In Texas, forming a Limited Liability Company (LLC) is a great business entity for anyone who wants to limit their personal liability if their business is ever sued or has debt. This means your personal finances stay separate from your business finances and the two operate independently. Essentially, it gives you the freedom to run like a small business but with the legal protection of a corporation.
To file your LLC in Texas, simply follow these 5 steps:
How to Form an LLC in Texas – A Step by Step Guide
You can apply for your LLC on your own or through a professional service. While filing on your own isn’t complicated and doesn’t take too much time, you still want to make sure you complete each step as outlined below, ensuring your LLC is set up correctly the first time around.
If you’d rather not handle your business’s legal side, we suggest hiring experts to file all your business paperwork for you (a more worry-free approach).
Otherwise, if you’re a do-it-yourself kind of person, follow these 5 initial steps:
1. Name your Texas LLC
To form an LLC in Texas you need to follow specific name requirements set by state law. Your business name needs to be unique, meaning no other company has a similar name.
Before checking to see if the business name you’d like is available, to abide by Texas LLC law, make sure the name of your company contains one of the following:
- Limited Liability Company
- Limited Company
You can also shorten the word ‘Limited’ to “Ltd. and the word ‘Company’ to ‘Co.’ Your LLC name can be your business name, like Plumbing King L.L.C, or the name of one of your LLC’s members, such as Joe Smith LLC.
Check Name Availability
Once you’ve decided on your name, you need to check to see if it’s available and there’s no other company in Texas using it. The quick and easy way to do this is through a quick google search using your desired name.
If you don’t find any competing companies, you can move onto the next step – checking your business’s potential name through the Texas business name check.
If you find a name that you like but aren’t ready to file for your LLC just yet, you can reserve the name you’d like to use by filing a ‘Name Reservation’ form and sending it to the Secretary of State. You can print off the application and mail it or apply through the state’s online business portal (SOSDirect). A name reservation lasts for 120 days and costs $40.
Using a Fictitious Name
If you don’t want to use LLC in your business name, then you can add a fictitious name once your business is registered. Also known as DBA (“doing business as,”) or a trade name, a fictitious name allows you to run your business under a name that’s not the legal LLC registered name.
You can also use a fictitious name if you plan on running several different businesses under your LLC formation.
A fictitious name in Texas is called an ‘assumed name.’ To run a business under an assumed name, you need to register an ‘Assumed Name Certificate,’ with the Texas Secretary of State. It costs $25 and is good for 10 years.
Once you’ve figured out what your business name is and you’ve made sure it’s still available, the next step is to choose a registered agent who will help you with the legal side of your business.
2. Choose a Texas Registered Agent
A registered agent is anyone who receives and sends legal documents on behalf of your company. They are the main point of contact between your company and the Secretary of State.
Texas, an LLC must have a registered agent who lives in Texas and has a valid street address (not a P.O. box).
An LLC registered agent can be:
- A family member or friend
- A Commercial Registered Agent
Why you should use a registered agent
While the easier route seems to have yourself, or one of your LLC’s members, act as the registered agent, there are some benefits in hiring a professional.
A registered agent will ensure your business is always in good standing with the state, helping you stay organized and up-to-date. It also adds a layer of protection since they’ll help you in the case of a lawsuit or any penalties/fines.
Once you’ve decided who’s the best person to be your registered agent, the next step is to submit your LLC application.
3. File a Texas LLC Certificate of Formation
To form an LLC in Texas, you must submit a ‘Certificate of Formation for a Limited Liability Company’ to the Texas Secretary of State. It costs $300. You can mail in your application or apply through the state’s online business portal (SOSDirect).
When filling out your application, be sure to check that everything is filled out accurately; failure to do so might lead to your LLC being rejected or formed incorrectly. Therefore, be prepared to include the following information:
- Your LLC’s name and designation
- The name and address of the registered agent
- Whether your LLC will be manager-managed or member-managed
- If manager-managed: name with address of every manager
- If member-managed: name with address of every member
- General-purpose clause (provided)
- The name with the address of the organizer of the LLC
- The Certificate’s effective date
- Organizer’s signature
What’s the difference between member-managed or manager-managed?
Member-managed is if you (and the other owners of your LLC) are responsible for everyday business activities. In contrast, manager-managed is if you decide to hire someone who is not a member to manage your business’s day-to-day activities.
