Guide to Starting a Texas LLC

Want to launch your business as an LLC? Texas is a business-friendly state, just as the limited liability company (LLC) is a business-friendly concept. It allows entrepreneurs to have liability protection without the cumbersome structure of a corporation. It’s sort of like getting the best plate of barbecue in town without having to wait in a long line.

Still, forming a Texas LLC requires you to follow certain steps and meet certain requirements, which can be scary if you’ve never started your own business before. That’s why we’re here to walk you through the entire process.

How to Start an LLC in Texas

The Texas Secretary of State has a few rules to follow if you want to form your limited liability company smoothly, quickly, and without costly fines. To show you how to start a Texas LLC, we’ve put together six basic steps (think of it as the Texas Two-Step plus four):

1. Choose a unique name for your LLC in Texas
2. Appoint a registered agent to receive important notices for your business
3. File Form 205, a Certificate of Formation with the Texas Secretary of State
4. Create an operating agreement to establish the rules for your LLC
5. Register your business with the IRS and review your tax requirements
6. File Your Texas BOI report

If that sounds like a lot, don’t worry. We’ll walk you through how to start an LLC in Texas in this article. What’s more, for those who aren’t fond of government bureaucracy (and who is?) we’ll show you how our services can help you start, run, and grow your business, including filing the paperwork to establish your Texas LLC.

Step 1: Name your Texas LLC

Choosing a unique and compliant name is the first step in forming your LLC in Texas. It must be different from any other existing business name in the state. It must also follow Texas limited liability company naming guidelines.

Here’s a simplified guide to help you with the naming process of your Texas LLC:

• Unique Name: Ensure your desired LLC name is unique and not already taken by another business in Texas.
• Compliance with Naming Rules: Adhere to Texas naming guidelines which include avoiding government or restricted words unless authorized. Your name should also be distinguishable from existing business names in the state.
• Check Name Availability: Utilize the Texas Business Entity Search Page to check the availability of your desired name. For a more precise check, contact the Texas Secretary of State at (512) 463-5555 or via email at corpinfo@sos.texas.gov.
• Designator: Include a designator like “LLC” or “L.L.C.” at the end of your business name as required by Texas law.
• Trademark Check: Conduct a trademark search at both the state and federal level to ensure your chosen name doesn’t infringe on existing trademarks. State trademark information can be found on the Texas Secretary of State website, and federal trademark information can be searched on the U.S. Patent and Trademark Office website.
• Domain Name Availability: Check if your desired name is available as a web domain for your online presence. Secure a domain name that closely matches your business name to ensure consistency and easy discovery online.
• Assumed Name (DBA): If you plan to operate under a different name from your official LLC name, register an assumed name (DBA) with the Texas Secretary of State.
• Name Reservation: If you wish to reserve your name before officially forming your LLC, you can do so for 120 days by filing a name reservation application with the Texas Secretary of State.

For a more detailed understanding of the naming rules and to review the state’s naming guidelines, visit the Texas Secretary of State website. If you need additional help with naming, follow the instructions on our Texas Business Entity Search page to do a search for your desired LLC name.

Step 2: Appoint a registered agent in Texas

Next, designate a registered agent for your business. The government has to be able to reach your LLC. They need a contact (an individual or business entity) and a Texas street address for your business so they can send official government correspondence, tax forms, and legal documents, such as a summons if the business is sued.

This contact person or business entity is called the “registered agent” in Texas. The official registered agent address for your business is called the “registered office.” The registered office doesn’t have to be where your business is actually located, but it does have to be a physical street address in Texas. You can’t use a P.O. box because notices like subpoenas must be delivered in person.

So, who do you choose to be your registered agent? You have three options here. You can be your own registered agent, appoint another person as your agent, or use a registered agent service. A few states will allow an LLC to be its own registered agent, but not Texas.

It’s important to remember that you must always have a registered agent. If the agent moves, quits, etc., you need to get a new one immediately and update your paperwork with the Secretary of State or risk having the state shut down your Texas limited liability company.

Step 3: File Texas Certificate of Formation Form 205

Filing your Certificate of Formation (form 205) with the Texas Secretary of State is the pivotal step to officially register your LLC in Texas. This document is known as the “Articles of Organization” in many other states.

To file / apply online, visit the Texas Secretary of State website and create an SOSDirect Account. The filing fee is a one-time payment of $300, with an additional 2.7% charge for credit card payments. The processing time for online filing varies but is typically 10 to 12 business days.

