- Step 1. Naming Your Texas LLC
- Step 2. Choosing a Registered Agent
- Step 3. Filing the Certificate of Formation
- Step 4. Getting an EIN/Tax ID Number
- Step 5. Keeping Your LLC Running
- Registering Your LLC for State and Local Taxes
- Federal Taxes
- Permits and Licenses
- Creating an Operating Agreement
- How Do I Open an LLC Bank Account in Texas?
- Texas LLC Resources
- Tennesee LLC FAQs
There are several reasons to start a limited liability company (LLC) in the State of Texas, whether you’re looking to start a business from scratch or formalize an existing operation in order to protect yourself and your business.
Though it may not seem to be the case, forming a company in Texas is actually fairly affordable and straightforward. With a few hundred dollars and a bit of knowledge, you can have a Texas LLC up and running in just a matter of days.
Step 1. Naming Your Texas LLC
The first step towards forming an LLC in Texas is coming up with a name. But it’s not enough to use whatever cool name comes to mind—there are a few regulations and restrictions you’ll need to keep in mind.
The first rule for naming a Texas LLC is that the company name must include the words “Limited Liability Company” or “Limited Company” (you can abbreviate “Limited” as “Ltd.” or “LTD,” and Company as “Co.”).
Alternatively, you can replace the written phrase with one of the following abbreviations:
After ensuring your company has the proper corporate designation, the next step is to ensure that your LLC’s name doesn’t match (or isn’t confusingly similar to) any company authorized to do business in the state of Texas.
You can do a preliminary name search using the Texas Comptroller of Public Account’s Taxable Entity Search. This can be a great way to narrow down the field, as any exact matches will be easy to find.
Name Availability Determinations
However, the stipulation that names may not be confusingly similar is much more subjective. If you have any reason to believe that your intended name might be close to that of an existing company, you may want to call the Texas Secretary of State and request a preliminary determination of name availability. The number to do so is (512) 463-5555.
However, even this preliminary determination is not binding. The only way to ensure that your chosen name can be used is to reserve the name through SOSDirect (which incurs a $40 fee and keeps your name safe for 120 days), or go ahead and attempt to file your Certificate of Formation.
If the name is an exact match, it will be rejected, and you’ll need to apply with another name. If it’s similar, you’ll only be able to proceed if you’re able to convince that entity’s owners to Secretary of State Form 509 – Consent to Use Similar Name. They’re not required to do so, but they might be willing to if your LLC isn’t in competition with theirs.
One further restriction is that your LLC name must not mislead people into thinking it’s connected with certain professional industries or organizational structures. For this reason, the following words are not allowed unless your LLC actually operates in that field or under that structure:
- School of Medicine
- Medical School
- Health Science Center
- School of Law
- Law Center
- Law School
Step 2. Choosing a Registered Agent
A Registered Agent is not only responsible for receiving all correspondence from the Secretary of State and Comptroller, but they can also be served with papers in the event that your LLC is sued. They’ll also receive state Franchise Tax and Annual Report notices, so it’s important to make sure your Registered Agent someone you trust.
In Texas, a Registered Agent can be any individual or entity with a street address in the state—post office boxes aren’t allowed.
If you want, you can even designate yourself or another owner or manager of your LLC as the registered agent. That said, it’s a lot to keep up with, and you’ll probably be busy enough running your company. The Registered Agent’s address will also be public record, so keep that in mind if you have any kind of privacy concerns.
This is why many LLCs prefer to hire professional Registered Agent services. The payment is nominal, and doing so will ensure that you receive all correspondence in a timely manner.
Step 3. Filing the Certificate of Formation
Once you’ve got a name and Registered Agent picked out, your next step is to fill out and file your Certificate of Formation.
Whether you fill out a paper form and file it via mail or fax, or use the online form, the information that you’ll need to provide will be the same. To help you along, we’ll go over each piece of information one by one.
Entity Name and Type
This is where you’ll put the name of your LLC, in accordance with the rules and restrictions we discussed [ANCHOR TO #NAMING-YOUR-TEXAS-LLC]above[END ANCHOR].
Registered Agent and Registered Office
In this section, you’ll need to make the election of who will be serving as the Registered Agent for your company.
If it’s another company, you’ll need to fill out lines A (the name of the company) and C (the address).
If it’s an individual, you’ll want to fill out lines B (the name of the individual) and C (the address).
This is the first major decision you’ll come across when filling out your Certificate of Formation. Here you have two choices: do you want your LLC to be managed by its members (yourself and any other owners) or its managers (who can but aren’t required to actually own the company).
Should My LLC be Member-Managed or Manager-Managed?
This is a complicated decision, and not one that should be made lightly. The right answer depends mostly on what you plan to do with your LLC.
If you’re forming an LLC to give your sole proprietorship some added protection, a member-managed LLC makes sense. If you’re planning on building a business empire, on the other hand, you’d likely want to go with a manager-managed structure—that way you can hire people to sign official documents on behalf of the company without giving them any ownership stakes.
