How to Form an LLC in Texas (TX LLC 2023)

How to Form an LLC in Texas: This guide will show you how to set up an LLC in Texas.

An LLC protects your personal assets and is simpler than other business structures.

Thanks to the state’s laws, it is easy to set up an LLC in Texas.

This page will provide you with all the necessary steps to do a Texas entity name search, draft a Texas LLC operating agreement, and answer questions like, can I be my own registered agent in Texas? and how long does it take to get a Texas LLC? and ensure your Texas LLC is properly formed.

Learning the legalities of starting a business and forming an LLC can be daunting. Even professionals can get lost in the mazes of laws and regulations.

Don’t despair, though. Designing and planning your business is the most difficult part. It’s easy to form an LLC. It’s not difficult. Many people have done it. You just need to follow the steps one at a time. It will be over before you know it.

If you are planning an eCommerce business in Texas, you can visit our report on how to get a Texas sales permit and Texas resale certificate.

If you want to use an LLC service, visit our list of the best LLC services in Texas.

This article will provide all the information you need to create an LLC in Texas.

• How to prepare and file all the documents required for Texas LLC formation
• Guidelines to stay within the bounds of federal and state law
• These are the laws and rules that you must follow

How to Start an LLC in Texas

An LLC, or a Limited Liability Company, is a business entity that combines the characteristics of a corporation with those of a partnership or sole proprietorship. This allows you to protect your personal assets and your business assets.

You must file your Certificate to Form an LLC with the State. Additionally, you will need to pay a $300 filing fee to the state of Texas. To get your LLC registered in Texas, there are several steps you need to take.

Hiring a professional LLC formation service is an affordable way to set up an LLC in Texas.

I recommend Northwest Registered Agent for LLC formations in Texas.

How Much Does it Cost to Form an LLC in Texas?

Answer: The Texas state filing fee is $300.

An LLC is more cost-effective than any other business structure. To form an LLC in Texas, there are fees and charges. LLCs are subject to pass-through taxation. Hence, your LLC won’t bring you a massive tax burden in Texas. These are the fees and taxes that must be paid when forming an LLC within Texas.

Texas State Fees

Texas does not require you to reserve an LLC name. Your LLC name can be registered at the time you register it. A Name Reservation is required if you want to keep the name for a long time without having to register your LLC. You can renew it by paying $40 Your LLC name will remain in reserve for an additional 120 days. Name Reservation may be required in some states.

The Franchise Tax rule states that LLCs must pay this tax annually. The annual Franchise Tax report is the LLC’s annual revenue report. The amount of franchise tax for Texas is lower than other forms of business ownership. There may be tax benefits for women-owned businesses.

Texas State Taxes

These steps will help you create an LLC in Texas.

Step 1 – Name your Texas LLC

Name your company. Once you have chosen a name that you like, make sure it isn’t confusing with another company. Here are some things to consider.

These are the words you need to use

Section 5.5056, Texas Business Organizations Code, provides a simple guideline for naming your company.

Texas LLC names must include one of the following:

• Limited liability company
• Limited company
• Abbreviation of one or more of the phrases above, such as LLC, LC or Ltd. Co.

Texas current regulations prohibit you from using the words “limited” and “company” alone to identify an LLC.

Your LLC must also have a name that is distinct from other Texas businesses. Your company name must be distinctive enough to avoid confusion with other businesses.

Texas Name Search Page

https://mycpa.cpa.state.tx.us/coa/

Words You Can’t Use

You’re not quite done yet. Also, you need to make sure you don’t use words that aren’t allowed. These additional rules are listed on the Texas Administrative Code website of Secretary of State.

An LLC cannot use another company’s name. It cannot have a name that could be confused with government agencies or companies.

You are prohibited by the naming rules from using these words:

• Anything that could make people believe your company is part a government
• Any language implying that your LLC does something illegal
• “Grossly offensive” words
• “Olympic” and similar words
• “Bank” and similar words
• “College” and similar words
• “Veteran,” “Disabled,” “Spanish,” and similar words are used if the name suggests that the entity is intended to benefit war veterans and their families.
• “Lotto” and “lottery”

Remember, however, that you must obtain a license to operate your business and/or permission from the governing entity if your business name is anything that would require a professional license.

When naming an LLC in Texas, a good rule of thumb is to not allow anyone to approve the name unless they have provided proof.

Find the right name for your LLC

You will need to search for current business names before you submit your name. This can be done through the Secretary Of State, as you can with most states. To do this, you will need a SOSDirect account. A fee will be charged for each search.

