Starting an LLC in Texas requires knowledge of specific state requirements and a few crucial steps. This all-inclusive manual will walk you through starting an LLC in Texas using simple and direct procedures. Keep reading to acquaint yourself with the essential details on Texas LLC prerequisites, fees, and the registration process for your upcoming business.
How to Start an LLC in Texas in 2023 - TX LLC Guide
Embark on your Texas business journey with our comprehensive guide, walking you through the seven simple steps to start an LLC in the Lone Star State.
Start an LLC in Texas
Start an LLC in Texas
How to Start an LLC in Texas State – Step-by-Step Guide
Step 1: Choose a Name for Your LLC
Individuals with a legitimate business aim can start an LLC in Texas. Professionals in regulated fields like medicine and veterinary practice must create a professional entity such as a Limited Liability Company or corporation. To assist in this process, the Texas Secretary of State has released a guide listing the entities permitted for each profession.
The initial stage involves selecting an appropriate business name. According to Texas legislation, an LLC must have a unique name to differentiate it from other businesses within the state and avoid misleading the public.
Texas LLCs must have names ending with "Limited Liability Company" or "limited company." Abbreviations like L.L.C., LLC, L.C., or LC are also acceptable.
Under Texas law, an LLC's name cannot include certain words such as "bank," "bank and trust," "trust," "trust company," or "bail bonds." The name cannot imply any affiliation with the government.?
The terms "insurance" and "surety" can also be problematic unless it's clear that the business isn’t an insurance or surety agency. This restriction exists because the Texas Insurance Code regulates insurance and surety companies.
Suppose your Texas LLC has a name that closely resembles another business in Texas to the point where it would violate the law. In that case, there’s a solution: you need permission from the other company to use a similar name.?
For example, let's say you want to name your bakery Texas Super Bakery LLC, but there’s already a company called Texan Super Bakery LLC. In this case, Texan Super Bakery must provide consent using Form 509: Consent to Use of Similar Name.
Step 2: Choose a Registered Agent in Texas
In Texas, every LLC must have a registered agent, regardless of whether you’re establishing your business under Texas laws or an out-of-state business operating in Texas.
A registered agent performs the crucial role of accepting legal and official documents for your business. Your choice for a registered agent can be either an individual who resides in Texas or an organization authorized to conduct business within the state.
If you choose an individual, they should be:
- Available to accept documents during regular business hours
- 18 years or older
- A Texas resident with a physical address in Texas (no P.O. boxes)
In Texas, individuals who wish to serve as registered agents must provide their consent by filling out Form 401-A: Acceptance of Appointment and Consent to serve as registered agents. Note that this consent form doesn’t need to be submitted to the state but should be kept on file with other business documents.
While a business entity cannot act as its registered agent, one of the members of an LLC or another individual can fulfill this role. However, relying solely on a member of the LLC might pose challenges since they may only sometimes be available to receive important business documents.?
For instance, if a member falls ill or is temporarily absent from the office. Many businesses utilize online legal services that offer registered agent services for a fee to address this issue. These services ensure consistent availability and acceptance of crucial documents on behalf of businesses.
Step 3: Obtain Texas Business Permits
Depending on the specific industry in which your company operates, obtaining a specialized permit from one of the various regulatory agencies in Texas may be necessary. The Texas Business Permit Office has released a guide outlining the different types of state licenses required depending on the nature of your business.?
To legally sell tangible personal property or certain services within Texas, all businesses are required to apply for a sales and use tax permit from the Texas Comptroller's office.?
Suppose your business operates under a trade name that differs from its legal name as an LLC. In that case, you must also submit an Assumed Name Certificate (Form 503), called a fictitious business name filing. The fee for filing an assumed name is $25.
Step 4: File a Certificate of Formation
To start an LLC in Texas, the following action is required: submitting a certificate of formation to the state of Texas. This document serves the same purpose as other states refer to as the articles of organization.?