There’s a lot more to it than that, and if you’re unsure, you should speak with an attorney or do further research. With that in mind, manager-managed is usually the way to go thanks to its increased flexibility—all you have to do is name the owners as managers and they’re effectively the same, until you want to bring in more help.
In this section, you’re given the opportunity to describe why you are forming your LLC.
It’s important to note, though, that you’re not required to do so—in order to keep possibilities as open as possible, it’s recommended to stick with the default: “The purpose for which the company is formed is for the transaction of any and all lawful purposes for which a limited liability company may be organized under the Texas Business Organizations Code.”
This will ensure that you don’t limit what your company is legally entitled to do right from the start.
Next up, you’ll need to provide your own name and address if you’re the one filling out the form.
Again, like with the Registered Agent, this information will be public record, accessible to anyone interested in finding it, so you may want to consider using a business address or P.O. box—unlike with the Registered Agent, doing so is allowed here.
Effectiveness of Filing
Next up is deciding on the date on which your LLC will officially be formed. You have three options.
- First is by far the most common: the document will become effective upon receipt and filing by the Secretary of State. Most people will want this, and all you need to do is check the box next to option A.
- You also have the option of delaying the effectiveness by up to 90 days. To do so, check B and write the date on the blank line next to it.
- Far less common is option C: to make filing effective after a certain circumstance, which must occur within 90 days of filing. This is usually done to make filing effective after the dissolution or merger of another company.It’s far more complicated than the other two, and you should speak with an attorney to make sure it’s done right if this is how you want to proceed.
If the event doesn’t occur within 90 days, your Certificate of Formation will be rejected, and you’ll need to apply again.
Last but not least is the essential step of signing and dating the Certificate of Formation. If you as an individual own the LLC, you’ll just sign your name as normal.
If ownership is more complicated (say, for example, your new LLC is to be owned by an existing LLC), this may not be so simple—so we again recommend speaking with an attorney in cases such as this.
How to File a Certificate of Formation
You can file your Certificate of Formation in one of three ways. If you’re looking for the quickest turnaround, you’ll want to file online, but filing by fax and mail are options for those who choose them.
For a vast majority of filers, filing online through SOSDirect is the best option. After registering for an account and filling out the required information, you’ll typically hear back within four business days (or one business day if you elect to expedite your filing).
There is an additional online filing fee of $5, bringing the total cost of an online Certificate of Formation filing to $305.
If you choose to file by mail, you’ll need to print Form 205, fill it out, and mail it to:
P.O. Box 13697
Austin, TX 78711
The typical processing time for Certificates of Formation filed by mail is 5-7 days after receipt.
Alternatively, you can choose to submit the same printed and signed form to the Secretary of State via fax. Faxes should be sent to (512) 463-5709. Like filings by mail, these are typically reviewed in 5-7 days.
No matter which method you choose, you can have the Secretary of State expedite filing for an additional $25. This typically has a turnaround of one business day.
There’s no spot on the form to select expedited services, so you’ll need to include a cover letter, if filing by fax or mail, or select expedited filing if filing online.
Step 4. Getting an EIN/Tax ID Number
Once you’ve received a file-stamped Certificate of Formation back from the Secretary of State, your Texas LLC is officially formed. The next step is to get an Employment Identification Number (EIN).
Despite its name, this is good to have even if you don’t intend on hiring employees, so don’t skip this essential step.
Again, for a vast majority of applicants, there’s no reason to obtain an EIN by any method aside from their online application. It’s free, requires little to no advanced knowledge, and takes just a few minutes.
Most of what you’ll need to do is provide the same information that you already provided the Secretary of State.
The only real decision you’ll need to make is electing your tax status. If you’re the only owner, you’ll likely want to select “sole proprietor,” and if there are more than one, you’ll probably want “Limited Liability Company.” In either case, this election isn’t permanent, and you can always apply for a change in tax designation at a later date.
Once you submit the application, you’ll receive your EIN immediately. You’ll also receive the number in the mail, but be sure to screenshot or print the confirmation page for your records if you think you’ll need your EIN before that arrives.
Filing by mail takes far longer, so there aren’t many reasons to do so. One is if you don’t have a social security number: this doesn’t prohibit you from getting an EIN, but it will stop you from getting one through the automated online system.
If for that or any other reason your online application doesn’t go through, filing by mail should work. Unfortunately, however, filing an EIN application by mail comes with a processing time that averages around four weeks.
You can download the form here and mail it to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati OH, 45999
Step 5. Keeping Your LLC Running
You’re well on your way to running your business after officially forming it and obtaining an EIN, but there are a few more things you should know in order to avoid any legal roadblocks down the line.
Registering Your LLC for State and Local Taxes
There are more than 60 state taxes that can apply to Texas LLCs, but in most cases, only one or two will be levied against any given entity. The two most common are Franchise Tax and Sales Tax—the first of which applies to all Texas LLCs, and the second to any that sell goods or services in the state.
The remainder—things like hotel taxes, natural gas production taxes, and mixed beverage taxes—depend on the type of business you’re doing, so take a look at the Comptroller’s tax guide to make sure there’s not anything else you need to register for.
