These are the steps required to create a Texas single-member limited liability corporation ( SMLLC).
Keep in mind: A Texas SMLLC is considered the same and can be used for the same purposes as an LLC (multi-member limited liability company).
Forming a Single-member LLC in Texas: Definitions
- Single-member LLC (SMLLC): A single-member LLC is a business entity structure where the company is owned and operated by a single individual, also known as the sole member. In this structure, the sole member enjoys limited liability protection and separate legal status for their business.
- Limited Liability Company (LLC): An LLC is a flexible and popular business entity structure that combines elements of a corporation and a partnership. It provides limited liability protection to its members, allowing them to separate personal and business assets while enjoying pass-through taxation.
- Texas Secretary of State: The Texas Secretary of State is the government agency responsible for overseeing and regulating business entities in Texas. It provides resources, forms, and guidelines for forming and managing LLCs in the state.
- Operating Agreement: An operating agreement is a legal document that outlines the internal workings, ownership structure, and operating procedures of an LLC. It is recommended for LLCs in Texas to have an operating agreement, even if they have a single member.
- Registered Agent: A registered agent is an individual or business entity appointed to receive legal and official documents on behalf of an LLC. In Texas, every LLC is required to have a registered agent with a physical address in the state.
- Certificate of Formation: The Certificate of Formation is a document that must be filed with the Texas Secretary of State to officially form an LLC. It includes essential information about the LLC, such as its name, registered agent, address, and purpose.
- Employer Identification Number (EIN): An Employer Identification Number, also known as a Federal Tax Identification Number, is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify businesses for tax purposes. It is required for an LLC to open a business bank account, hire employees, and file federal taxes.
- Texas Comptroller of Public Accounts: The Texas Comptroller of Public Accounts is the state agency responsible for collecting and administering taxes in Texas. LLCs in Texas may need to register with the comptroller’s office for state tax purposes, such as sales tax or franchise tax.
- Series LLC: A Series LLC is a unique type of LLC available in Texas that allows for the creation of separate series or cells within the company. Each series can have its own assets, liabilities, and members, providing additional flexibility and asset protection for multiple business ventures.
- Limited Liability Protection: Limited liability protection is a key benefit of forming an LLC. It means that the owners (members) of the LLC are generally not personally liable for the company’s debts or legal obligations. Their personal assets are protected from being used to satisfy the LLC’s liabilities.
1. Name your Single-Member LLC
Names of Texas SMLLCs must contain the phrase “Limited Liability Company”/ “Limited Company,” or an abbreviation of one of these phrases, such as “L.L.C.,” L.C. or “Ltd. Co.”
A Texas SMLLC’s identity must be distinguished on the records maintained by the Texas Secretary of State (SOS), from names of any other business entities that have been registered or reserved with Texas.
To ensure the name you desire is available, do a business name searches via the SOS website or the Comptroller of Public Accounts’ website.
Fill out Formula 501 to request a reservation or renewal of an entity name. This form can also be used to renew a name reservation.
2. File a Certificate of Formation
By filing a Certificate of Formation to the Secretary of State, you can create Texas SMLLC. To complete the articles, you will need to provide:
- Your new SMLLC’s official name
- Name and address of the SMLLC registered agent
- This will indicate whether the SMLLC will either be manager-managed or member-managed
- Name and address of each manager/managing member
- Name and address of the SMLLC organizer.
- Here are some other details.
The SOS website allows you to download a blank Certificate of Formation form (Form 205).
You can also file online via the SOSDirect website. The current filing fee per document is $300
Every Texas SMLLC needs a registered agency. A registered agent is an individual, business, or legal entity that accepts legal papers on behalf of the SMLLC.
The registered agent may be a Texas resident or a domestic or international business entity authorized to conduct business in Texas.
SMLLCs can not act as their own registered agent. The registered agent must be located in Texas.