For those preferring to file by postal mail, the same fee of $300 applies. Complete the Certificate of Formation form and mail it along with the payment to:

Secretary of State
P.O. Box 13697
Austin, TX 78711-3697

Filing by postal mail is considerably slower, with an estimated processing time of 70 to 72 business days. Although slower, this method is an alternative for those who aren’t comfortable filing online.

What Information to Provide About Your LLC

• Entity Name and Type: Your chosen company name, followed by “limited liability company,” “limited company,” or an abbreviation like “LLC” or “LC.”
• Registered Agent and Office: Information of your registered agent and their physical address in Texas.
• Governing Authority: Indicate whether your LLC will be member-managed or manager-managed.
• Purpose: A general statement like “any and all lawful purposes” suffices.
• Initial Mailing Address: Provide an address where the Comptroller can send tax information and correspondence.
• Supplemental Provisions/Information: Optional section for any additional provisions.
• Duration: Specify if your LLC has a termination date or if it exists perpetually.
• Organizer: The person completing the form/filing the papers for the LLC.
• Effectiveness of Filing: Specify when your LLC will go into effect.
• Execution: Date and signature.

Once filed and approved, you’ll receive a stamped Certificate of Formation from the state, officially recognizing your LLC. If any information in the Certificate of Formation changes in the future, it’s required to inform the state about these updates.

Governing Authority Explained

The “governing authority” refers to the management structure of your LLC, indicating whether it’s managed by the members/owners (member-managed) or by a designated manager (manager-managed). Member-managed is commonly chosen when there are only a few owners who actively run the business.

Step 4: Create an operating agreement

Creating an operating agreement, although not mandated by Texas law, is a crucial step, especially if your LLC has multiple owners. This document outlines the operational rules, roles, and financial arrangements within your LLC, promoting clarity and preventing future disputes. It’s a testament to the flexibility that the LLC structure offers, allowing you to tailor the agreement to suit your business’s unique needs.

Here are the key components you may consider including in your Texas LLC operating agreement:

• Ownership: Specify the ownership percentages if it’s not divided equally among the members.
• Management: Detail whether your LLC will be member-managed or manager-managed, and the decision-making processes.
• Initial Contributions: List the capital contributions made by each member at the formation of the LLC.
• Profit Distribution: Define how profits and losses will be distributed among the members.
• Taxes: Indicate the tax classification for your LLC (sole proprietorship, partnership, C corporation, or S corporation).
• Ownership Changes: Outline the procedures for a member leaving, selling their share, or in the event of death or incapacitation.
• Dissolving the Business: Establish the process for dissolving the LLC if necessary.

If you’re unsure about creating an operating agreement, numerous online resources and legal professionals can provide guidance or templates to get you started. The operating agreement can be amended as needed with the consent of the LLC members, ensuring it evolves with your business needs over time.

Step 5: Apply for an EIN

Acquiring an Employer Identification Number (EIN) from the IRS is like getting a Social Security number for your LLC, and it’s free. You can easily apply online on the IRS website for a quick response. If you prefer mail, send your application to: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999, though it’ll take about four weeks.

Most LLCs need an EIN for the following reasons:

• If your LLC has more than one member.
• Hiring employees.
• Opening a bank account, obtaining loans, or credit lines for your LLC.
• Opting for corporate tax classification.

Even single-member LLCs without employees may require an EIN for certain business licenses and permits.

Quick Note: Despite its name, an EIN isn’t just for employers. And don’t mix up the EIN with the 11-digit Taxpayer Number from the Texas Comptroller, which we’ll discuss next.

Texas Taxpayer Number

Once your Texas LLC is in the books, you’ll receive the Franchise Tax Responsibility Letter (Form 05-280) from the Texas Comptroller of Public Accounts in about two to three weeks. This letter furnishes an 11-digit Taxpayer Number for your LLC’s state taxes and briefs you on the Texas Franchise Tax, levied for the privilege of doing business in the state.

Step 6: File the beneficial ownership information report

2024 introduced a new filing requirement for LLCs (and other small businesses) across the country: filing the beneficial ownership information report, or BOI. The BOI is a federal filing that was introduced by the Corporate Transparency Act. The act exists to help enhance financial transparency and prevent companies from using shell corporations to hide illicit activities because each company must disclose information about their beneficial owners. A beneficial owner is anyone who exerts substantial control over the business, receives substantial economic benefits from the business, or holds 25% or more of the company’s ownership interest. 