You have several options for filing this form: online through SOSDirect for quicker processing, mailing it in, faxing it, or personally delivering it 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
- Whether the LLC is member-managed or managed-managed
- Name and address of each LLC member if the LLC is member-managed
- Name, address, and signature of the organizer filling out the form (this usually is, but need not be, a member or manager of the LLC)
- The date that you’d like the LLC registration to be effective
The cost to file the certificate of formation is $300. For LLCs based in and organized under Texas law, Form 205 should be completed. Foreign LLCs established under another state's laws but wishing to operate in Lone Star State must complete Form 304. The filing fee for Form 304 amounts to $750.
After submitting your certificate of formation, it will be reviewed by the Secretary of State and filed accordingly. You will then receive a stamped copy of the document within one to three business days.
Upon reaching this stage, you’re officially authorized to conduct business in Texas as an LLC. Additional tasks still need attention for your LLC in Texas to maintain its good standing with the state.
Step 5: Draft an LLC Operating Agreement
While Texas doesn’t mandate an LLC operating agreement, it's highly recommended that members establish one. This agreement serves as the foundation of your business and plays a crucial role in its operations.
The LLC operating agreement should contain the following types of information:
- Each member’s financial contributions to the business
- The products or services offered by the LLC
- Each member’s ownership interest in the company and division of profits and losses
- Procedures for voting on important company matters
- Meeting Schedule
- Dissolution procedures
- Each member’s name and address (and the manager’s, if there’s one)
- Procedure for admitting new members
- Procedure for electing a manager if the LLC is manager-managed
You don’t need to submit your operating agreement to the state. Instead, it should be kept together with other essential business records.
Step 6: Pay Taxes and File an Information Report
LLCs in Texas must remit a franchise tax to the Texas Comptroller of Public Accounts and complete a public information report (PIR) by May 15 each year. To illustrate, if your LLC were established in December 2021, your initial PIR and franchise taxes would be due May 15, 2022.?
The PIR includes details about the members and investors involved with the LLC. Its purpose is to ensure that accurate and current information about your business is recorded with the secretary of state.
The great news is that most LLCs are exempt from paying the franchise tax. For 2022 and 2023, this tax only applies to businesses earning more than $1,230,000 in annual gross revenues.
LLCs in Texas must pay a franchise tax to the Texas Comptroller of Public Accounts and complete a public information report (PIR) by May 15 each year. For instance, if your LLC were established in December 2021, your initial PIR and franchise taxes would be due May 15, 2022.?
The PIR consists of details regarding the LLC's members and any investors involved in the company. Its purpose is to ensure that accurate and current information about your business is recorded with the secretary of state.
The great news is that most LLCs are exempt from paying the franchise tax. From 2022 until 2023, this tax only applies to businesses generating more than $1,230,000 in annual gross revenue.
Step 7: Follow Federal Requirements
Besides meeting the state requirements for LLCs in Texas, it's also essential to comply with federal regulations.
LLCs that have employees or are taxed as corporations at the federal level must obtain an Employer Identification Number (EIN). Like a Social Security number for individuals, an EIN identifies your business when filing federal taxes.
While there’s no income tax in Texas specifically for LLCs, members should expect paying 15.3% in federal self-employment taxes. This amount covers obligations towards Social Security and Medicare. Suppose you have employees working for your business. In that case, you must also withhold federal Social Security and Medicare taxes from their wages and contribute the employer's share of these taxes.
How to Start an LLC in Texas – Buyer’s Guide
Best LLC Formation Services
Professional individuals or companies offer LLC formation services to assist entrepreneurs and businesses in establishing a Limited Liability Company (LLC).?
These services encompass tasks such as preparing and submitting the required documents to the state, advising on legal obligations, and aiding in the setup of the LLC. These services save time and guarantee adherence to state laws by simplifying the formation process.
These services encompass tasks such as preparing and submitting the required documents to the state, providing advice on legal obligations, and aiding in the setup of the LLC. These services save time and guarantee adherence to state laws by simplifying the formation process.
ZenBusiness is a digital platform specializing in assisting entrepreneurs and small business owners in initiating and expanding their companies. They provide cost-effective and all-inclusive packages for forming Limited Liability Companies (LLCs), encompassing services such as registered agent help, annual report submission, and various other features.?
