How to Start a Texas LLC – 7 Simple Steps

Forming an LLC in Texas requires a thorough understanding of the necessary steps and state-specific requirements. This all-inclusive handbook will walk you through establishing an LLC in just a few simple steps.

Keep reading to learn vital information on Texas’ prerequisites for LLCs, applicable fees, and the registration protocol for your upcoming venture.

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How to Start an LLC in Texas State – Step-by-Step Guide

Step 1: Choose a Name for Your LLC

In the state of Texas, forming an LLC is open to almost anyone with a valid business purpose. However, certain regulated professions like doctors and veterinarians must establish a professional entity, such as a professional limited liability company or a professional corporation.

The Texas Secretary of State has provided a guide to assist individuals in choosing the appropriate entity type for their profession.

The initial step in this process is selecting a business name. According to Texas law, an LLC’s name must be unique enough to differentiate it from other businesses within the state to avoid misleading the public.

When naming an LLC in Texas, it’s required that the name ends with either “Limited Liability Company” or “Limited Company.” Alternatively, abbreviations such as L.L.C., LLC, L.C., or LC may also be used.

According to Texas legislation, an LLC’s name cannot include specific words such as “bank,” “bank and trust,” “trust,” “trust company,” or “bail bonds.” The LLC’s name should not imply any affiliation with the government.

Using terms like “insurance” or “surety” can pose challenges unless it’s evident that the business isn’t an insurance agency or surety agency. This restriction is in place because insurance and surety companies fall under regulation by the Texas Insurance Code.

In situations where your Texas LLC’s name closely resembles another business in Texas and wouldn’t meet legal requirements, there’s a solution available, obtaining consent from the other company to use a similar name.

Let’s say you want to name your company Texas Super Bakery LLC. But there’s already a company called Texan Super Bakery LLC. Texan Super Bakery must agree and submit a Consent to Use of Similar Name Form (Form 509) if that’s the case.

Name availability search and reservation

After compiling a list of potential names for your LLC in Texas, you can verify their availability through Texas’s SOSDirect website.

Another alternative is to reach out to the Secretary of State and request a preliminary assessment regarding the name’s availability. You can contact them via phone at 512-463-5555, utilize local relay services by dialing 7-1-1, or submit your name inquiry via email.

If you want to ensure that your business name is available while you complete the other necessary steps for forming your LLC in Texas, you may reserve it for a maximum of 120 days. To do this, you’ll need to submit an Application for Reservation of an Entity Name (Form 501) and pay a filing fee of $40. This form can be submitted online, by mail, fax, or in person.

While obtaining name clearance or reserving a name before forming your LLC in Texas isn’t mandatory, doing so can provide some peace of mind that you have chosen an appropriate name for your business. However, even if the Secretary of State approves or allows reservation of a specific name, this doesn’t guarantee compliance with trademark laws.

Ultimately, you must select a legal and suitable name for your business. If you have concerns regarding naming requirements or potential legal issues surrounding trademarks, we recommend seeking advice from a qualified business attorney who can guide you through the process.

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Step 2: Choose a registered agent in Texas

In Texas, every LLC must designate a registered agent, regardless of whether the business is formed under Texas laws or operates from out-of-state. A registered agent takes responsibility for receiving legal and official documents on behalf of the business.

This can be an individual who lives in Texas or an organization authorized to conduct business in the state. The role of a registered agent is crucial for ensuring that all necessary papers are properly delivered to the LLC in Texas.

If you opt for a single person, they ought to be:

• 18 years or older
• A Texas resident with a physical address in Texas (no P.O. boxes)
• Available to accept documents during regular business hours

In Texas, individuals who wish to act as registered agents must provide their consent through Form 401-A: Acceptance of Appointment and Consent to Serve as Registered Agents.

It’s possible to create a customized consent form, as long as it includes the same information found in the Secretary of State’s form. While this consent form doesn’t need to be submitted to the state, it’s important for businesses to keep a signed copy alongside other business documents.

While a business entity cannot serve as its own registered agent, an LLC member or yourself can take on this role. However, there may be some drawbacks to having an LLC member serve as the registered agent.

They may not always be available when important business documents need acceptance. In cases where availability might be uncertain or limited, many businesses choose online legal services that offer registered agent services for a fee. This way, you can ensure that someone will always be available to receive and handle essential documents on behalf of your business entity.

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Step 3: Obtain Texas Business Permits

To register your business in Texas, it may be necessary to obtain a specialized permit from one of the various regulatory agencies in the state. The Texas Business Permit Office has released a comprehensive manual outlining the specific licenses required for different businesses. Individual cities and counties may have their own unique permitting criteria.

