken any action without a meeting, it must be added to corporate records.
- A copy of the original by-laws and the amendments that are made in them, later on, should also be added to the records.
- The complete communication of shareholders over three years should also be submitted.
- The recent annual report should be added to the corporate records.
Taxes and licenses
The taxes of the LLC should be filed on time, and for that, E.I.N. is important. This should be applied when all the formalities are completed. Also, according to the service you are willing to provide, you have to look at whether the service requires an annual license to operate or not. If required, then you should go through the procedure of any license formation for your LLC office.
The taxation requirements are:-
- Texas requires the annual report that you file with the Department of Revenue. In the annual report, the taxes added are Business Privilege Tax Return and Annual Report, and Schedule AL-CAR.
- You should need a complete detail of every small to large state and center tax.
- There is a state tax identification number that a business must procure.
It is always recommended to get professional help to understand more about the LLC requirements. Check out the top 5 LLC services to look for today. Below is the list of Best LLC services,
Texas LLC Formation Summary
Time needed: 30 minutes.
To summarize, here are the simple steps for creating an LLC in Texas. To learn more about the steps in this list, simply click on them.
- Choose a name for your Texas limited liability company.
The first step is to come up with a business name that includes the word “limited liability corporation” or one of its abbreviations (LLC or L.L.C.).
- Select a registered agent for your company.
Selecting a registered agent for your LLC is needed in Texas. Check out our list of the top five LLC services in the United States.
- Create a certificate of formation.
When forming an LLC, you must file a formation certificate. It may be referred to as any of the following, depending on the state: Articles of Organization, Certificate of Formation, or Certificate of Organization.
- Make an operating arrangement.
When forming an LLC, an operating agreement is not a legal necessity, but it is strongly recommended.
- Obtain an EIN
The Employer Identification Number (EIN), also known as the Federal Tax Identification Number, is used to identify a corporation in the same way that a social security number is used to identify a person.
The C Corp’s structures are very complex compared to the LLC, which offers a flexible and easily changeable structure. Also, the LLC is saved from the disadvantage of double taxation that a C Corp has to bear, but the LLC has a privileged taxation system due to pass-through entities.
The major difference that the businessman will notice among the LLC and S-Corp is the flexibility. In LLC, you can allocate income according to your rules and change them according to your will. Also, there is a different LLC interest class that can be considered a downside of S Corp.
In the limited liability partnership and sole proprietorships, the owners are responsible for their debts, but the LLC facilitates owners. The LLC members’ assets are saved, and they are not considered the reason behind the debts that a company has with the help of limited liability protection. Moreover, the member’s liability is only limited to the investment that they have made in the LLC, unlike the sole proprietorships and solo partnership firms.