Additionally, ZenBusiness extends ongoing support and offers valuable resources to ensure businesses maintain compliance while achieving success.
Swyft Filings is a specialized service focusing on the quick and effortless formation of LLCs. Their services encompass various aspects of LLC formation, such as incorporation, compliance, and registered agent assistance.?
Swyft Filings offers personalized guidance to help businesses smoothly navigate the process of forming an LLC in Texas while ensuring adherence to state and federal regulations.
Tailor Brands is a digital platform that assists companies in establishing a polished and unified brand image. They provide various branding options, including logo creation, business card design, and social media identity development. Tailor Brands offers various design tools and resources to empower businesses in crafting and personalizing their branded elements.
Texas LLC Filing Requirements
Before forming your Limited Liability Company (LLC) in Texas, thoroughly understanding the necessary steps and requirements is crucial. Each state has its own set of specific obligations that must be fulfilled.
Particular unique prerequisites need to be addressed when establishing an LLC in Texas.
- Including "Limited Liability Company" or "Limited Company" is mandated by Texas law. You can use abbreviations like "L.L.C.," "L.C.," or "Ltd. Co." "Limited" and "Company" can be represented as "Ltd." and "Co.," respectively.
- Your LLC's name must be distinct from other business entities registered in the state. If it closely resembles an existing brand, your application will be rejected. You can use the Texas Taxable Entity search engine to check for name availability.?
- If the name is available, you can reserve it by submitting a Reservation or Renewal of Reservation of Name form (Form 501) and paying a $40 filing fee. This reservation allows you to hold the name for up to 120 days.
- Every LLC operating in Texas is required to have a registered agent. The registered agent can be an individual Texan, including the LLC's owners or employees, or a registered agent service authorized to operate in the state. This agent's role is to accept legal documents on behalf of your business in case of a lawsuit, and they must have a physical address within the state, not a P.O. box.?
It's important to note that the LLC cannot act as its registered agent. Securing a reputable agent can range from $100 to $300 annually. Researching and ensuring that the agent's services cover all necessary aspects is advisable.
Cost to Set up an LLC in Texas
Filing for a Texas LLC comes with a price tag of $300 . However, if you opt for assistance from a service or attorney to handle the paperwork, extra charges may be involved in setting up the company.
Texas State Franchise Tax Fee
Most Texas LLCs must pay a yearly state franchise tax. The official Texas Comptroller website provides detailed instructions on calculating this tax. You can access relevant tax forms on their website.
Once you have all relevant paperwork filled out, you can:
- Mail the documents to P.O. Box 149348, Austin, Texas, 78714-9348
- Go ahead and file them online. “No tax due” forms must be filed electronically
Correcting Texas LLC Filing Errors
Mistakes are bound to occur. Suppose you submit an LLC application and subsequently discover inaccuracies that need rectification. In that case, you must file a Certificate of Correction or Form 403 with the Texas Secretary of State.
When filling out the necessary paperwork, it's crucial to identify the specific corrections you wish to make clearly. It's essential to remember that there’s a $15 fee for filing, and presently, this process cannot be completed online.
Next Steps After LLC Formation
Once you have started your Texas LLC, you’ll want to complete certain items so the business can operate smoothly. Here’s what should be on your list:
- Bank Account: Utilize the EIN (Employer Identification Number) to initiate the process of opening a dedicated business bank account. Ensure that this account is funded solely with funds intended for business use, and always maintain a clear separation between personal and business finances.
- Permits and Licenses: It's crucial to consult your local municipal authorities to determine whether your business requires specific permits or licenses to operate legally. This may encompass various permits such as health permits, building permits, or other requisites that vary by jurisdiction. Depending on your industry or profession, you may also need to obtain federal or state permits.
- Insurance: Engage in a conversation with an insurance agent to determine the essential insurance policies for your business operations. Consider, at a minimum, acquiring general liability insurance and assess whether workers' compensation insurance is necessary if you employ staff.
- Annual Report: Fulfill your obligation by submitting a Texas yearly report to the state comptroller's office. This report is an annual requirement for businesses operating in Texas.