All businesses in Texas that sell tangible personal property or specific services are obliged to apply for a sales and use tax permit from the Texas Comptroller’s office.

If you conduct business using a trade name that differs from your LLC’s legal name, you must also complete an Assumed Name Certificate (Form 503), commonly referred to as a fictitious business name filing. The fee for submitting an assumed name application is $25.

Step 4: File a Certificate of Formation

To proceed with the formation of your LLC in Texas, you must submit a certificate of formation to the Texas state authorities. This document is like what other states refer to as articles of organization.

Multiple methods are available for filing this form: online via SOSDirect for expedited processing, mailing it in, faxing it, or delivering it in person to the Secretary of State’s office in Austin.

All the following will be included on your Texas certificate of formation:

• LLC Name
• Registered Agent’s Name and Address
• Management Type: Member-managed or Manager-managed
• LLC Member Information (if member-managed): Name and Address of Each Member
• Organizer Information: Name, Address, and Signature of the Organizer
• Desired Effective Date for LLC Registration

The cost for filing the certificate of formation is $300. For LLCs that are based in and organized under Texas laws, they will need to complete Form 205. If a foreign LLC wants to conduct business in Texas but was formed under another state’s laws, it must fill out Form 304. The filing fee for Form 304 is $750.

After submitting your certificate of formation, it’ll be reviewed and filed by the Secretary of State. They’ll then return a stamped copy of the document to you. Typically, this process takes anywhere from one to three business days.

Once you have reached this stage, your LLC is officially authorized to do business in Texas. However, there are still a few additional tasks that need attention in order to maintain good standing with the state.

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Step 5: Draft an LLC Operating Agreement

While Texas doesn’t mandate an LLC operating agreement, it’s recommended that members establish one. This document serves as the foundation for your business operations.

The LLC operating agreement should encompass various types of information, including:

• Products or services provided by the LLC
• Names and addresses of each member (and manager, if applicable)
• Financial contributions of each member to the business
• Ownership interest of each member and the division of profits and losses
• Process for admitting new members
• Procedure for electing a manager in a manager-managed LLC
• Schedule of meetings
• Voting procedures for important company matters
• Dissolution procedures

You don’t need to submit your operating agreement to the state. Instead, keeping it with your other important business paperwork is better.

Step 6: Pay Taxes and File an Information Report

Texas-based LLCs are required to pay a franchise tax to the Texas Comptroller of Public Accounts and complete a public information report (PIR) before May 15th every year.

For instance, if your LLC was established in December 2021, your initial PIR and franchise taxes would be due on May 15th, 2022. The PIR includes details about the members and investors involved in the company. Its purpose is to maintain accurate and current information about your business with the secretary of state.

The great news is that most LLCs will not be required to make payments for the franchise tax. Only businesses earning more than $1,230,000 in annual gross revenue will be subject to this tax for 2022 and 2023. If you fall into the retail or wholesale category and meet this criteria, you will need to pay a tax rate of 0.375%.

Other business types are subject to a slightly higher rate of 0.75%. Even if you’re exempt from paying the franchise tax, you still have an obligation to submit a form indicating that no taxes are due.

Members of an LLC are responsible for paying personal state income taxes based on their share of the company’s profits. However, Texas stands out among nine states in not imposing state income taxes. This absence of taxation is a significant advantage for businesses operating within the Lone Star State.

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Step 7: Follow Federal Requirements

Besides meeting the requirements set by the state of Texas for Limited Liability Companies (LLCs), it’s necessary to comply with federal regulations.

If your LLC has employees or is classified as a corporation for federal tax purposes, you will need to obtain an Employer Identification Number (EIN). Think of an EIN as a business equivalent of a Social Security number, which serves to identify your company when filing federal taxes.

While Texas doesn’t impose an income tax on LLCs, members should be prepared to cover self-employment taxes at a rate of 15.3% for federal purposes. This amount includes contributions towards Social Security and Medicare obligations.

If you employ individuals for your company, you must deduct federal Social Security and Medicare taxes from their earnings and cover the employer’s share of these taxes as well.

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How to Start an LLC in Texas – Buyer’s Guide

Best LLC Formation Services

Professional services companies or individuals provide LLC formation services to assist entrepreneurs and businesses in establishing a Limited Liability Company (LLC). These services involve the preparation and submission of required documentation to the state, offering guidance on legal obligations and regulations, as well as aiding in the setup of the LLC in Texas.

By streamlining the formation process, saving time, and ensuring adherence to state laws, these services prove invaluable.

Tailor Brands

Tailor Brands is a digital platform that assists businesses in establishing a polished and unified brand image and starting an LLC in Texas. Their range of branding packages encompasses logo design, business card creation, and social media branding.

Tailor Brands equips businesses with design tools and resources to enable them to craft and personalize their own branded assets.