Every single LLC in Texas is required to file an annual Franchise Tax Report, alongside a Public Information Report that updates the states on the address and ownership information of the company.
A notice will be received by your Registered Agent each year reminding you of your obligations. Once received, you can fill out the reports and pay any required taxes via the Comptroller’s WebFile system, or by mail addressed to:
Texas Comptroller of Public Accounts
P.O. Box 149348
Austin, TX 78714-9348Franchise Tax Reports and Public Information Reports are due on May 15th of each year.
How Much is Franchise Tax in Texas?
The good news is that although all entities in the state are required to file a Franchise Tax Report each year, many won’t actually have any Franchise Tax obligations. The no-tax-due threshold is currently nearly $1.2 million dollars per year, so if your company brings in less than that, all you’ll need to do is report your earnings.
If your LLC did earn over that amount, your earnings will be taxed at a rate of .75%.
The other most common state tax facing LLCs in Texas is Sales Tax. If your entity sells any goods or taxable services, you’ll need to apply for a Sales Tax Permit, collect taxes, and submit those to the Comptroller on a regular basis—either quarterly, monthly, or yearly, depending on the specifics of your business. Your exact due dates will be given in a letter alongside your permit.
Applying for a Texas sales tax permit can be done online, and the current turnaround time averages 2-3 weeks.
The state sales tax rate in Texas is 6.25%, but certain municipalities may have added sales taxes, so be sure to look up your jurisdiction’s rates.
On top of state taxes, you’ll also need to ensure that you’re making federal filings and payments with the IRS.
If you’ve got a small, simple LLC, doing so is fairly straightforward. But this process can easily balloon into a headache if your company’s structure and operations are more complex, so it’s important to do your research and hire a professional if you’re ever unsure.
Disregarded Entity Taxes
By default, an LLC is treated as a pass-through Disregarded Entity. Essentially, this means that it doesn’t exist for tax purposes: rather than the company earning (or losing) money, its owners do so directly, and they file their taxes as such.
So long as each owner properly reports their income or losses with regards to the LLC, the LLC itself will not have to file a return.
Alternatively, a multi-member LLC can elect to be taxed as a partnership. This means that the company itself will need to file Form 1065, while each member will need to be issued a K-1 that describes their earnings. They’ll then need to incorporate that information into their own personal tax returns.
S Corporation Taxes
One potential way to reduce an LLC’s tax liability is by electing to be treated as an S corporation. Though it won’t have any advantage for very small companies, if your LLC is earning around $70,000 each year, it might be worth looking into.
An S Corp is essentially a structure in which profits are paid to the owners as a fair and reasonable salary, not through distributions. While this may reduce your tax liability, that decision is best left up to a CPA.
C Corporation Taxes
Another option is to elect to be taxed as a C corporation. Under this structure, the LLC pays corporate income tax, and each owner pays income tax on dividends they receive.
Like with S corp status, whether or not this election is beneficial depends on several different factors, so the decision is best left to a professional accountant.
Permits and Licenses
Depending on the type of business you’re running, you may also need to apply for specific permits and licenses. There is a long list of businesses that require these special permissions, from accounting firms to wineries, so be sure to check this list to make sure you’ve covered your bases.
Creating an Operating Agreement
Once you’ve formed your LLC and applied for all necessary tax permits, the legal necessities of establishing your entity are complete. Still, it’s unwise to do business without any sort of operating agreement that puts the rights and responsibilities of the company, its owners, and its managers in writing.
Having an operating agreement will ensure that if conflicts in operation arise, there’s a legally binding process for how they’ll be resolved. The document is also useful for protecting personal liability, and it may even be required in order to open a bank account or receive a loan, as financial institutions will not take any LLC without an operating agreement seriously.
The contents of your LLC’s operating agreement will need to vary depending on what it is your company does. If you’re running a tiny sole proprietorship and just need an operating agreement to meet banking formalities, a good template might be sufficient
If you’re doing serious business with multiple owners and managers, though you should always work with a lawyer to draft a strong operating agreement.
How Do I Open an LLC Bank Account in Texas?
Once you have all of your organizational and tax documents in order, you’ll want to open up a business bank account. This solidifies the separation of liability between your personal assets and those of the company.
Though the specific documents required by each bank vary, you’ll generally be asked to provide the following:
- Certificate of Formation
- EIN confirmation letter
- Operating agreement
Texas LLC Resources
- Texas Comptroller Preliminary Name Search
- Texas Secretary of State
- Texas State Comptroller
- IRS EIN Application
Tennesee LLC FAQs
It costs $300 to form an LLC in the state of Texas. If you wish to expedite filing, you’ll need to pay an additional $5.
If making an expedited filing online, it takes about one business day for a Texas LLC formation to become effective. If filing by mail without expediting, it typically takes about a week.
In addition to federal tax requirements, Texas LLCs must pay franchise tax at a rate of 0.75% if they earn over a threshold of about $1.2 million in any year.
Texas LLCs must file annual Franchise Tax Reports and Public Information Reports by May 15th each year.