Texas LLC Pros and Cons
Before deciding to establish an LLC in Texas, it’s crucial to weigh the advantages and disadvantages of this business structure. Let us examine some of the benefits and drawbacks of forming an LLC.
Pros:
- Operating as an LLC in Texas offers the advantage of limited liability protection, shielding the personal assets of its owners from being seized by the company's creditors for debt repayment.
- LLCs can be structured with either a single member or multiple members.
- LLCs provide greater flexibility than corporations when distributing profits among their members.
- An LLC in Texas can bolster a business's credibility and professional image.
- Transferring or selling an LLC in Texas is straightforward, with minimal paperwork requirements.
- An LLC's owners can choose whether the company's income passes through to their personal income tax filing or if they prefer to be taxed as a corporation.
Cons:
- LLCs necessitate completing administrative tasks and paperwork, including submitting articles of organization, crafting an operating agreement, and diligently maintaining accurate records.
- Starting an LLC in Texas entails paying various state, legal, and annual fees.
- The business generates income subject to self-employment taxes for LLC owners.
- Owners of an LLC in Texas can still potentially incur personal liability for the company's debts or legal matters, particularly in cases involving loans, fraudulent or illegal activities, or if they fail to uphold a clear delineation between personal and business activities or provide a personal guarantee.
- Due to their inability to issue stock or shares, LLCs may encounter challenges in raising capital compared to corporations.
Alternative Business Structures in Texas
Many people often wonder if they need to start an LLC. In Texas, the filing fees for corporations and LLCs are similar. Before choosing, you must grasp the significant distinctions between LLCs and corporations in taxes, ownership structure, management, and liability.
There are various options available when it comes to selecting a business structure.
- Sole proprietorships: Businesses owned by a single individual and aren’t incorporated. They’re the easiest type of business to establish. They expose the owner to the highest level of liability since there’s no legal separation between personal and business assets.
- General partnerships: Like sole proprietorships, allow two or more individuals to start a business together. They don’t offer any protection against liability. The owners report their business income on their tax returns; they don’t file separate taxes for the partnership. This arrangement can be quite risky if any of the partners act dishonestly.
- Corporation: To register a corporation in Texas, there’s a $300 fee required. Forming a corporation instead of an LLC may be advantageous when seeking outside investment. Similar to an LLC, corporations provide limited liability protection for their owners. Corporations can opt for C corporation taxation or elect S corporation status for pass-through taxation benefits in certain cases.
Filing for a “doing-business-as,” or DBA, name (known in Texas as an “assumed name certificate”) is considerably cheaper than establishing a corporation or LLC, thanks to the $25 state filing fee. But DBAs often confuse fledgling entrepreneurs, as it’s not a business structure like an LLC or corporation.?
A DBA is essentially a registered nickname for your already established business. While the terms may be talked about together frequently, DBAs and LLCs are very different.
How to Form an LLC in Texas – FAQs
Is an EIN Required for LLCs in Texas?
All LLCs registered in Texas with more than one member are required by federal law to obtain an Employer Identification Number, or EIN.
Can I Create a Free LLC in Texas?
Normally, the cost for filing your Texas LLC registration is $300. However, as of January 1, 2022, there’ll be no filing fee for newly established businesses 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 ownership of a Texas LLC changes, there’s no need to file any paperwork. However, you must note the new members and managers when submitting your annual Public Information Report as part of your franchise tax filing with the state comptroller's office.
Bottom Line
Forming an LLC in Texas is a simple process that provides many benefits for aspiring business owners. By following these easy steps, you can establish a strong foundation for your company while taking advantage of limited liability protection, flexible management options, and potential tax benefits.?
If you prefer to avoid the complexities of starting an LLC on your own, reputable companies like ZenBusiness and Swyft Filings offer convenient LLC formation services
To ensure a smooth and successful journey as the owner of an LLC in Texas, conducting thorough research, seeking professional guidance when necessary, and complying with state regulations are crucial. Embrace this opportunity to transform your entrepreneurial aspirations into reality by creating your Texas LLC today!
Disclaimer: The above is a sponsored post, the views expressed are those of the sponsor/author and do not represent the stand and views of Outlook Editorial.
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