Forming an LLC (Limited Liability Company) in Texas will help protect your personal assets from lawsuits and judgments against your business. An LLC is a legal structure that separates your business and personal assets. By not having your business in a separate legal structure, you can be held personally liable for certain debts and lawsuits incurred by the company. Forming a Texas Limited Liability Company does not require an attorney and you can save a lot of money if you do it yourself with the six simple steps below.
Before getting into the six steps of LLC formation, here are a few things to know about Texas LLCs.
How Much Does It Cost to Get an LLC In Texas?
The filing fee for a Texas Limited Liability Company is $300, payable to the Texas Secretary of State. Expect 2-3 weeks for approval. For an additional $25 you can have your application expedited.
Texas Annual Report and Annual Fees
Texas does not require an annual report or annual fee for LLCs.
- Minimum Number – one or more
- Members/Managers- at least one is required to be listed in the Certificate of Formation
- Residence Requirements – none specified
- Age Requirements – none specified
In addition to forming your Texas LLC, you will need to check for business licenses and permits. StartingYourBusiness.com has a list of local, state and federal permits for businesses in Texas.
Steps to Forming a Texas LLC
Step 1. Name Requirements
Your corporate name must end with the words Limited Liability Company or an abbreviation of these words (“LLC,” “L.L.C.,” “Limited,” “LTD.,” “LTD”.). Check out our article on naming your LLC for all of the requirements that you must follow when naming an LLC.
Now that you have the perfect name, you want to be sure nobody else is using it as each state requires a unique name per LLC or Corporation. To check if your name is being used, visit our list of Secretary of State offices to do a free Texas LLC name search.
Step 2. Choose a Registered Agent
The registered agent must have a physical presence in Texas but may be an individual resident, domestic or foreign corporation authorized to transact business in Texas. The registered agent must also have a physical address and be available during normal business hours to accept delivery of documents. A Post Office Box or personal mailbox is not acceptable. If the registered office includes a suite number, it must be included in the registered office address.
Provided you as the business owner have a physical presence in Texas, you can be the registered agent, however, there are additional privacy benefits to having a third-party registered agent.
Check out our article on why an LLC Registered Agent may be a good choice for your business for more details.
Step 3. File the Certificate of Formation
This is the most important step and many people believe that you need an attorney to file. While we don’t discourage having an attorney, filing a Texas LLC can be done by most people, but you can save considerable money over an attorney and make sure everything is filed correctly by using a formation service such as Swyft Filings.
Step 4. Create an Operating Agreement
An operating agreement is not required in Texas but is typically a good idea, especially for an LLC owned by multiple people. The primary function of the operating agreement is to govern the relationship between the owners of the business, but also outlines who makes what decisions, how profits or losses are distributed and the operating procedures of the LLC.
Step 5. Get an EIN
What is an EIN? The Employer Identification Number (EIN), or Federal Tax Identification Number (FEIN), is used to identify a business entity. It is essentially a social security number for the company.
In addition to the EIN being an identifying number for the LLC it serves a few other purposes such as:
- Opening a business bank account
- Federal and State tax purposes
- The business account to pay payroll taxes for employees paid by the company
To file an EIN for your LLC, visit the Internal Revenue Service (IRS) or obtain the SS-4 form. They show the steps on how to apply, but here is a video on how to apply for an EIN for more details. In about five minutes, you will have your number free of charge. Be sure to wait until your LLC is approved before applying for your EIN as the name that is registered for the LLC must be the same as the EIN.
Step 6. Select the Tax Status of the LLC
One of the advantages of an LLC is the flexibility in taxation as there are four ways an LLC can be taxed, compared with two ways for a corporation.
- Single Member LLC – An LLC with one member automatically becomes a single-member LLC with the IRS. The owner simply files their Schedule C with their 1040 at the end of the year. Filing as a single-member LLC means the entity does not pay sales tax and goes to the owner which is called pass-through taxation. The owner pays self-employment taxes on the net profit of the LLC, which while simpler to handle taxes, may be more costly.
- Partnership LLC – An LLC with two or more members is automatically considered a Partnership with the IRS and will file Form 1065. Like the sole-proprietorship as a pass-through entity, the LLC taxed as a Partnership pays no income tax and profit and losses flow to each member’s Form 1040s via Schedule K-1 of Form 1065.
- C Corporation LLC – An LLC can elect to be taxed as a C Corporation by filing IRS Form 8832. The major difference as an LLC that is taxed as a C corporation is that now the LLC pays tax on the profits and losses and are not directly passed down to the members. Most, but not all will find filing as a C Corporation will cost more in taxes as now the LLC has double taxation where there is a tax on the profits and dividends.
- S Corporation LLC – To get S Corporation status, you will file Form 2553 with the IRS. What makes the S Corporation attractive unlike the sole proprietorship or partnership is that you can potentially shield some of the profits from being subject to self-employment taxes. Dividends aren’t typically subject to self-employment taxes which is a large potential savings. There will be more work in accounting for an LLC that elected S Corporation status.
Each of the four ways for an LLC to be taxed in Texas can have a major impact on the taxes that are charged depending on the business and the member’s personal finances. It’s a very good idea to work with an accounting professional to see which one is most efficient for the business and members.
Common Questions on How to Get an LLC in Texas
Do LLCs pay Franchise Tax in Texas?
Yes. The Texas franchise tax is what’s called a privilege tax, which is a tax for the privilege of doing business in the state. Every entity doing business in Texas must pay the annual franchise tax. The tax rates vary each year. More information is available from the Texas Comptroller.
What is a Series LLC?
The Texas Series LLC is a Limited Liability Company that is one entity but has multiple LLCs or “series” within it. A common use for a Texas Series LLC is for a real estate rental company. Instead of purchasing an LLC for House A and another LLC for House B to provide asset protection for all of the real estate, a Series LLC could be formed where series A holds House A and series B holds House B. You can even have Business A and Business B run under the same limited liability umbrella and both be essentially separate legal entities but only have to run one LLC. To properly set up a series LLC it is highly recommended to get professional guidance as it is more complex than setting up a traditional LLC.
Can the Organizer of an LLC be the Registered Agent?
Yes. The organizer of an LLC in Texas can also be the registered agent provided the registered agent maintains a physical address in Texas.
Is There a Citizenship Requirement to Form an LLC in Texas?
No. The only law in Texas restricting the formation of a business is that an organizer must be a person who can legally enter into a contract.
Is There an Age Requirement to Form an LLC in Texas?
No. The Texas Business Organizations Code does not restrict business ownership by age.
Will Filing the Certificate of Formation Stop Others From Using my Company Name?
No. When filing the certificate of formation with the Secretary of State, a unique name has to be chosen. No other LLC can register the same name with the Secretary of State. If you want to protect the name of your business, you will want to obtain a trademark.
Is an LLC Required to Have an Operating Agreement in Texas?
No. Texas doesn’t require an operating agreement. An operating agreement outlines the specific rights and responsibilities of each member. Some items found in operating agreements include profit and loss allocations, voting rights, contributions, buyouts, and dissolutions. While not as important for a single-member LLC, it’s highly recommended to have one for a multi-member LLC.
Don't want to go it alone but don't want the expense of an attorney? Another alternative is to use an LLC formation service that will do the formation at a low cost. Take a look at our comparison page of popular LLC formation services.
IncFile has a special right now for LLC formation services for only $49 plus state fees, plus a free registered agent for the first year!