Creating an LLC might be daunting. The filing requirements and associated costs vary by state. Therefore, it’s crucial to be informed of the particular procedures and regulations special to the state if you desire to register an LLC in Texas. We’ll walk you through the process of forming an LLC in Texas in this step-by-step manual so you can launch your new firm immediately.
Before forming an LLC, the first question that comes to mind should be, “Is Texas a good state to form an LLC?”
For simplicity, here are the advantages of forming an LLC in Texas:
- No state income tax, so you keep more of your income
- High Income Threshold for Texas Franchise Tax Liability
- Separate and limit your personal liability from professional liability and debts
- Simple filing, management, compliance, regulation, and governance
- Easy tax returns and potential benefits for tax processing
6 Steps to form an LLC in Texas:
The Texas Secretary of State has rules to follow if you want to incorporate your LLC smoothly, quickly, and without hefty fines. So here is, put together, a step-by-step guide:
- Choose a distinctive name for your LLC in Texas
- Appoint a registered agent to receive communications important to your business
- Submit the Certificate of Formation to the Texas Secretary of State
- Create an Operating Agreement to set the rules of the LLC
- Register the firm with her IRS
- Check tax requirements and file annual franchise tax reports
Please note that these instructions apply to forming a domestic LLC. An LLC that is in the state where you live. A foreign LLC is an LLC born out of state. There is a foreign limited liability company application to sign up a foreign LLC in Texas.
If the purpose of the proposed business is to provide licensed professional services (medical, architectural, accounting, etc.), a Texas Professional LLC (PLLC) may be an option.
1. Name your LLC in Texas
The name of your LLC must be different from any other entity already registered with the Texas Secretary of State. Check the name’s availability on the Texas Secretary of State’s SOSDirect website.
An LLC name must contain one of the following under Texas law:
- Limited Liability Compan0y
- Limited Company
- Ltd. Company
- Ltd. Co.
- L.C., or
Reserve the selected name for your LLC in Texas for 120 days by submitting an Entity Name Reservation Reservation or Renewal Application (Form 501) to the Texas Secretary of State. In addition, you can submit appointments online through the Texas Secretary of State’s SOSDirect website or by email. The registration fee is $40.
Use of Pseudonyms or “DBA”
When conducting business in the real world, you do not have to use the official legal name of the LLC as registered in its Certificate of Formation. Instead, you can use an alias, trade name, or fictitious company name, also known as “DBA” (short for “doing business as”).
Register the Assumed Name Certificate (Form 503) with the Texas Secretary of State and the county clerk where the LLC’s office is to do so. You can register online through SOSDirect or by mail. The registration fee is $25.
2. Appoint a registered agent
All Texas LLCs are required to have a process delivery agent in the state. An agent is an individual or legal entity that agrees to accept legal documents on behalf of the LLC if someone is suing the company.
A registered agent is a resident of Texas or an entity authorized to do business in Texas. A registered agent must have a Texas physical address. The LLC may not be its registered agent. More information on Texas commercial registered agents is available on the Texas Secretary of State’s website.
3. Submit the Certificate of Formation
Create an LLC in Texas by filing a Certificate of Formation for a Limited Liability Company (Form 205) with the Secretary of State. The certificate must contain the following:
- LLC’s name with the suffix
- registered agent’s name and address
- whether it will be member-managed or manager-managed LLC
- name and address of every initial member, if member-managed
- name and address of every initial manager, if manager-managed
- general purpose clause
- LLC organizer’s name and address
- certificate’s effective date, and
- organizer’s signature
Certificates can be submitted online through the Texas Secretary of State’s SOSDirect website or by mail. The registration fee is $300.
4. Prepare the LLC’s Operating Agreement
In Texas, unlike other states, an LLC Operating Agreement is not mandatory but is recommended. It is an internal document that documents how the LLC will operate. It defines the rights and responsibilities of members and managers, including how the LLC will be managed. In addition, it helps protect your limited liability by showing that the LLC is a separate business entity. State LLC laws govern the LLC’s operation when an LLC is without an operating agreement.
The operating agreement should include the following:
- members’ percentage interests in the LLC
- members’ rights and responsibilities
- member’s voting powers
- allocation of profits and losses
- rules for holding meetings and voting
- buyout or buy-sell provisions that determine what happens if a member wants to sell their interest, dies, or becomes disabled
5. Acquire an EIN
If your LLC has multiple members, it must obtain its own IRS Employer Identification Number (EIN), even without employees. However, if your LLC, at formation, has only one member, you must apply for an EIN if you have employees or choose to tax as a corporation rather than as a sole proprietorship (disregarded entity). An EIN can be obtained by completing her EIN application online at her IRS website. There is no registration fee.
6. Annual Reports
Texas does not need LLCs to file annual reports with the Secretary of State. However, LLCs are required to file annual franchise tax reports. The details of tax calculation can be complicated. Visit the Comptroller of Public Accounts website to find more information.