A Step-by-Step Guide to Texas LLC Formation
One of the most crucial steps in starting your company is determining the best business structure as an owner. With so many options, each with its advantages and disadvantages, it can be tricky to decide on the best fit.
Small business owners have the option of setting up a Limited Liability Company (LLC), which is an excellent option known for being a safe yet flexible business structure.
Whether you are interested in setting up your business as a new LLC in Texas or are just looking to find out more information, you’ve come to the right place.
This article will discuss the details of what an LLC is, the advantages, and how to start an LLC in Texas for your business.
Benefits of Forming an LLC in Texas
When you file your company as an LLC in Texas, it helps solidify your standing in the business world. This motion shows other businesses and potential customers that you are willing to do what it takes to be a legally operating business.
Choosing to form your business as an LLC in Texas allows you to take advantage of the benefits of both a corporation and a partnership structure. Some of these benefits include:
Protection of 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 the Texas LLC protects the liabilities and debts incurred from 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.
Business Profit Taxation
In an LLC in Texas, your profits and losses can pass through to your income without having to have corporate taxation.
Simple to Create and Maintain
The formation of a Texas LLC requires minimal paperwork and requirements. They are known for being easy to start and simple to maintain.
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.
As you move forward, your Texas LLC 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.
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.
Flexible Profit Distribution
In an LLC, you are not required to spread the distribution of profits equally across the owners. You have full control over profit distribution in your Texas LLC.
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 income tax rates than corporations.
How to Start an LLC in Texas
Suppose you have decided to move forward with forming a Texas LLC for your business. In that case, you will need to follow these steps to be successful in abiding by Texas LLC law.
1. Name LLC
Every state has different rules regarding business names that you will want to find out more information on once you have selected the state of your business address.
Check Name Availability
In choosing a name for your business in Texas, you will need to search it on the internet to see if it is already in use. Keep in mind there are potential legal consequences for using a similar name to an already existing Texas business.
After you have done a general search online, you can check your business’s potential name through the Texas Secretary of State on the SOSDirect website to conduct a proper search.
Once you have confirmed the name is available through the SOSDirect website, you can move forward to secure it for your business.
Place a name reservation by filling out the Application for Reservation or Renewal of Reservation of an Entity Name (Form 501). Submit this form to the Texas Secretary of State SOSDirect website or by mail with a $40 filing feel. It will be suitable for 120 days, holding your business name until you can complete and submit the paperwork.
Doing Business As (DBA)
In Texas, you aren’t required to use your business’s legal name in your formation paperwork. If you prefer, you can use a DBA, fictitious business name, or trade name. In order to do that, you will have to register separately with an Assumed Name Certificate (Form 503).
You can file this form the same way as the name reservation, through the Texas Secretary of State through the SOSDirect website, or by mail and pay the $25 filing fee. You will also have to file with the county clerk in your LLC office’s city.
2. Choose a Texas Statutory Agent Service
A person, or separate business, that receives and sends legal documents on behalf of your company is known as a registered agent. The state of Texas requires all LLCs to appoint a Texas-registered agent. To accept the appointment as this position, they must sign a statement of acceptance which becomes the statutory agent acceptance form.
You can look up additional information about registered agents on the Texas Secretary of State SOSDirect Registered Agents website.
3. File Texas LLC Articles of Organization
You will need to submit all of your formation documentation to the Texas Secretary of State. To form a Texas LLC, you will need to complete the Certificate of Formation for a Limited Liability Company (Form 205). You can submit this via the SOSDirect website or by mail.
With the certificate paperwork, you must include the following information:
- LLC name and designation
- Name and address of the registered agent
- Whether the 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)
- Name with the address of the organizer of the LLC
- Certificate’s effective date
- Organizer’s signature
You can submit this certificate online to the Texas Secretary of State via the SOSDirect website or by mail. You will also have to pay a $300 filing fee.
4. Create a Texas LLC Operating Agreement
If you’re a single-member LLC, an operating agreement is not necessary.
However, if your LLC has two or more members, it should have a company agreement in place. Although it’s not required to start an LLC in Texas, it is highly recommended because this outlines how the business is structured and will operate among the members.
Some of the sections you will typically find covered in an operating agreement include:
- Capital distributions
5. Create an EIN for your Texas Limited Liability Company
The Employer Identification Number (EIN), also known as your Tax ID Number, comes from the Internal Revenue Service (IRS) and is an identifier for your business. It consists of a unique nine-digit number and is imperative for a business. The EIN legally allows you to:
- Open a bank account
- Apply for a business licenses
- File your tax returns as well as income tax
6. File Annual Reports
According to Texas LLC law, you do not have to file annual reports with the Secretary of State. You do, however, have to file annual franchise tax reports. The Texas franchise tax is unique to the state and is imposed upon every taxable entity formed in Texas or doing business in Texas.
