Having an LLC in Texas is a better and cheaper option than having other business structures. A limited liability company (LLC) reduces the owners’ personal liability and protects their personal assets. One can start an LLC in two ways, domestic LLCs or foreign LLCs (LLCs in more than one state). By following some basic steps, you can easily form an LLC in Texas.
On this page, you’ll learn about the following:
- How to Start an LLC in Texas
- After Starting your Texas LLC
- Texas Foreign LLC
- Why an LLC in Texas
- Texas LLC Formation Review
How to Start an LLC in Texas
An LLC or a Limited Liability Company is a hybrid business entity combining a corporation’s characteristics with a partnership or sole proprietorship. It separates your personal assets from your business assets, thus giving you personal asset protection. This section gives you a step-by-step guide on how to start an LLC in Texas.
Step 1: Decide a Name for Your LLC
Deciding on a business name is the first step to start an LLC. In Texas, before you name your LLC, it is important to note a few things. Firstly, make sure the name is available to use. If the name is available, then check if the name complies with all the Texas business naming requirements. Once you pass through them, you can successfully name your business.
Why do you need a proper business name?
If you want your LLC to have special identification, your company name is essential. However, many people face lots of issues by avoiding focus on choosing a business name for their LLC business formation filings.
Because of this, here are some of the major benefits of choosing the best LLC corporate names.
- To help establish a company’s presence in the market, a proper business entity type will help you. This also creates a new identity that will resemble your LLC.
- After you’ve properly chosen the name for your LLC, you will have no problems finishing the registration process.
- You can only get the EIN number when you have your name registration certificate with you.
Requirements when deciding a name for your LLC
LLC Name Search: A business name search is required to check if the desired name is available or not. If the name is available then the business owner has to fill up a name reservation form and send it to the Secretary of State, Texas. To do the name search, one has to visit the Business Entity Search page on the official Secretary of State website. Send the name reservation form to the below address by mail to reserve your LLC name in Texas. The cost of a name reservation is $40.
Important Quick Links:
Secretary of State
P.O. Box 13697
Austin, TX 78711-3697
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Step 2: Assign a Registered Agent in Texas
A registered agent, or business entity, is a person that will act or work on your behalf. This person or business will receive significant tax forms, legal forms, formation documents, any internal document, a notice of lawsuits, and other official government correspondence in Texas. Choosing a Texas registered agent for service of process for your LLC is required.
Make sure your registered agents are residents of Texas or have a physical street address. It could also be a business with an office address. Here are the recommended agent service provider list and employees for you:
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Note that availing of the services of professional registered agents would be your best option since you are guaranteed that whoever is handling your legal affairs knows their stuff well. You will enjoy peace of mind and focus only on running your business, as the ‘professionals’ take care of all legal matters.
These LLC formation services are recommended registered agent services as they are authorized to conduct business in Texas. Compare them to check the best yet cheapest option for you. Besides, they can guarantee you professional service because they have been in the business for years.
Step 3: File Certificate of Formation in Texas
A Certificate of Name Reservation is needed to file a Certificate of Formation, as other states call it. You need to make reports of this certificate with the Texas Secretary of State. You may file them online or by mail. The filing cost is $300. LLC cost in texas includes other taxes and fees.
This Texas Certificate of Formation is a legal document needed to form your business officially. It will indicate details about your LLC in Texas, like if it is a member-managed or managers-managed. LLCs with employees need to check the Texas government portal for guidelines to hire employees.
Before you start filings, you must already have your LLC name and registered agents or employees. You will attach a copy of your Name Reservation Certificate along with a list of the services that your Texas LLC will offer. The filings come with a state filings cost of $50.
How to File Online
Go to the Secretary of State Online Service. Select “non-subscriber.” Fill out the online form. The website will alert you if your county does not support online filings after selecting your principal county. Read more about the Texas Certificate of Formation for online registration.
How to File by Mail
If you prefer filing real-life forms for your Texas LLC registration, then you can download the Texas Limited Company Certificate of Formation. Read the form thoroughly and fill it out. It will have to fill, among others, your name, city, state, zip code, and signature.
Mail To: Secretary of State
P.O. Box 13697
Austin, TX 78711-3697
James Earl Rudder Office Building
Austin, TX 78701
Fax To: (512) 463-5709
Step 4: Create Your Texas LLC Operating Agreement
An operating agreement is a document that legally outlines the proprietorship and operating procedures of your LLC This document is vital as it ensures that all business owners are on the same page regarding how they operate, thus reducing future conflicts.
When it comes to an LLC operating agreement Texas does not require you to have a comprehensive operating agreement, but it is ideal to have one that contains all your details of business operation. This document would be useful if you decide to dissolve Texas LLC later.
Step 5: Filing a Texas LLC EIN
The Employer Identification Number or, simply, the E.I.N. is a nine-digit number given by the Internal Revenue Service (IRS) to make it easier to identify types of business for tax purposes and taxes in general. It is like a Social Security number dedicated to a business’ taxes. The EIN is necessary for any active business or any form of business for that matter.
To obtain EIN (aka FEIN) one has to fill up a form (Online or by mail) and submit it to the IRS. Before sending the form, ask for EIN Assistant. Enter details of your LLC, and finally complete the form and send it to the address given.
Mail to: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999
Fax: (855) 641-6935 | Fee: Free
Note: You don’t need a Social Security number when getting an EIN. You can proceed to fill out I.R.S. Form SS-4 and leave section 7b blank. You must then call the IRS at (267) 941-1099 to complete your application. Agents or employees will help you with that.
And that’s all! Congratulation, you are now done with all the necessary steps to form your Texas LLC. If you still haven’t used a professional service from here, I strongly recommend having one to handle the remaining tasks.