3. Prepare an LLC Operating Agreement
Texas does NOT require that an SMLLC has an operating contract. Even though an SMLLC may only have one member, an LLC operating agreement is strongly recommended.
The LLC and one of its members will usually sign an operating agreement. The agreement covers the member’s rights and duties and the SMLLC management structure.
A contract can protect you from liability by separating your business and yourself. It can be beneficial to lenders and other businesses when entering into transactions.
Most states will not allow you to state that your SMLLC manager-managed upon registration. Your SMLLC will then be treated as member-managed by default.
It is important to distinguish member-managed from manager-managed. Before you choose the type of management structure for your SMLLC, make sure to look at both.
4. Get an EIN (For Banks)
An SMLLC that maintains its default tax status disregarded entities (same sole proprietorship), and has no employees is not required for a federal Employer Identification Number.
Instead, these SMLLCs owners can report their profits and losses on personal tax returns using their Social Security or Tax Identification number.
An EIN (federal Employer Identification Number) must be obtained from the IRS for any SMLLC with employees. You don’t need an EIN to open an account for your SMLLC.
However, there may be business reasons for it. EINs can be required by banks to open accounts under the company’s name.
EINs can also be required for processing payments from other companies. It is common to apply for an EIN even if you are not required for federal tax purposes.
To obtain an EIN, you can apply online at the website. There is no filing charge.
5. Register with the Comptroller of Public Accounts
If you intend to sell goods or collect sales tax, there are some situations where you may need registration with the Texas Comptroller of Public Accounts. Most SMLLCs are subject to a franchise tax in Texas.
Depending on which tax you are dealing with, you might be able to register online, by post (using the correct form), or in person at a CPA office.
6. Get Business Licenses
Depending on your business type and location, you may need local or state business permits for your SMLLC.
You might also be eligible for licenses that relate to:
- Your occupation or profession
- Specific goods and services that you will sell or offer
- An assumed or fictitious business name, or
- Safety and health are paramount.
7. No Annual Reports are Needed in Texas
Texas doesn’t require SMLLCs not to file annual reports with their Secretary of State, which is contrary to most states.
However, SMLLCs still need to file annual reports on franchise taxes. Complex details can make it difficult to calculate tax. You can find more information at the Texas Comptroller’s website or ask a CPA
Texas Business Tips
Once you’ve confirmed name availability, you can proceed with the formation process and get your Texas business name registered.
Drafting a Texas LLC operating agreement is highly recommended to establish the internal rules and regulations of your LLC. You have the option to act as your own registered agent in Texas, handling the receipt of important legal and tax documents on behalf of your LLC.
The length of time to get an LLC in Texas may vary based on several factors, including the filing method and the workload of the Texas Secretary of State. It typically takes around 2-3 weeks for the formation documents to be processed and the LLC to be officially recognized.
As part of the process, you will need to obtain an Employer Identification Number (EIN) for your TExas business from the Internal Revenue Service (IRS). This unique identifier is necessary for tax purposes, opening bank accounts, and hiring employees.
Several online platforms and registered agents offer comprehensive LLC services, including name availability searches, document preparation, and filing assistance. Researching and selecting the best LLC services and registered agents in Texas can help streamline the formation process and ensure compliance with state regulations.
Additionally, depending on the nature of your business activities, you may need to acquire specific Texas business licenses at the state or local level. The cost to form an LLC in Texas typically includes filing fees and any additional expenses related to name reservation, certified copies, or expedited processing. The cost is the same even for a single-member LLC in Texas.
Lastly, if you ever decide to change your registered agent or dissolve and close your LLC in Texas, there are specific legal requirements and procedures that must be followed to formally terminate the entity.
Brian Wilson is the content manager and founder of LLC Radar.
Brian grew up in North Texas, just outside of Dallas, and has a bachelor’s degree in business journalism from Southern Methodist University. Since graduating from SMU, Brian has gained over 10 years of experience in business writing for several online publications.
Brian resides in Plano, Texas and he can be reached by email: firstname.lastname@example.org