You can also use the Taxable Entity Search, which is easier and more cost-effective. This website allows you to search multiple names or word combinations free of charge. This way, you can submit a name confident that you’ve done all your research and it didn’t cost anything.

Texas DBA: Use a fictional business name

You can change the name of your company after you have named it. To do this, apply for an assumed name (also known by DBA or “doing business as”). These names will help you identify who is the owner of your company. It is also possible to make clear that your company and companies with similar names have different owners.

It is easy to get a DBA. The Texas Business and Commerce Code Chapter 71 provides details regarding assumed business names. An assumed name certificate must be filed with the Clerk of the County or Counties where you intend to do business.

The following should be included in the certificate:

• The DBA that you would like to use
• Name of your LLC
• Texas: Where was your LLC organized?
• The DBA’s life expectancy (not more than 10 years).
• Your principal address, either inside or outside Texas, is the street or postal address.
• The counties where your LLC conducts business with the DBA

The Secretary of State provided a form DBA certificate on its website. Check with your county clerk to see if there are any additional requirements that your certificate must comply with. While the Secretary of State charges a $25 filing fee for the certificate, you should check with your local office to see if there are any additional fees.

Step 2 – Appoint a Registered Agent for your LLC

Each Texas business must choose a person to receive mail and serve process. These individuals, known as registered agents, are the point of contact between your company and the public.

Service by process refers to legal terms for legal documents or business letters. Your agent allows the state and the public to communicate directly with you.

This address will be used if the state has to contact you regarding your business. Your Texas registered agent will receive the paperwork if your LLC is sued.

It’s not as easy as it looks to choose a registered agent. Some owners do it all themselves. However, more experienced individuals hire companies to act as their registered agents. These agents use their offices to receive service of process and mail correspondence.

You might be tempted to become your own registered agent for many reasons.

• It’s affordable: You don’t have to pay someone for something that you can do.
• It’s easy: Your only contact and address information that you need to be current is yours.
• All important documents will be sent to you personally.

However, there are good reasons not to be your own agent.

• No privacy: Your address will be made public on the websites of the Secretary of State and Comptroller.
• Junk mail/spam: Public-facing addresses are subject to junk mail and a limited amount of legitimate mail.
• No breaks: Registered agents must always be available during business hours. They are not allowed to take time off.
• Business interruptions: If the address of your agency is the same address as your business, clients and business could be affected by your duties as an agent. It could be embarrassing for your business if you’re served with a lawsuit right in front of your customers.
• If you forget something: It is your responsibility. Always ensure that your agency address and contact information are correct and current. You are responsible for any mistakes or missing items.

Registered agent service is the best choice. It is their address that people see, and not yours. Their job is to ensure you don’t miss any important information. This will allow you to focus on your business.

If you are looking to register a foreign LLC in another state, a registered agent service may be helpful. Find a company that has business in all of those states and pay one fee for multiple offices and agents. Then let the registered agent handle the details.

Step 3 – File your Texas LLC Certificate of Formation

Your certificate of formation of your LLC is one of the most important documents you will file.

Texas law states that filing a certificate is what brings your LLC into existence. Your company is a concept before the filing. It’s now a legal entity that can sign contracts, and conduct business.

What should I include in my Texas Certificate of Formation

Texas Business Organizations Code Section 3.005 requires that your certificate of formation include:

• Your Texas LLC name
• Your LLC’s purpose (which can also be described as “any lawful purpose”)
• You don’t want your company to be around forever. So you need to decide how long the company should last.
• The LLC’s registered street and postal addresses
• Name and address of the registered agent for the LLC
• Each member of the LLC must provide their name and address.

It’s a good idea, before you file your certificate to inquire about any additional requirements.

A professional LLC formation service is also available if you want to save time and avoid the headache of filing your LLC.

Texas LLC Filing Fee

The Texas Secretary of State fee schedule states that you must pay a $300 fee to obtain your certificate of formation.

After processing, the Secretary’s Office will issue an acknowledgment. This acknowledgment proves that (1) your LLC is valid and (2) it can conduct business.

Learn More: What Does it Cost to Form an LLC In Texas?

Texas LLC Processing Time (Normal and Expedited).

The Secretary’s office estimates a Normal processing time is 5-7 business days. You can request expedited processing for $25 per file if you require it earlier.

Expedited processing in Texas means that the document will be processed within the first business day after the Secretary of State has received it. However, this is not always true.

How you send your certificate may impact the processing time. Documents sent by mail or fax could take up to 40 business days. Documents sent by fax or mail can take up to 4-5 days for expedited service.
Non-expedited documents sent electronically to the Secretary of State (through the SOSUpload System) can be processed within 4-5 days.