After Starting your Texas LLC
After forming your LLC, there are still some things that you will need. Take note of the following:
- Get a company business bank account
- File Texas business permits & licenses
- Get liability for business and professional liability insurance with coverage for employees
- File a Texas LLC annual report or biennial report
- Already existing LLCs that wish to operate in Texas must register as Texas foreign LLC.
This page has provided you with steps to LLC formation and filing processes. You now have to remember upcoming filing deadlines and filing fees or filing costs, including fees for late filings to make sure your LLC is up-to-date.
Texas Foreign LLC
To register a Texas foreign LLC, one has to file the foreign LLC formation certificate with the Secretary of State, Texas. Forming a foreign LLC allows you to operate your business in more than one state in the USA as a single business entity. Check Texas Foreign LLC to know more about having a foreign LLC.
Why an LLC in Texas
There can be several competitive reasons, both financially and environment-wise, so people start an LLC in Texas. One of the most common reasons is wide business funding options and tax liabilities reduction in the state. Some of the incentives from which most of the businesses are benefitted are discussed below in detail.
Support from the Secretary of State
A special act started in the Texas state under which the state will support all the limited liability companies that will form here. The state will protect all the rights of an LLC, and the requirements of the LLC are also well taken care of.
Texas Enterprise Fund
A proper cash flow is the requirement of every LLC as they start up at a small scale, and not every entrepreneur has their hands full of cash. That is why a Texas LLC will be the best choice for them to overcome the shortcomings of the LLC; the state government will help a person take a cash grant through TEF. It is basically a financial incentive scheme under which a grant is given to the selected businesses ready to produce jobs in the sector.
Since the time of its establishment, w.e.f. 2004, TEF has distributed a grant of around $600 million to many industries around the state.
Tax Climate is favorable for businesses
The biggest reason Texas is in demand to start an LLC is no personal income tax. The government launching this no income tax scheme is basically the lack of business in Texas. After that, the footfall of businesses in Texas started to increase. If we study the non-existing personal income tax, then it can be defined as:-
- Any entrepreneur who makes up money through their start-up LLC in Texas is not required to pay any money.
- Businesses can hire the best talent for their industry without profit loss tensions as the amount they earn will not be taxable, due to which they will try to give up the best for getting the best employees.
Moreover, depending on the type of business, the income tax rate that is already lower than other states will shrink more. The only situation in which an LLC will be eligible for lower-income tax is eligibility. There is a threshold business value, and if the company doesn’t exceed that value, they will enjoy zero business tax.
Top Businesses in Texas
If you are a new-age entrepreneur and want to form an LLC in Texas, you need to know beforehand about the Texas economy. You should know which are the top businesses of the state and their contribution to the GDP?
The oil and petroleum mining of the state is the most significant contributor to the Texas GDP. It is noticed that these businesses do around $262.2 billion worth of business. 1/3rd of the petrol that is consumed in the country is processed and supplied by Texas. The average annual oil production in the state is around 4.6 billion barrels out of the 187,139 wells in the state.
The oil produced in Texas is also known to export to significant parts of the world from which the state and the center are gaining huge profits.
There is a well-developed tourism business present in the state, which is growing significantly. The highest numbers of visitors that were catered by the state in the previous year were 220 million. Moreover, Texas has also become a tourism place for business meetings and discussions.
The total contribution that is made by the tourism businesses to the state is around $164 billion, out of which half is directly spent by the tourists visiting.
Texas is known to be the home of the largest number of cattle found around in the state, with about 16 million. This figure makes them a country leader in the production of sheep and goat products. It is also the top manufacturer of cotton crops in the country, grown by most rural dwellers. According to statistics, every seventh person in the state earns money through the agriculture sector, contributing around $22 billion.
Some of the small business ideas that are well implemented in Texas state are:-
- Legal consultancy firm
- Theatrical teacher
- Gift shops
Texas LLC Formation Review
Time needed: 5 minutes.
Just to recap, here are the easy steps again when forming an LLC in Texas. Click on the steps in this list to read the full detail.
- Name your Texas LLC
The first thing you must do is to choose a company name, which should be unique, easy to find, and available in the state.
- Choose a registered agent
In Texas, it is mandatory to select a registered agent for your LLC. You can check out our list of our 5 Best LLC Services in the United States.
- File a formation certificate
Filing a formation certificate is necessary when forming an LLC. Depending on the state, it could be called any of the following: Certificate of Formation, Articles of Organization, or Certificate of Organization.
- Create operating agreement
An operating agreement is not a strict requirement but something encouraged when you start an LLC.
- Get an EIN
The Employer Identification Number (EIN), also called Federal Tax Identification Number, serves to identify a business entity like a social security number but for a company.
If you are a resident of Texas, then you can file your LLC by yourself. However, it is always worth having a professional than doing it yourself to handle legal complexities, paperwork, and other documentation.
Apart from the formation fee of $300 (domestic LLC) and $750 (foreign LLC), LLC costs in Texas include $0 for Annual Reports every year. LLCs are liable to pay sales tax of 6.25% every year
It takes 3 business days to get an LLC in Texas if you file it online. For the mail filing, it takes 5 to 7 business days to get an LLC.
Every year all the LLC have to submit an Annual Report and pay $0 to the Texas Secretary of State and renew the LLC. It is mandatory to renew your LLC every year.
Generally, for the LLCs, it is a default tax structure. Once you will obtain the EIN, you will get the various tax structure options to select. Sometimes LLCs choose S Corp to reduce federal tax burdens.
Having an LLC is easier than other forms of business. LLCs have a ‘pass-through taxation’ advantage for which they are excluded from certain taxes. On the other side, the formation of LLCs requires less paperwork and fewer legal complexities. If you have any questions, leave a comment below.