How to Start an LLC in Texas

Last updated: May 15th, 2024
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Once you have decided to start a Texas business, you’ll need to be sure you follow all of the steps required in Texas. The process of forming an LLC is designed to be simple and attainable for any Texan, so long as the steps below are followed.

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About BOI Reports…

For LLCs to operate legally, owners must understand and comply with Beneficial Ownership Information (BOI) reporting rules under the Corporate Transparency Act. Properly filing your report with the Financial Crimes Enforcement Network (FinCEN) is crucial to avoid penalties. If you are unsure whether your LLC must disclose ownership information to FinCEN, see our post about BOI reporting here.

LegalZoom can help you file a compliant and stress-free BOI Report for only $149.

Texas is known for being a business-friendly state, so it’s no surprise that there are nearly 200,000 LLCs in the Lone Star state alone. This business structure offers personal liability protection for the owner without the tax burden of a corporation, making it the top choice of many entrepreneurs. Whether you’re planning a startup based in Austin, Dallas, or anywhere in the Lone Star state, the process to start an LLC in Texas is simple. However, it is important to follow all the proper steps so that your business is in compliance with state law and can operate in good standing for years to come.

1

Name your LLC

Have a name in mind? See if it’s already listed in the state’s business directory.  If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.

Before you can take any of the first steps towards starting an LLC, you need to have the Texas LLC name decided so that you can use it on paperwork.

Naming rules

The name you choose must be completely unique and not used by any other business in Texas. You can conduct a name search on the state’s directory to see if a business name is available. 

In addition to being unique, Texas law also requires that LLC names: 

  • Include “LLC” or “limited liability company”
  • Do not include the words “lotto” or “lottery”
  • Do not imply that the business has any unlawful purpose
  • Do not imply that the business was created by or for the benefit of veterans and their families, including the use of the following words: veteran, foreign, legion, Spanish, disabled, war, or world war
  • Do not include any words that would be confused for a government agency

Name reservation

If you have chosen a name but are not ready to move forward with LLC formation, you can reserve the name for 120 days. Before choosing to move forward with a name, it can be helpful to be sure it is available outside of Texas as well by checking things like social media handles and domain names for availability.

Search for domain name availability

As you run your business name through the paces, it’s a good idea to check on domain names too. Like business names, they can be taken. For marketing purposes, ideally, your business name and the domain name of your company’s website would be the same. If the domain name is not available, but the business name is, will you still go forward with the name?

It’s a question only a business owner can answer.

You should also consider checking the availability of social handles too.

2

Select a registered agent

The state requires each LLC to name a registered agent as a part of the business formation process. A registered agent is responsible for receiving all official government mail, tax documentation, and legal documents like service of process on behalf of the business. You can choose to be your own Texas registered agent or appoint someone else to do it for you. 

Some businesses use a commercial registered agent service, where the professional service handles all responsibilities instead of an individual.

To be a registered agent in Texas, you must: 

  • Be over the age of 18
  • Have a physical address in the state of Texas (An address with a P.O. box is not allowed)
  • Be available during all normal business hours

Texas also requires that any registered agent provides written or electronic consent to their appointment.

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3

File Certificate of Formation

In order to establish your LLC, the primary document that you need to provide is the Certificate of Formation. This is the application that includes all the necessary information about your organization to the state so that they can approve the business. You can submit this online, via mail, or in person through the Secretary of State’s office by filling out Form 205

Information you’ll provide when filing the Texas Certificate of Formation:

  • Entity type (LLC) and name
  • Registered Agent and their contact information
  • Whether the LLC is member-managed or manager-managed
  • Purpose of the business
  • Initial mailing address
  • Organizer, or contact information for the person filing
  • A signature

The form also allows additional space for any supplementary documents you may choose to provide, such as information on an LLC’s duration where it differs from the default.

In other states, the Certificate of Formation is referred to as Articles of Organization.

You can fill out and submit your Texas LLC formation documents here.

Filing fee 

There is a filing fee of $300 in order to form an LLC in Texas. Payments can be made using a personal check, money order, LegalEase debit cards, or most major credit cards.

Texas processing time 

For Certificates of Formation submitted online, the expected processing time is 3 business days. For those submitted by mail or in person, it is 5 to 7 business days.

4

Create an LLC operating agreement

While Texas does not require LLCs to have an operating agreement, also known as a company agreement, it is best practice to have one in place for any business. 

An LLC operating agreement is a legally binding document that outlines how a business will be run, how ownership will be managed, and how decisions will be made. Having this in place ensures there is no confusion when it comes to business practices and lessens the risk of conflict in the future.

An operating agreement should include: 

  • Names of members and managers and the structure of ownership of the company
  • Whether the LLC is managed by members or a manager
  • How members will vote on business matters
  • The amount of money each member invested and any restrictions on future investments
  • How profits and losses will be divided among members
  • What happens if a member leaves the company for any reason
  • What happens in the event of dissolution of the LLC

For more complex businesses, it may be wise to use a business attorney to draft your operating agreement. There are also many templates available online. 

The agreement does not need to be submitted to the Texas Secretary of State but should be signed and kept on file for your own reference.

Once you have taken all the necessary steps to create your LLC, you can begin business operations. In addition to providing goods and services and growing your customer base, there are additional administrative tasks that are important to keep your LLC in good standing.