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ZenBusiness

ZenBusiness is a digital platform that specializes in assisting aspiring entrepreneurs and small business owners in establishing and expanding their businesses.

They offer a variety of reasonably priced packages for LLC formation, which include essential services such as registered agent assistance, annual report filing, and additional beneficial features. ZenBusiness extends ongoing support and provides valuable resources to ensure continued compliance and success for businesses.

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Business Rocket 

Business Rocket LLC is a consulting company that specializes in helping entrepreneurs and businesses navigate incorporating their companies.

The firm provides services for new businesses, including checking the availability of LLC names, preparing and submitting articles of organization, offering consultation services, analyzing compliance requirements, providing compliance alerts, and offering ongoing customer support.

Business Rocket offers legal assistance to ensure tax compliance and handles business entity registration. They’re committed to offering competitive prices and even offer free consultation services for individuals who aspire to become LLC entrepreneurs.

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Swyft Filings

Swyft Filings is a company that focuses on the expeditious and effortless formation of an LLC in Texas. Their services encompass incorporation, compliance, and registered agent assistance for LLCs.

Swyft Filings goes the extra mile by providing individualized guidance to aid businesses in successfully maneuvering through the process of forming an LLC while ensuring adherence to both state and federal regulations.

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Texas LLC Filing Requirements

To start an LLC in Texas, have a clear understanding of the necessary steps and requirements. Each state has its own specific requirements that must be met.

In Texas, there are certain unique requirements that you need to fulfill to establish your LLC successfully.

• To adhere to Texas law, it’s mandatory to include either “Limited Liability Company” or “Limited Company” in the name of your business. There are several options for abbreviations, including “L.L.C.”, “L.C.”, or “Ltd. Co.” You can use the abbreviations “Ltd.” for “Limited” and “Co.” for “Company”.
• When forming an LLC in Texas, choose a unique name that doesn’t match any existing businesses. The name of your LLC should be distinguishable from other business entities in your state. If the name you want to use for your LLC is too similar to another brand, your application will be rejected.

You can use the Texas Taxable Entity search engine to check if there are any existing businesses with the same name as yours. If the desired name is available, you can reserve it by filing either a Reservation or Renewal of Reservation of Name form (Form 501). There’s a filing fee of $40 for this service, and it allows you to secure the chosen name for up to 120 days.

• A registered agent is required: In the state of Texas, all LLCs are required to have a registered agent. This individual or service accepts legal documents on behalf of the business in case of a lawsuit. The registered agent has a physical address within the state, rather than just a P.O. box. The LLC itself cannot serve as its own agent. When choosing an agent, it’s crucial to do thorough research and ensure that their services cover all necessary aspects. Obtaining a reputable agent can range from $100 to $300 per year.

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Cost to Set up an LLC in Texas

It costs $300 to file for a Texas LLC. If you use a service or attorney to file the forms, additional LLC costs in Texas may be associated with the company’s formation.

Texas State Franchise Tax Fee

Texas LLCs are generally required to pay a state franchise tax each year. The official Texas Comptroller website provides detailed instructions on how to calculate this tax, along with additional information. You can access the necessary tax documents on their site.

After completing all the required paperwork, you will be able to:

• “No tax due” forms must be submitted electronically
• Mail documents to P.O. Box 149348, Austin, Texas, 78714-9348

Correcting Texas LLC Filing Errors

Errors can occur, even when filing an LLC in Texas. If mistakes are discovered and need to be rectified, submit a Certificate of Correction or Form 403 to the Texas Secretary of State.

Take care when filling out these documents by clearly identifying the specific corrections that need to be made. There’s a $15 filing fee associated with this process, and currently, online submission isn’t available.

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Next Steps After LLC Formation

After successfully setting up your Texas LLC, ensure that all necessary tasks are completed for the smooth operation of your business. Here are the essential items that should be on your checklist:

• Bank account: Utilize the EIN to start a business bank account, dedicated only to business transactions. Ensure a clear separation between personal and business funds.
• Permits and licenses: Verify with your local municipality for any specific permits or licenses essential for your business operations. This may include health permits, building permits, or other requirements for legal compliance. Depending on your industry or profession, federal or state permits might also be necessary.
• Insurance: Consult with an insurance agent to determine the essential policies for your business. Consider obtaining general liability insurance and, if applicable, workers’ compensation insurance for employees.
• Annual report: Submit a yearly report to the Texas state comptroller’s office as part of your business obligations.

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Texas LLC Pros and Cons

Like any other type of business organization, there are pros and cons to consider before you start an LLC in Texas. Now, we’ll examine the benefits and drawbacks associated with this particular structure.