To find out more information about the Texas franchise tax, you can look at the ComptrollerTexas.gov website’s Franchise Tax Frequently Asked Questions page.
7. Business License and Permits
Texas does not require a general business license registration, but you will need to determine what other licenses, permits, certifications, registrations, etc., are required for your LLC. To find out more information, you can reference the State of Texas Office of the Governor Texas Economic Development Business Permits Office Handbook.
You should also visit the Texas Economic Development and Tourism’s Business Permit Office (BPO) for more comprehensive information about state-required permits, licenses, and certificates for your Texas LLC.
8. Business Bank Account
The next step in the process of setting up your Texas LLC is to open up a business bank account through your approved bank or credit union.
9. Purchase Domain
Once you have chosen a unique name for your business, you can go ahead and purchase a domain name that matches your business entity.
Apply for a Texas LLC Online
You have a few options when creating and registering your LLC. You can do it yourself (DIY) or use an online website that incorporates. You can easily apply for an LLC online. You have the option to do it yourself with the Secretary of State or use an online company to do it for you.
Texas Secretary of State
To form a Texas LLC, you will need to complete a Certificate of Formation for a Limited Liability Company (Form 205). You will need to submit all of the completed documentation to the Texas Secretary of State via the SOSDirect website or by mail.
If you are looking for assistance online, there are plenty of options out there for you. Some of the more prevalent business formation online service providers include:
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 to your business to store documents, receive alerts, and manage your website.
ZenBusiness charges based 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 in the necessary information of 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 include 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 a Professional LLC
Once you’ve started the process of forming your LLC, there are a few other pieces of business to handle. Make sure to keep in mind these following things and make sure you take care of them accordingly:
- Set up taxes
- Set up unemployment insurance
- Decide who handles your accounting
- Acquire permits
- Determine insurance policies
- Double-check Texas law around hiring
- Open a bank account
- Apply for business licenses
Although you have followed the steps to creating your LLC, the job is not done. Following these additional steps will ensure the safety and security in the setup of your business.
Don’t go it alone. It’s easy to make mistakes when getting your business off the ground. Using an LLC formation service such as ZenBusiness as your go-to business solution will make things easy. From filing your documents to getting the advice you need to move forward, ZenBusiness is there every step of the way.
Once you’ve completed your LLC filing through the Texas Secretary of State and received your Certificate of Status via an online formation service.
What’s next? You’ll need to figure out your brand voice and how you want to speak to your audience, create a logo, colors, branding, website, phone number, and how you will get the word out to the public.
If you’re in it for the long haul, trademarking your name should be on the list. Finally, once all the moving parts are in place, it’s time to schedule your launch. This could entail having a pre-sale or something different, but it’s always best to create a schedule and stick to it.
How Much Does It Cost to Start an LLC in Texas?
Forming an LLC in Texas will cost $300 that will be paid directly to the Texas Secretary of State. This fee is associated with filing the Certificate of Formation for a Limited Liability Company as required by the state.
Additional fees include the Application for Reservation or Renewal of Reservation of an Entity Name to hold your LLC name for 120 days which costs $40, and the Assumed Name Certificate for DBAs costs $25.
How Long Does It Take to Form an LLC in Texas?
The Texas Secretary of State will take anywhere from around 2-3 business days to process the documents you submit via the SOSDirect website. If you choose to submit your paperwork via mail, it will take 7-10 business days.
Can You Start a 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, seek resources from online tools or by hiring a lawyer.
Do You Need a Lawyer to Start an LLC
No. You do not need a lawyer to start an LLC. It is entirely legal for you to prepare and file the necessary documents on your own. You can also utilize online business formation services, like those listed in this article, with ZenBusiness at the top of the list.
Does an LLC Need to Make Money
LLCs are not required to have income or post any profits. Keep in mind that if an LLC business owner is claiming tax deductions without reporting income, this will likely flag the IRS to conduct an audit to determine if the LLC has been set up for the right reasons.
What Is the Downside to an LLC?
While LLCs reap the benefits of partnerships and corporations, there are some downsides to consider before forming one of your own. LLCs members are deemed self-employed and must pay self-employment tax contributions towards both Medicare and Social Security.