Member-managed is more common for smaller businesses, while larger companies typically use manager-managed. You’d usually only choose manager-managed if you are a passive investor and aren’t involved much in the business.
Once you get approval, you can move onto step 4 – creating an LLC Operating Agreement. If you’re operating your LLC by yourself, skip to step 5.
4. Create a Texas LLC Operating Agreement
If your LLC has two or more members, it should have an operating agreement. Although it’s not required in Texas, we suggest creating one to outline how the business is structured and how it will operate among its members (and/or managers).
Some of the sections you’ll typically find covered in an operating agreement include:
- Capital distributions
Again, while this is not a necessary step, as you don’t have to mail it to the secretary of state, it is recommended if your LLC has more than 2 members. It helps clarify the rules of your LLC and makes sure they are legally documented.
After you’ve agreed and created an LLC Operating Agreement, the next step is to create your unique employer identification number.
5. Apply for your Texas LLC Employer Identification Number (EIN)
Once your LLC is approved, you’ll need to get an employer identification number (EIN).
An EIN is a federal tax ID number that registers you with the Internal Revenue Service (IRS). This number identifies your company when filing taxes.
How to register for an EIN:
– Apply online or,
– fill out the Employer Identification Number form and fax it to 855-641-6935, or mail it to:
Internal Revenue Service,
Attn: EIN Operation,
If you apply online, you’ll get instant approval. If you apply by fax, it takes up to 4 business days, whereas mailing can take up to 4 weeks. Applying for your EIN is completely free!
Texas LLC Registration – Final Checklist & Summary
Ready to get started? Use this simple checklist to make sure you’ve dotted your i’s and crossed your t’s!
- Name your LLC – LLC’s in Texas are required to have ‘Limited Liability Company’ or ‘Limited Company’ in its name, or the abbreviation(s): LLC, L.L.C, LC, or L.C. To operate legally under a specific business name, you must first check that the name you’d like to use isn’t already taken by another business. You can check this online through Texas’s SOSdirect business portal.
- Choose a Registered Agent – A registered agent is a person who receives and sends legal documents on behalf of your company. It can be you, a friend or family member, or a commercial registered agent.
- File a Texas LLC Certificate of Formation – You need to fill out and submit the ‘Certificate of Formation’ to the Texas Secretary of State to form your LLC. Applications can be submitted online or by mail and cost $300. Be sure to submit all forms accurately, so your LLC is set correctly the first time around.
- Apply for your Texas LLC Employer Identification Number (EIN) & File your Tax Registration Form – Once you get approval for your LLC, you need to apply for an employer identification number (EIN) through the IRS. This number identities your company when filing taxes. You can apply online for free, and approval is instant.
- Create Texas LLC Operating Agreement – If your LLC has two or more members, you should create an LLC operating agreement that outlines how the business is structured, who is responsible for what, and how much of the LLC each person owns. You don’t have to send your operating agreement to the Texas state, but you should have one, so everything is documented and signed by all members.
Always double-check your LLC information is correct before submitting any paperwork. You want to avoid simple mistakes and ensure your business is set up correctly from the get-go.
If it’s within your budget, we recommend using a formation service to help form your LLC. They can act as your registered agent and make sure your company is always in good standing. Just make sure you do your homework and choose one of the best LLC services for your business.
Our first recommendation is to go with ZenBusiness, an LLC creation service that holds your hand from start to finish. Packages start as low as $49.
How To Apply for a Texas LLC Online
Now that you know the exact steps on what’s needed to form your LLC, it’s time to start the application process. There are two ways of going about this:
1. Do it Yourself
Taking the DIY route is a good option if your budget is tight or you’ve previously opened an LLC and understand how it works.
2. Use an Online Formation Company
Using an online formation company is a better option if it’s your first time opening up an LLC and if it’s within your budget (formation services cost anywhere between $49 – $199). This is typically a better choice if you want to avoid headaches and have peace of mind knowing professionals handle everything for you.
If using a professional service is more up your alley, here are our top 3 recommendations:
ZenBusiness built its platform to meet the needs of your business throughout its lifetime. When you pay for their services, you’ll receive a personalized dashboard for your business to store documents, receive alerts, and manage your website.
ZenBusiness charges work on a tier system. There are three different tiers with pricing as follows:
- The Starter = $49 annually
- The Pro = $199 annually
- The Premium = $299 annually
IncFile provides you with a full suite offering startup services to best support your business formation.