Pros:

• Texas LLCs offer limited liability protection, safeguarding owners’ personal assets from seizure by the company’s creditors.
• LLCs may consist of a single member or multiple members.
• Greater flexibility in profit distribution among members is a distinctive feature of LLCs compared to corporations.
• Operating as an LLC in Texas can boost a business’s credibility and professional standing.
• Transferring or selling Texas LLCs to new owners is straightforward and requires minimal paperwork.
• LLC owners in Texas can choose to pass the LLC’s income through to their personal income tax filing or opt for taxation as a corporation.

Cons:

• LLCs necessitate paperwork and administrative responsibilities, including the submission of articles of organization, the establishment of an operating agreement, and the maintenance of accurate record-keeping.
• Establishing an LLC in Texas entails the payment of various fees, encompassing state, legal, and annual fees. The business’s generated income is subject to self-employment taxes.
• Despite the LLC structure, individuals owning a business in Texas can still bear personal liability for the company’s debts or legal consequences. This liability may arise from activities like obtaining loans, engaging in fraudulent or illegal actions, or failing to uphold a proper separation between personal and business affairs, including providing a personal guarantee.
• Due to the restriction on issuing stock or shares, LLCs may encounter challenges in raising capital compared to corporations.

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Alternative Business Structures in Texas

The necessity of having an LLC is a common inquiry. In Texas, the filing fees for corporations and LLCs are approximately equal.

Before finalizing your choice to get an LLC in Texas, it’s crucial to comprehend the significant distinctions in taxes, ownership structure, management, and liability between LLCs and corporations.

Various business structures are available to start an LLC in Texas.

• Sole proprietorship: Sole proprietorships are businesses that aren’t incorporated and have only one owner. They’re the easiest type of business to establish, but they also carry the greatest amount of liability for owners because there’s no distinction between personal and business assets.

• General partnership: Much like a sole proprietorship, a general partnership enables multiple individuals to establish a business together but lacks liability protection. The owners are responsible for paying business taxes through their personal income tax returns rather than filing separate taxes for the business itself. This arrangement can be highly precarious if any party acts deceitfully.

• Corporation: Opening a corporation in Texas requires a registration fee of $300. Opting for a corporation instead of an LLC can be beneficial in attracting external investment. Similar to an LLC, a corporation provides limited liability protection. Taxation for corporations can be done as C corporations (c-corps), or they can elect S corporation (S-corps) status for pass-through taxation benefits.

Obtaining a “doing-business-as,” or DBA, name (referred to as an “assumed name certificate” in Texas) is a cost-effective alternative to setting up a corporation or LLC in Texas, with just a $25 state filing fee.

Many novice entrepreneurs find DBAs confusing because they’re not considered a business structure like an LLC or corporation. A DBA is simply a registered nickname for your existing business. Although the terms are often mentioned together, note that DBAs and LLCs have distinct differences.

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How to Start an LLC in Texas – FAQs

Is an EIN Required for LLCs in Texas?

Federal law mandates that any LLC operating in Texas with multiple members must acquire an Employer Identification Number, also known as EIN.

Can I Create a Free LLC in Texas?

The cost of filing your Texas LLC registration is around $300. However, as of January 1, 2022, there will be no fee for new businesses that are 100% owned by veterans. Veteran-owned businesses are exempt from paying franchise tax during their initial five years of operation.

How Do I Change Ownership of a Texas LLC?

When there’s a change in ownership for a Texas LLC, there’s no need to file any documents. However, you’ll need to mention the new members and managers when you submit your annual Public Information Report as part of your franchise tax filing with the state comptroller’s office.

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Bottom Line – How to Get an LLC in Texas

To start an LLC in Texas is a simple process that provides numerous benefits for entrepreneurs.

By following these easy steps, you can establish a strong foundation for your business and reap the advantages of limited liability protection, flexible management, and potential tax benefits. If you don’t want to go through the hassle of starting an LLC on your own, reputable companies like ZenBusiness and Swyft Filings offer LLC formation services.

To ensure a smooth journey as an LLC owner in Texas, conduct thorough research, seek professional guidance when necessary, and comply with state regulations. Take advantage of this opportunity to turn your entrepreneurial aspirations into reality by forming your own Texas LLC today!

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This article is sponsored content. No endorsement by The Times of Israel of advertiser products or services, real or implied, is intended. The Times of Israel editorial team did not contribute to this article.

Author Details
Author Author Email	Ahad Waseem ahad@paradisemedia.com	Ahad is a business, blockchain, and cybersecurity writer who often takes on art, politics, and economics too. As a linguistic engineer who writes to solve problems, he’s written for various tech and business publications. When he’s not writing, he’s probably on horseback, caring for his houseplants, or training Bonsai trees.