As a new LLC, you’ll need to file a BOI report with the Financial Crimes Enforcement Network, or FinCEN. Texas doesn’t require a separate version of this report, so you’ll only file it at the federal level. You can file online or by PDF. Either way, in the report you’ll need to include information about your beneficial owners, including their full names, addresses, and some identifying documents. There is no filing fee.

For LLCs formed during 2024, the due date for this form is within 90 days of Texas approving your Certificate of Formation. If you formed before January 1, 2024, you have to file the report before January 1, 2025. After January 1, 2025, new LLCs will need to file their BOI report within 30 days of their formation approval. For more information, please check out FinCEN’s website. 
Need help filing your BOI report? Our beneficial ownership information report filing service can help.

Next Steps after Forming a Limited Liability Company

Once you’ve rounded up the process of forming your LLC in the Lone Star State, there are several essential steps you should consider to help ensure your business rides smoothly. Let’s explore these important aspects.

Open a business bank account

Once you’ve formed your LLC and secured an EIN, you’ll be able to open a business bank account. Having separate accounts for your business and your personal banking is critical for sorting out your finances at tax time. It helps you avoid commingling funds.

Commingling funds not only makes your taxes more difficult, but it could also be used against you if someone takes you to court to challenge whether you and your LLC are truly separate entities.

File Texas annual reports

After the celebration of establishing your LLC, it’s crucial to keep an eye on those calendar dates. In Texas, LLCs are required to file an annual report called a “Public Information Report” in association with the Texas annual franchise tax. This isn’t just a one-time task but a yearly responsibility. 

Why’s this so essential for your LLC? The annual report keeps the state updated about key aspects of your business, such as management structure and operational insights. Not only is it legally mandated, but it also ensures you maintain a good standing with the state authorities. Missed deadlines can lead to penalties or, worse, the dissolution of your LLC. 

Get necessary licenses and permits

The vast terrain of Texas is diverse, and so are its business requirements. Depending on your business’s nature and its specific location in Texas, you might need additional permits or licenses. For instance, if you’re opening a restaurant in Austin, you’ll need health permits, signage permits, and possibly liquor licenses. 

Do your homework by checking with local city and county regulations. While your LLC status provides a legal shield, operating without necessary permits can poke holes in that protection.

Invest in business insurance

Insuring your LLC with appropriate business insurance is a prudent step to mitigate risks. Here are some common types of insurance you might consider:

• General Liability Insurance: Covers accidents or damages occurring on business premises.
• Professional Liability Insurance: Essential for service-providing businesses to cover against errors or negligence claims.
• Commercial Property Insurance: Protects your physical location from damages due to unforeseen events like fires, storms, or theft.

Each insurance type serves a different purpose, and the right mix for your LLC depends on the nature of your business. For more detailed information on business insurance options, consult with an insurance advisor or visit Texas Department of Insurance website.

Consider filing S corp status

Opting for an S corp status could provide tax advantages by allowing you to split your income into salary and company profits, potentially lowering your self-employment taxes. However, S corps are closely scrutinized by the IRS and have specific qualification criteria. It’s recommended to consult with a tax professional to understand the implications and benefits of S corp status for your Texas LLC. For a more in-depth exploration of S corp status, benefits, and qualification criteria, visit the IRS website or consult with a tax advisor.

Stay up to date

With Texas’s vast opportunities come changes in regulations, business trends, and networking possibilities. Engage with local business groups, chambers of commerce, or even online forums that cater to Texas entrepreneurs. This not only keeps you updated with the latest in business laws but also provides an excellent opportunity to network and grow.

Your LLC journey in Texas is more than just formation. It’s about growth, stability, and ensuring that your business dream doesn’t just survive but thrives.

Benefits of a LLC in Texas

Choosing an LLC structure in Texas isn’t just about following a trend; it’s a strategic move. The state’s business-friendly environment, coupled with the inherent advantages of an LLC, offers numerous perks. Here’s a closer look at why one might opt for one in Texas:

1. Limited Liability Protection  

At the heart of an LLC is the protection it offers. When you form an LLC, your personal assets (like your home, car, or personal bank accounts) are usually shielded from business debts and lawsuits. In the event that your Texas LLC faces financial hardships or legal disputes, your personal belongings are usually safe. 

2. Flexible Tax Options  

Here’s a Texas-sized benefit — flexibility in how your LLC is taxed. You can choose between being taxed as a sole proprietorship, partnership, or corporation. But there’s a cherry on top: Texas doesn’t slap a state income tax on LLCs. So, while you’re enjoying your BBQ, you can also relish the fact that you’re keeping more of your hard-earned money.

