How to Start an LLC in Texas (2024 Guide) (2024)

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When setting up a Texas LLC, there are important steps you’ll need to take to ensure that your LLC complies with state and federal law. This guide will cover those steps and more, helping you understand how to get an LLC in TX the right way. Here is how you can tackle the Texas LLC filing process.

Starting an LLC in Texas will include the following steps:

1. Choose a Name for Your Texas LLC
2. Appoint a Registered Agent
3. Prepare and File Your Articles of Organization
4. Prepare Your Operating Agreement
5. Obtain an Employer Identification Number (EIN)

The first step to take when learning how to set up an LLC in Texas is to choose a suitable name for your business endeavor. Just as companies that are incorporated must use the “Inc.” designation at the end of their entity name, a Texas LLC name must adhere to similar designation requirements. To be compliant with Texas state law, your company’s name must include at least one of the following terms:

• Limited Liability Company
• L.L.C.
• LLC
• Limited Company
• Ltd. Co.
• Limited Liability Co.

You’ll also need to comply with other state requirements when naming your LLC. Texas state law provides more guidance for your business name:

• Must be original and easily distinguished from other businesses in the state. Merely having a different designation is insufficient (e.g., XYZ Ltd. Co. is too similar to XYZ LLC)
• Cannot be grossly offensive or misleading people to believe your LLC is a government agency (e.g., avoid words like “Treasury” and “State Department”)
• Cannot use any trademarked or restricted words like “Bank,” “Trust,” “Trust Company,” “Olympic,” “College,” “University,” “Veteran,” etc., unless given express permission by the governing committee (e.g., The Banking Commissioner, United States Olympic Committee, Texas Higher Education Coordinating Board, etc.)
• Must meet additional naming requirements of the Texas Secretary of State

Once you’ve chosen a suitable name for your Texas LLC, you’ll need to determine if it has been used by another business entity. You can use the Business Name Search tool on the Texas Comptroller of Public Accounts website to explore existing business entity names. The U.S. Small Business Administration Office of Advocacy determined that there were over 3 million small businesses in Texas. With that level of competition, it’s important to make sure your business name isn’t already in use.

Every Texas LLC needs to have a registered agent. A registered agent is a designated individual or company who is responsible for receiving any legal documents on behalf of the LLC — such as tax documents or notice of lawsuits. The Texas registered agent must maintain a physical street address in Texas and be on-site during regular business hours to accept service on behalf of your LLC in person or through the mail.

Your LLC itself cannot act as the agent, however, your agent can be one of the following:

• Any individual who is a Texas resident and over the age of 18
• A registered agent service that’s authorized to transact business within the state

The Certificate of Formation for a Limited Liability Company is a formal document that details how your Texas LLC is structured and managed. Many states refer to this certificate as the “Articles of Organization.” As you learn how to start an LLC in Texas, know that you can organize your LLC with one person or several. However, only one organizer is required to file the company’s formation paperwork with the state. You can file online at SOSDirect Account, mail-in the paperwork, or submit it in person. The filing fee for this documentation is $300.

The Texas Certificate of Formation will request several pieces of information about your LLC, such as:

• Entity type and name
• Registered agent and registered office
• Governing authority (stating whether the LLC is member-managed or manager-managed)
• Purpose of the business
• Initial mailing address
• Supplemental provisions/information
• Organizer’s name and address
• Organizer’s signature

While not required in Texas, forming an operating agreement is strongly recommended for a well-established LLC. These agreements, called “company agreements” in Texas, are internal documents which outline operating procedures and ownership of the business. These documents are useful for making sure that all stakeholders agree to essential aspects of how the LLC will conduct business.

Perhaps one of the most important functions of the operating agreement is to establish financial practices and memorialize the liability agreement between the LLC and its members. Without an agreement in place, your LLC will be governed by default LLC laws in Texas, which might not be advantageous to your business or your members. Lastly, the operating agreement should also put procedures in place to address disagreements between members to make conflict resolution easier down the road.

Law in Action: For example, five friends form an LLC and choose not to put an operating agreement in place. The members discuss and seemingly agree that they should be able to transfer their membership and sell their interest in the company without having to consult the other members. Five years later, one of the members decides they want to sell their interest in the LLC to Bob, their neighbor.

One of the members doesn’t like Bob, and she objects to his purchase of the membership. Texas default laws require all members to consent to a transfer of membership. Without an operating agreement detailing the preferences of transferring ownership freely, the fifth member is not allowed to sell against the other member’s wishes.

The Internal Revenue Service (IRS) will assign your LLC an employer identification number (EIN). This nine-digit number is primarily used for tax purposes but having one has many other benefits. You’ll be required to get one if your LLC has more than one member, but even if you only have a single member in your LLC you may still want to get an EIN. Some business activities might require one, including opening a business banking account and taking out a business line of credit.

Even if you don’t think you’ll need to engage in either of those activities you might still want to get an EIN to reduce your risk of identity theft. Any LLC applications you complete on behalf of your company will require an identification number, which unless you have an EIN, will be your Social Security number. You’ll likely be giving your SSN to clients on a regular basis which could make your personal information susceptible to theft.

The cost to form an LLC in Texas can be affordable. The state charges a $300 filing fee, which is middle of the road compared to other states. For example, Wyoming charges $100, and Massachusetts charges $500. Additionally, there is no personal income tax or corporate income tax, which keeps ongoing LLC costs low.