Their pricing model also depends on the state you are filling. You can generate a personalized quote on their website by entering the necessary information about your business.
LegalZoom is an online legal service provider that helps you to be able to create legal documents without having to pay the expensive lawyer fees. Some of the services they provide assistance to includes business formation, copyrights, and trademarks.
LegalZoom has many different pricing options available. For their LLC service, pricing begins at $79 + the allotted state fee.
After Starting Your Texas LLC
You’re approved – now what?
The journey doesn’t stop here – there’s still a handful of things you need to do to get your business off the ground. We recommend ticking off the following items to make sure your LLC gets off on the right foot.
Purchase A Domain For Your Business
Even if your business is local, having an online presence is essential in creating trust, professionalism, and a way for people to find you. If you haven’t already thought about getting a website, now’s the time. In a tech-saturated world, you need a domain to not only attract new customers but help create a good first visual impression of what your business does and how it can help.
Get A Business Phone Number
Since your business is now an approved Texas LLC, you should think about getting a business phone number. Having a business number is a great way to show professionalism to your clients and customers. It makes you more serious and, more importantly – more trustworthy.
There are various online phone services you can go with, or you could go the traditional route and open an account through a local branch. You can get a local number or a 1-800; the options are endless!
Open Your Texas LLC Business Bank Account
You’ll want to open a business account that’s separate from your personal banking. This will not only make accounting easier, but you won’t have to worry about your finances mixing in with your business finances.
USA Business Bank Accounts
If you already have online banking, it might be easier to open a business account through your current bank, so all your banking (although in separate accounts) will be accessible in the same place. If you prefer to open something new, keep these checking accounts in mind:
Chase – Free checking account with no extra fees – as long as you keep a $1,500 minimum balance.
BlueVine – Free checking account with mobile banking and a debit MasterCard.
Bank Novo – Open a free checking account with Free transfers and free ATM fees.
Bank of Texas – Open up any business checking account and get personalized customer service with a range of business solutions.
American National Bank of Texas – Whether you’re just starting out, looking to expand, or already an established company, the American National Bank of Texas has a variety of baking solutions that they can tailor to your business.
Along with your business checking account, you should apply for a business credit card too.
Having a business credit card is an excellent way to establish your business credit score (which may help if you ever need a loan). It also makes it easier for online purchases, and again, it will keep your personal and business finances separate.
Find Accountant/Buy Accounting Software
Taxes get complicated fast and can be a burden to handle. We recommend getting an accountant or using accounting software to ensure all your spending actions are tracked (payroll, bills, invoices, receipts, etc.). Here are some popular options to look into:
Wave – Free invoicing & accounting software with credit card processing & payroll services.
Intuit Quickbooks – Online accounting software to track expenses, customize invoices, and run reports.
Freshbooks – Accounting software to send invoices, track time, manage receipts, expenses, and accept credit cards.
Directory of Federal Tax Return Preparers with Credential – If you want to use a local tax specialist, you can search for a certified public accountant (CPA) through the IRS online directory.
Having all of your business reports in one spot is highly beneficial, so you can keep an eye on your cash flow. To run a successful business, you will need to analyze how your business performs and narrow down what’s working or what isn’t working. Finding areas for growth will ensure success.
Don’t Forget to File an Annual Franchise Tax Report
Unlike other states, which have to file annual reports costing anywhere between $50-$200, Texas LLC owners are not obligated to file an annual report. That being said, you are required to pay and submit an annual franchise tax report.
How much you’re expected to pay depends on how much your LLC earns. However, most LLCs won’t need to pay anything (but you still need to file). You won’t pay anything if:
- The annual total revenue of your LLC is below the ‘No Tax Due Threshold’ (For 2020 and 2021 that number is 1.18 million).
- Your LLC’s tax liability is less than $1,000.
To file an annual Franchise report, go to the Texas Comptroller of Public Accounts website and select the amount of taxes you paid in the preceding fiscal year (Sept. 1 – Aug. 31) and follow along with what report is required and the different options to submit that report. If you’re not comfortable filling the report by yourself, we suggest contacting an accountant or using your registered agent.
Franchise reports are due each year before May 15th. Your first report is due the following calendar year your LLC was approved – so if your LLC was formed anytime in 2021, your first franchise report is due before May 15th, 2022.