3. Simplified Administration  

Anyone who’s looked at setting up a corporation knows that the paperwork can be thicker than a Texas T-bone steak. With an LLC, you’re in for a leaner experience. The administrative process is more straightforward, which is a godsend for budding entrepreneurs eager to get their business off the ground without drowning in red tape.

4. Credibility  

Sure, “John’s Barbecue” has a nice ring to it. But “John’s Barbecue, LLC” just sounds more official, doesn’t it? Those three letters, “LLC,” can add a layer of professionalism to your business. It signals to customers, suppliers, and partners that you’re serious about your business. 

5. Management Flexibility  

Texas allows you to structure your LLC’s management the way you want. Whether you prefer member-managed or manager-managed, the choice is yours. This adaptability helps ensure that you can operate your business in a manner that best fits your vision and goals.

6. Asset Protection Strategies  

One of the unique features of Texas law is the strong protection of assets. For instance, Texas offers robust homestead protections, meaning your primary residence is typically safeguarded from creditors.

7. Growth Opportunities 

With its booming economy, diverse industries, and thriving cities like Austin, Dallas, and Houston, Texas presents vast opportunities for business growth. Being an LLC in such a dynamic state means you’re well-positioned to capitalize on these opportunities.

In Texas, as the saying goes, “Everything’s bigger.” And that includes the benefits of setting up an LLC. Whether you’re a local or someone looking from the outside in, Texas provides a fertile ground for your business dreams to take root and grow.

Different LLC Types in Texas

Everything’s bigger in Texas, including the business opportunities. Across the sprawling plains, from the urban hustle of Houston to the serene landscapes of the Hill Country, Texas provides diverse options for entrepreneurs. Let’s explore the types of LLCs the Lone Star State offers:

Single-Member LLC 

Picture a lone ranger, galloping across the vast Texan landscapes with a vision and determination to carve out a niche in the business world. For those individual trailblazers looking to harness the benefits of an LLC without sharing the reins, a single-member LLC is the perfect fit. It grants you the freedom of solo entrepreneurship with the shield of limited liability, helping your personal assets stay secure amidst the business rodeo.

Multi-Member LLC 

Just as a group of cowboys makes a round-up smoother, a multi-member LLC is designed for teams. Whether it’s a dynamic duo or a larger posse of partners, this structure allows members to pool their resources, skills, and visions. Every member gets a seat around the campfire, sharing the profits, losses, and decision-making, helping ensure collaborative growth in the Texan business frontier.

Series LLC

The Series LLC is a forward-thinking structure that the state offers. Imagine a ranch with multiple herds, each distinct yet part of the same property. Similarly, a Series LLC lets you operate several distinct LLCs under one overarching master LLC. Each “child” LLC can manage its finances, members, and operations while being protected from the liabilities of the other LLCs in the series. It’s an excellent setup for entrepreneurs with diverse interests and ventures.

Professional LLC

A professional limited liability company (PLLC) is a business entity tailored for licensed professionals, such as doctors and lawyers. Its primary purpose is to provide liability protection, similar to a regular LLC, while also meeting professional licensing requirements. Note that a PLLC doesn’t shield its members from personal malpractice claims. It can, however, protect the members from malpractice claims against the other members.

Alternative Business Structures in Texas

An LLC isn’t the only business structure available in Texas. Here are some others:

Sole proprietorship: This is the simplest business structure. It’s composed of only one person and requires no registration with the state, unless you want a DBA. You’ll need a DBA if you want to operate your business under any name other than your surname. The problem with sole proprietorships is that they offer no liability protection for your personal assets. If someone sues the business, they can go after your personal savings, home, car, etc.

General partnership: A general partnership operates like a sole proprietorship, but it has multiple owners. Like a sole proprietorship, it offers no personal liability protection.

Corporation: Like an LLC, this structure exists apart from its owners. It offers the strongest liability protection. However, corporations are subject to “double taxation,” in which profits are taxed twice, once at the corporate level and again when they’re distributed to the individual shareholders as dividends. Corporations also have more formalities and red tape than other business structures, such as keeping corporate records and having shareholder meetings.

Limited partnership (LP): An LP is a type of partnership where there is at least one general partner who operates the business but has unlimited liability for any business debts; the limited partners only have liability up to the amount they’re invested in the business.

Limited liability partnership (LLP): An LLP is similar to an LP, except that all of the partners have limited liability; there are no general partners with unlimited liability. In an LLP, partners also have liability protection from the errors of other partners. Unlike LLCs, LLPs require that management duties be equally divided among the partners. LLPs are often used by professionals like lawyers and doctors.