5

Get your EIN

An EIN, or employer identification number, is a unique identifier issued by the Internal Revenue Service (IRS) to businesses. This is the equivalent of your personal Social Security Number, but for businesses. 

Not all businesses need an EIN. However, you do need an EIN if your business plans to:

  • Hire employees
  • Be a multi-member LLC
  • Have excise tax liabilities

Even if you are not required to obtain an EIN, it can be helpful to have one. Some banks and lenders will require an EIN, and it prevents you from needing to share your personal Social Security Number on any paperwork.

You can get your EIN by visiting the IRS website.

6

Open business bank accounts

While some LLC owners choose to use only their personal bank accounts, the best practice is to have at least one separate bank account just for your business. Having separate accounts for your business and personal finances prevents any mistakes and makes paperwork much easier come tax time. 

In order to open bank accounts in a company name, the LLC must be officially formed, and you will typically need an EIN. A checking account is where most people start, but it is also wise to have a business savings account and a business credit card. 

To open a business bank account, you’ll need an EIN. If you don’t already have one, you’ll need to get one from the IRS website.

 

7

Review LLC tax rules in Texas

LLCs are treated as separate legal entities for tax returns rather than having profits and losses included on the owner’s personal returns. However, at least some of the profits are able to “pass-through” to the owner, avoiding corporate taxation at the state level. 

Texas is known for having favorable income tax laws when it comes to business owners, but there are some specific rules to understand.

Most local businesses in Texas are subject to a franchise tax, which is about 1% of some portion of the company’s profits. For businesses that make it below a certain threshold, this rate can be lowered when they file the E-Z Computation form through the Texas Comptroller of Public Accounts. This tax is due May 15th each year. 

8

File an annual report

All LLCs in Texas must file an annual report through the Texas Comptroller. Even if the LLC makes below the taxation threshold, it must file a report that shows no taxes are due. These reports are due by May 15th each year, with the exception of the year an LLC was formed. While there is no state fee, late fees are assessed if the deadline is missed.

You can file a Texas annual report with the Texas Comptroller.

9

Get insurance for your LLC

An LLC is designed to protect the personal assets of its owner, but it is still important to ensure the business’s assets are protected as well. This is typically done by purchasing some type of business liability insurance that can guard against lawsuits and damages the business may owe. 

The most common forms of insurance are professional liability insurance, business liability insurance, and business property insurance. Certain industries or businesses may require additional insurance policies. 

There are also filing requirements for most LLCs to have disability insurance, workers’ compensation insurance, and unemployment insurance. 

Additional resources to help you set up a business in Texas

Texas prides itself on being a business-friendly state and therefore has many resources dedicated to helping business owners start and become successful. 

FAQs

What business industries are popular in Texas?

Texas is home to companies, but the state’s most popular business niches are transportation, utilities, business services, education, healthcare, and leisure and hospitality. The state is expecting tourism to bounce back after the pandemic halted travel everywhere.

Do I need a DBA for my LLC in Texas? 

A DBA, or Doing Business As, is needed when you plan to operate a business under a name different from its legal name. This is not typically required for LLCs, as naming the business is part of the formation. However, you can file for an Assumed Name Certificate in Texas on behalf of your LLC. 

Can I be my own registered agent in Texas?

Yes, any Texas resident can serve as a registered agent for an LLC formed in Texas. This includes the owner of the LLC. If you want to appoint someone else or use a registered agent service, they must reside or operate in Texas and have a street address within the state, not a P.O. box.

What is the cost of a Certificate of Formation in Texas?

Wondering about pricing? Filing a Certificate of Formation in Texas costs $300, payable by check, money order, or certain debit and credit cards. This is a one-time cost paid to the Secretary of State and is not refundable if an LLC is rejected.

Does Texas require an operating agreement for LLCs? 

No. In Texas, an operating agreement or company agreement does not need to be filed on behalf of any business entity. While it is recommended to create these documents, they are for the use of your business and only need to be kept on file in your records, not those of the Secretary of State.

How are LLCs taxed in Texas?

All LLCs, no matter the state, have pass-through taxes, which means the income earned from the business is passed to the owner’s individual tax return. Corporations, on the other hand, are taxed twice. They’re taxed as a business and again as income on the owner’s taxes. It’s called double taxation.

Is there an EIN for Texas?

EIN, or employer identification number, is an identifier used at the federal level by the IRS for tax purposes. (You use it to pay federal taxes). This is true regardless of what state your LLC is formed in. However, the Texas State Comptroller or franchise tax board will issue a Texas Tax ID number to businesses for the purposes of state tax management.

Does my LLC need a business license in Texas?

Texas does not require a general business license at the state level, though most businesses will need to obtain a sales tax permit before making any sales. Some cities and counties within the state do require general licensure, and certain industries will also require additional permits in order to operate legally.

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

The actual approval of Certificates of Formation in Texas can take anywhere from 3 to 7 business days, depending on the method of filing. However, it can take up to a month to complete all steps of the process and be ready to begin operating your LLC. 

Do Texas LLCs have to pay a franchise tax?

Texas does have a franchise tax, but only businesses that make a certain amount in sales have to pay it. Businesses with $1.18 million to $10 million in annual receipts pay a Texas franchise tax of 0.375%. Businesses with receipts less than $1.18 million pay no franchise tax. For most small businesses, an annual franchise tax is not a problem.

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