Notify Texas Of Any Changes You Make To Your LLC
If at any time you make changes to your LLC you need to inform the state. If you’re using a registered agent they can do this for you. If you’re going about this alone, you can update changes through Texas’s business portal or through your registered agent.
8 Benefits of Forming an LLC in Texas
Setting up an LLC in Texas makes sure your business finances stay separate from any personal finances and that each member’s personal possessions are safe.
It’s a great business entity for small, medium, or large businesses as it gives you the freedom of a sole proprietorship or partnership with the protection of a corporation. Best of all, it’s easy to get (approval is instant), and it won’t cost you an arm and a leg. Some of its major benefits include:
1. Protect Your Personal Assets
The LLC will have its liability that does not automatically extend to the owners, unlike a sole proprietor, where you are legally responsible for everything. That means Texas LLC protects the liabilities and debts incurred by the business. In most situations, your assets, such as your car, home, or savings, will never be at risk if your Texas LLC is faced with lawsuits or bankruptcy.
2. Benefit From Business Profit Taxation
In an LLC in Texas, your profits and losses can pass through to your income without having to have corporate taxation.
3. Simple to Create and Maintain
The formation of an Texas LLC requires minimal paperwork and requirements. They are known for being easy to start and simple to maintain.
4. Minimal Restrictions
Your business matters can be managed by more than one owner or member while still being one main business to the public. This means all decisions and transactions behind the scenes can be equitably distributed while presenting one entity as you move forward.
5. Heighten Your Credibility
As you move forward, your TexasLLC will continuously be recognized as an entity. People and other businesses prefer doing business with a legitimate entity because it shows your level of professionalism.
6. Gain Access to Business Loans
When you form your Texas LLC, you will obtain a DUNS number and build your business credit, helping you to further build upon your business.
7. Benefit From Flexible Profit Distribution
In an LLC, you are not required to spread the distribution of profits equally across the owners. You have complete control over profit distribution in your Texas LLC.
8. Good For Any Kind Of Business
An LLC business structure in Texas is an excellent choice for both medium and higher-risk level businesses. You might always want to consider opting to go with an LLC if you have a significant amount of personal assets to protect from your company. And lastly, LLCs are great for owners who are interested in paying lower tax rates than corporations.
Filing an LLC in Texas is a great way to legitimize your business while ensuring your personal assets (and all your partners’ assets) are protected.
However, since an LLC is a business entity registered legally with the Texas State, you need to make sure all your business information is correct before submitting anything. Failure to do so may result in your application being denied (or your LLC being created incorrectly). Whenever you can, we always recommend using a formation service, like ZenBusiness, which can handle the entire legal side of your business.
Not only will this ensure your business is set up properly for a reasonable price (as low as $49 each year), it’s a great way to make sure you’re always in good standing with the State.
So, what are you waiting for?
FAQ About Forming Texas LLC
There are several different steps you’ll need to take to form your LLC legally. It’s a lot of information to take in and can get confusing. To help out, we’ve compiled some answers to the most frequently asked questions
What are LLCs, and why are they important?
An LLC is a Limited Liability Company. It’s a business structure used to protect your assets, like your house, your car, or even your savings. No matter what happens to your business (lawsuits, bankruptcy, etc.) your assets are kept safe.
How much does it cost to start an LLC in Texas?
It costs $300 to submit the ‘Certificate of Formation’ which forms your LLC
Can you start an LLC on your own?
Yes, you can start forming an LLC on your own by following the step-by-step instructions provided in this article. For additional help, look to hire an all-around service provider
Do you need a lawyer to start an LLC in Texas?u start an LLC on your own?
No, you can start an LLC without a lawyer just be prepared to file and report everything on your own. If you’re not interested in getting a lawyer but want to make sure everything is filed correctly, use an online business formation service, like the ones listed in this article, with ZenBusiness as our #1 recommendation.
Does an LLC need to make money?
No, an LLC doesn’t need to make profits, but if you’re claiming tax deductions with no income, the IRS will likely audit your business.
What are the downsides to having an LLC?
There are pros and cons to forming an LLC. The pros are tax reductions, protecting your personal assets, and creating credibility for your business (and possible future business loans).
The main con of an LLC is you’re considered self-employed. This is a disadvantage as you’d be taxed under self-employment and responsible to pay Social Security and Medicare taxes. The amount you’d be required to pay depends on your business’s total net earnings.