These times are subject to change because of their workload. The office informs you that they can’t guarantee accuracy. When you file, be sure to ask about the turnaround times.

The Secretary of State’s Office asks you to include a cover letter along with your certificate requesting expedited processing. Your name and contact information should be included in the cover letter.

Step 4 – Draft your Texas LLC Operating Agreement

Operating agreements, also known as company agreements, are contracts between you (the owner) and other members of your LLC.

These are the rules that govern how your company conducts business. Although Texas LLC law does not require that you have one, we recommend you do so. It is worth the time to create the contract.

You are likely a planner and able to think things through if you form your own LLC. Even the most experienced business owners cannot predict what might happen in the future.

An operating agreement can help you handle unexpected situations before they become a problem.

The operating agreement should contain all relevant information about the LLC. Your company may have six LLC owners (LLC owners), but they won’t all be doing the same thing. One person might put up the most money, and the other might manage the business.

Each person is listed in the operating agreement and their expected work hours. It might be a good idea for an LLC member who is a passive investor to pay more if the company requires more money. Managers might have a responsibility to cut down on business spending.

These contracts are great because you can be as specific as you like for each member of your LLC. You can also set how members can purchase shares in the company or what their rights are.

The operating agreement outlines what happens if someone fails to perform their job. Are they allowed to be fired? You have the right to decide if you have an operating contract. If you don’t have an operating agreement, you leave the decision up to the state law. This could not lead you to the desired result.

These are just a few uses of LLC operating agreements. An operating agreement can also include:

• They set out the rights and obligations of LLC members. The operating agreement should state that one LLC member will be responsible for managing the business or running the books.
• These include whether an LLC has a member manager or non-member manager, and what the manager can do. Managers have particular duties to the company as well as the members. These should be stated in the operating agreement.
• These documents outline the legal rights and obligations of the LLC. The operating agreements should also detail how the company can conduct its business day-to-day.
• These rules outline how new members can join the company. Also, they have rules for how members can exit.
• They determine how and when members are paid their profits. They may also be able to create various types of membership or payment schemes.
• These indicate whether managers or members are in charge. Also, they explain how to fire and hire managers.
• These guidelines outline how and when an LLC should be disbanded. While you may not wish to do so now, it might come in the future. It is best to plan ahead and think about the possibility.
• They explain how to modify the rules. In the future, you may have to modify your operating agreement. You should establish the rules for changing your operating agreement.

Texas Business Organizations Code Section 101.051 allows for you to use your certificate form for the same purposes that an operating agreement. Although you might be tempted not to create an LLC operating agreement, we strongly recommend it.

You don’t need to file an operating agreement with the state, unlike the certificate of formation. It is your contract. These items will be included in your articles. However, you must amend the articles each time the company changes its rules. It is costly, time-consuming, and expensive to file an amendment (with a $150 fee).

After all members have signed it keep it safe and make copies. A good operating agreement should be available as a reference for your business.

Step 5 – Get an EIN (Employer Identification Number) for Your Texas LLC

EINs are numbers used by the IRS to keep track of tax-paying companies. An EIN is your LLC’s social security number. While not all LLCs require one, many do. It is important to know when you will need one.

These are the most frequent reasons you might need an EIN.

• Is there more than one member of your LLC?
• Are there employees in your LLC?
• Does your LLC get taxed as either a C-corporation or an S-corporation?

If you answered yes to any of these questions, then you will need an EIN. Note that banks may require an EIN in order to open a bank account for LLCs.

It is easy to obtain an EIN. You can apply online at the IRS website. The entire process will take approximately five minutes. Alternatively, you can file IRS Form SS-4 by mail or fax.

Never pay anyone to do this for you unless it is part of a larger package.

How Much Does it Cost to Form an LLC in Texas?

Answer: The Texas state filing fee is $300.

An LLC is more cost-effective than any other business structure. To form an LLC in Texas, there are fees and charges. LLCs are subject to pass-through taxation. Hence, your LLC won’t bring you a massive tax burden in Texas. These are the fees and taxes that must be paid when forming an LLC within Texas.

Texas Foreign LLC

You can form a Foreign LLC by filing the Certificate of Foreign LLC with the Texas Secretary Of State. Foreign LLCs permit you to operate your business across multiple states.

To form your foreign LLC in Texas, you will need to submit additional documents such as the Certificate of Foreign LLC and the Certificate of Good Standing.

You must complete the Application for Registration as a Foreign Limited-Liability Company to set up an LLC in another country. For more information, see our guide on Texas Foreign LLC. This will explain the steps involved in filing a foreign LLC.

