How to Start an LLC in Texas (June 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.

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.online LLC formation service
• 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.

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 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.

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.

What Should Be Included in the Operating Agreement?

Your Texas LLC operating agreement isn’t a legal requirement, and you won’t need to file it with the state. However, it is advisable to have an operating agreement in order to set out agreed upon policies and procedures to run the business. A sound operating agreement should at least include these key items:

• Organization. The LLC can be organized by a single person, several people or even other business entities. The operating agreement should specify all members of the LLC and how ownership is divided (e.g., whether all members hold an equal ownership interest).
• Management. An LLC can either be member-managed or manager-managed; the difference is the involvement of members in the day-to-day operations of the business.
• Contributions and distributions. If members are investing (contributing) money, the amount should be noted in the agreement, as well as how any profits or losses are distributed among members.
• Changes to structure. Detail any procedures for changes to the structure of the LLC, such as if a member decides to withdraw from the business.
• Dissolution. Some LLCs are created for a specified time period or task and are set to dissolve when their purpose is fulfilled. In the event that it is time to end the business and dissolve the LLC, you should determine how that process will move forward. You’ll also need to file a Certificate of Termination using Form 651.

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
• Taking out a business line of credit
• Applying for certain permits
• Making contracts with wholesale vendors

Even if you don’t think you’ll need to engage in any of the above 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.

Forming an LLC in Texas can be an affordable option for many small business owners and entrepreneurs making it one of the best states to start an LLC. The state charges a relatively low $300 filing fee to establish an LLC, significantly less than California which has a $800 filing fee. Texas also has no personal income tax and no corporate income tax, which keeps ongoing LLC tax compliance costs low.

However, Texas LLCs do still face some costly obligations. The state charges LLCs a franchise tax unless they qualify for an exemption, which can amount to 0.75% of gross receipts. This tax doesn’t exist in states like Wyoming and Nevada. Additionally, Texas requires greater public disclosure of LLC ownership information than many other states.

What Is the Cheapest Way To Start an LLC in Texas?

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 $29 + 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 register your LLC.

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
• File wage reports
• Pay unemployment tax

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’ll need to file and pay both a Franchise Tax Report and an Annual Report no later than May 15th each year. There is no filing fee for the Annual Report, however the Franchise Tax Report varies each year, so you should refer to the most recent charts when filing. The tax is based on your LLC’s assets and companies that don’t meet a certain threshold don’t pay this tax. Even if your LLC doesn’t owe any taxes, you’ll still need to file a report.

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.