A limited liability company or LLC is an entity structure that offers owners legal protection from business liability claims.
It is a better option for owners looking to expand their business. An LLC can be formed by individuals, businesses, corporations, and even other LLCs.
If you plan to hire employees and have more owners, an LLC is a suitable option for you to conduct business in Texas. It does not cost much to register an LLC in Texas and the process is fairly simple as well.
How to Start an LLC in Texas?
You can form a limited liability company (LLC) in Texas by following a few simple steps. You do it online through the Secretary of State (SOS) Texas website or send the completed documents by mail.
Then, you can do it all by yourself or appoint an attorney to form an LLC for you. Alternatively, you can use a company formation service provider in Texas.
Whichever option you choose, you’ll have to follow these steps to form an LLC in Texas.
Select a Name for LLC
The first step to forming a limited liability company is to select a legal name for your company. Texas laws require companies to use a legal name that clearly identifies them as businesses.
A business must include one of these suffixes in its legal names:
- Limited Liability Company, LLC, L.L.C.
- Limited Company, Ltd. Company, Ltd. Co.
- L.C, LC
- Company or Co.
If you want to reserve a company name with SOS Texas, you can do it online by paying a $40 fee.
In practice, you can use a trading name or any other name to do business. Your brand name can be different from the legally registered name.
You can use a “doing business as” or “DBA”, trade name, or a brand name by getting an assumed name certificate for $25.
Appoint a Registered Agent
Businesses in Texas must appoint a registered agent to communicate and receive legal documents on behalf of the company.
A registered agent can be an individual, a company, or an authorized attorney. However, an LLC cannot appoint itself as a registered agent.
Your appointed registered agent should accept the appointment. If you’re appointing an attorney as a registered agent, it’s important to document the authorization.
The authorization document should include the company’s legal name, the name of the appointed person/entity, the date of authorization, and the signatures of the appointee.
File a Certificate of Formation
An important step to form an LLC in Texas is to file the certificate of formation. This document outlines the company’s formation and states how it will conduct its business.
A certificate of formation will include the following important points:
- Company’s legal name including the selected suffix.
- Complete address of the office and registered agent.
- Whether the LLC will be member-managed or manager-managed.
- Name and address of the member or manager as selected.
- A purpose clause.
- The effective date of the certificate of formation.
- LLC organizer’s name and address.
- Signature of the organizer.
You can file for the certificate of formation online, by mail, or present it to the office of the secretary of state. The filing fee for this certificate is $300.
Get a Federal EIN
The federal employer identification number (EIN) is issued by the Internal Revenue Service (IRS) to all businesses in the US.
If your LLC has more than one employee, you must obtain an EIN from the IRS. Your EIN will be used at different places like filing taxes, hiring employees, opening a bank account, making trade contracts, etc.
An EIN also protects your LLC identity for tax filing and other legal issues.
Business License and Permits
Certain businesses require permits and licenses from state governments. If your business falls into these categories, your next important task is to obtain relevant licenses and permits.
Business licenses and permits in Texas are issued by Texas Economic Development Business Permit Office. You can check with the relevant department to confirm if you need a specific permit or license.
Businesses in Texas do not need general business licenses though.
Additional Steps to Form an LLC in Texas
There are a few additional steps that are not required by law in Texas for an LLC. However, completing these steps along with other formalities will help you launch a business smoothly.
Prepare a Business Plan
A business plan can keep your LLC registration, launch, and operations on track. Also, you’ll need to apply for startup funding at some stage and most lenders will demand a business plan.
A business plan is not required by SOS Texas for businesses. However, it can help you in many ways.
A business plan should include the following details:
- Company objectives and goals
- Management and organization
- Marketing Plan
- Target market analysis
- Customer segmentation
- Financial plan
Prepare an Operating Agreement
An operating agreement is the “company agreement” for your limited liability company. It is a formal agreement between the members (owners) of the LLC.
An operating agreement should clearly define the financial aspect of the business. Specifically, it should outline the investment and profit/loss sharing clauses.
Some other important points to include in an operating agreement are:
- A clause on LLC organization including the number of members.
- A clause on who will manage the LLC.
- It should outline the investment and profit distribution plans.
- It should define the terms of ownership transfer or change of structure for the LLC.
- Finally, it should include the clause to define the LLC dissolution terms.
State Taxes in Texas
Most limited liability companies (LLCs) do not file federal taxes at the entity level. They come with a pass-through taxation structure. It means members of the LLC will file federal income taxes individually.
Texas imposes a 6.25% sales tax on businesses selling services/goods in the state. Additionally, local authorities like cities, counties, and municipalities can impose an additional 2% use or sales tax to a maximum combined tax rate of 8.25%.
Open a Business Bank Account
A limited liability company protects the personal assets of its owners. Therefore, it’s important to separate the financials of the company from its owners.
An important step in that direction is to set up a business bank account. Once you have completed the company registration, you can open a business bank account.
You can open a bank account under the LLC’s legal name or its trade name. The banks will usually ask for registration proof and the EIN from the applicants.
An LLC provides financial liability protection to owners. Further, you can choose to protect the business with different types of business insurance plans.
The Texas Department of Insurance provides important information on these insurance plans. Some of the insurance plans include:
- Worker’s compensation plan
- A general business liability insurance plan
- Professional liability plan
How Long Does It Take to Form an LLC in Texas?
You can file for an LLC registration in three different ways. Each method requires a different time to form an LLC in Texas.
- If you apply online, it may take from 5-7 business days to form an LLC in Texas.
- If you present the filing documents in person or send them by mail, it will take around 22 days.
- If you want to complete the company registration process quickly, you can pay an additional $25 for quick processing.
How Much Does It Cost to Form an LLC in Texas?
The business registration fee for an LLC in Texas is only $300. If you want to expedite the process, you’ll have to pay an additional $25.
Then, there are a few optional services that may cost you extra. For example, if you reserve a company name, it will cost you $40.
Annual Filings for an LLC in Texas
You do not need to file annual filings for an LLC in Texas. However, if you operate a franchise, you must file an annual franchise report.