First Tasks after registering your Texas LLC

Congratulations! Congratulations! Although it may seem small, this is a significant step toward your goal. Do not stop. You have a few other things that you can do to protect your business and yourself.

Register for a Business Bank Account

For several reasons, your company should have its own bank account.

• Accounting: Your goal is to make money. If you don’t know how much money your company deposits and spends each month, you can’t tell whether you’re making any money.
• Credit: Even the most successful businesses need to borrow money. However, you don’t want your personal credit to pay for business expenses. Separating company money helps to build company credit that can be used for business purposes.
• Personal Asset Insurance: Separating your company’s funds from your personal money is what makes an LLC a good idea. You risk losing this protection if you do not have a business bank account.

It should be clear what the accounting reasons for separating money are. Separating money should be obvious. Keeping financial records of income and expenses is a key part of running a business. It is easiest to use different accounts.

Credit is something you may not be thinking about right now. You’ll be grateful that you had it if you ever need it. You might have to make improvements, sign new leases, or invest in new technology a few years later. In these cases, it is best to let the LLC borrow, and not you.

This is the most important point. Protecting yourself against legal liability is crucial. Your personal assets are not at risk if your company is financially independent and sued by another party.

Lawyers call this company/individual separation

Let’s suppose you use the company car to pick up your children from school. This shows that you are not using company assets for your own benefit. The same principle applies if the company’s money is placed in your personal bank account. It’s difficult to argue that your personal and business finances are separate in this case.

A court can look into legal problems if you are in trouble. If the court finds that you have been treating company assets as yours, it will “pierce” the veil. The other side can ignore any legal personal liability protections the LLC provides. This defeats the purpose of forming a limited liability company.

This is an important step. As soon as possible, open a bank account for your LLC.

Get Business Insurance For Your Texas LLC

It can be easy for you to get lost in all the legalities of starting your business. It is important to ensure that your business is protected by obtaining the right insurance policies. Your business will determine the type of insurance you need. However, there are some policies that you might want to consider:

• General Liability Insurance: This insurance is required if you sustain an injury to your property. This insurance covers legal representation and damages.
• Commercial automobile insurance This is similar to your automobile insurance. It covers your drivers and vehicles.
• Workers Compensation Insurance: Workers’ compensation policies cover employees for injuries sustained on the job. Texas law doesn’t require that companies have these policies, unlike many other states. However, it is smart to have it because it protects you against injury lawsuits from your employees.
• Commercial property insurance This covers your property in case of damage. Flood insurance is usually a separate policy.
• Professional liability insurance for lawyers, architects, doctors, and other professionals. It covers legal defense and provides protection in the case of a malpractice lawsuit.

Keep Your Texas Company Licensed

After your Texas limited liability company has been formed, it is important to ensure that you follow the law. Failure to comply with legal requirements can result in your business being stopped by the state. You may also be subject to tax penalties or fines.

Texas Business Permits and Licenses

Texas does not require any general business licenses or permits. This is accomplished by your certificate of formation. Remember that each city or county may have its own rules. Check with the relevant authorities to determine if they require a permit for your business.

Some types of businesses may also need professional licensing. Think doctors, lawyers, or architects. For information on professional licensing requirements for your business, contact the Texas Department of Licensing and Regulation.

Texas Tax Requirements

Franchise taxes are imposed by the state on LLCs. The franchise tax is calculated on the “net surplus” (a number that is difficult to calculate, but roughly translates into the business’s assets minus members’ contributions). This state accountant’s website has forms that will help you determine this amount when it comes to tax time.

Other tax obligations may apply to you. Register for and pay the employment taxes if you have employees. If you sell goods, you must collect sales taxes and pay them to the state. To ensure that these issues are addressed promptly, you should consult a business accountant.

Federal LLC Tax Filing Requirements

Your LLC, whether it is single or multi-member, will be treated by the Internal Revenue Service as a pass-through entity. This means that you company won’t have to pay taxes directly. Instead, income from the LLC will be passed to you, and you will be taxed on it. Your personal federal tax return should include any profits or losses made by your LLC.

Annual Report and other filing requirements

You are not required to file an annual report by the Texas Secretary of State for your LLC. However, you will need to file an annual report with the comptroller regarding your Texas franchise tax.

Texas LLC – FAQs

Can I file for an LLC in Texas by myself?

Yes, you can do it yourself or use a filing service.

How long does it take to get an LLC in Texas?

If you file online, it takes about 3 business days to get your LLC. If you file by mail, it takes about 5 to 7 business days.

How long does a Texas LLC stay active?

In Texas, you need to renew your LLC every year by filing the ‘Annual Report’ with the Texas Secretary of State. Texas does not charge a renewal fee for this report.