However, some Texas LLCs may still face some costly obligations. The state charges LLCs that make at least $2.47 million per year a franchise tax, which can amount to 0.75% of gross receipts. This type of tax doesn’t exist in some states, including Wyoming and Nevada.

What Is the Cheapest Way To Start a Texas LLC?

Starting an LLC in Texas can be affordable, especially with the $0 + state fees price point offered by some LLC services. ZenBusiness, a Texas-based company, stands out with its Starter plan that starts from $0. This pricing means you can technically start your LLC for free in Texas, though the state filing fee of $300 to the Texas Secretary of State is still mandatory. This pricing structure makes it an appealing option for those seeking to minimize upfront costs.

Besides ZenBusiness, other LLC services also offer cost-effective packages. Northwest Registered Agent is another notable mention with its $39 + state fees package. This option includes essential online formation services like LLC filing, premium registered agent services for one year and customer privacy protection, among others.

Before you can form a Texas LLC, there are several pieces of information and documentation you will need to gather to ensure a smooth process. The steps include choosing a unique name for your LLC, appointing a registered agent and filing the necessary documents with the Texas Secretary of State. Here is a breakdown of the essentials:

• Unique LLC name: Your LLC’s name must be unique and distinguishable from the names of other business entities already on file with the Texas Secretary of State. Be sure to keep this in mind before you file an LLC in Texas.

• Registered agent: You need to appoint a registered agent who is authorized to accept legal, tax and other official documents on behalf of your LLC.

• Certificate of Formation: Filing a Certificate of Formation with the Texas Secretary of State with the $300 processing fee is crucial to officially complete your LLC registration.
• Employer Identification Number (EIN): Obtaining an EIN from the IRS is necessary for tax reporting purposes and is also needed if you plan to hire employees.

Starting a new business doesn’t end with filing initial formation paperwork. So now that you’ve learned how to get an LLC in Texas, you’ll need to maintain it. There are boxes that need to be checked to help you grow your business and most importantly, keep your LLC active for years to come.

Hire Employees

Whether you already have employees or you’re not sure yet if you want to hire any extra hands, knowing the law of employment is critical. Having your EIN is the first step, next you’ll want to make sure you comply with the following requirements:

• Timely reporting new hires to the state
• Create a new unemployment tax account and pay unemployment tax
• File wage reports

You may also want to offer health insurance as part of the benefits of working for your LLC. Texas has a Department of Insurance with resources to help you shop around and find the best plan.

Annual Filings

To keep your LLC active, you need to file and pay any required annual reports no later than May 15 each year. All LLCs must file an Ownership Information Report and Public Information Report, but only certain LLCs must file a Franchise Tax Report. There is no filing fee for the annual information reports. However, the Franchise Tax Report varies each year. Refer to the most recent charts to determine if you need to file and, if so, how much you need to pay.

State and Federal Taxes

Failure to pay taxes could leave your LLC vulnerable to be sued by the state – putting your business in jeopardy. Stay on top of your accounting and file your taxes on time.

• State taxes. State taxes depend on your particular business. For example, if your Texas LLC is selling a product subject to sales tax, you need to collect those taxes and file a sales tax return.
• Federal taxes. Most LLCs use “pass through” taxation to streamline the process and avoid paying taxes on both personal and business income. It’s always a good idea to consult with a tax professional or business attorney if you’re not sure how to address your business taxes.

Permits and Licenses

While Texas doesn’t require a general state business license to conduct business within the state, you may still need an LLC license or permit depending on your business activities. This comprehensive guide is organized according to business type and lists the permits and business licenses required for each type of business.

Set Up a Business Banking Account

One of the reasons LLC is the top choice for small businesses is its ability to shield the owner from personal liability. Meaning, if your LLC is sued, only the assets held under the LLC are vulnerable. Whereas if a partnership is sued, a partner may be held personally liable for the debts of the business. That’s why it’s so important to keep your personal assets completely separate from your business assets by setting up a business banking account.

One of the easiest ways to guarantee your personal assets are safe is to create a business bank account under your LLC’s name to hold any assets it acquires. This can make accounting easier and filing taxes simpler.

Insure Your Business

Just like when you invest money in a home or a vehicle, when you invest money in your business you want to make sure it’s protected. Purchasing business insurance is also a great way to protect your new company from unexpected events. Whether you have a home-based business or offer products out of a shopfront, there’s a policy that can meet your needs.

Get Funding

There are a variety of ways to fund your business venture, including loans, grants and other creative ways to infuse much-needed cash into your Texas LLC.

• Small Business Association. Get an SBA-backed loan that helps you reduce risk and raise capital. You can get matched with a local lender who can help you apply to and manage your business loan.
• Grants. There are hundreds of grants available to help fund and grow Texas businesses. If you are a woman- or minority-owned business, you may also have access to additional grant opportunities, such as the Amber Grant for Women that awards a $10,000 grant to a woman-owned business every month.
• Creative funding. Consider other creative, non-traditional routes to fund your new business such as crowdsourcing, microfinancing or pitching your business to venture capitalists and angel investors.

Forming an LLC in Texas is a fairly straightforward process that can be completed in just a few steps. The state provides ample resources like step-by-step guides and template forms to simplify the paperwork. Take advantage of the supportive resources available in the state, and you’ll be off to a great start. Additionally, exploring leading LLC formation services can further streamline the process.