How to Start an LLC in Texas

Texas is known for being a business-friendly state, so it’s no surprise that there are nearly 200,000 LLCs in the Lone Star state alone. This business structure offers personal liability protection for the owner without the tax burden of a corporation, making it the top choice of many entrepreneurs. Whether you’re planning a startup based in Austin, Dallas, or anywhere in the Lone Star state, the process to start an LLC in Texas is simple. However, it is important to follow all the proper steps so that your business is in compliance with state law and can operate in good standing for years to come.

Before you can take any of the first steps towards starting an LLC, you need to have the Texas LLC name decided so that you can use it on paperwork.

Naming rules

The name you choose must be completely unique and not used by any other business in Texas. You can conduct a name search on the state’s directory to see if a business name is available. 

In addition to being unique, Texas law also requires that LLC names: 

Name reservation

If you have chosen a name but are not ready to move forward with LLC formation, you can reserve the name for 120 days. Before choosing to move forward with a name, it can be helpful to be sure it is available outside of Texas as well by checking things like social media handles and domain names for availability.

Search for domain name availability

As you run your business name through the paces, it’s a good idea to check on domain names too. Like business names, they can be taken. For marketing purposes, ideally, your business name and the domain name of your company’s website would be the same. If the domain name is not available, but the business name is, will you still go forward with the name?

It’s a question only a business owner can answer.

You should also consider checking the availability of social handles too.

The state requires each LLC to name a registered agent as a part of the business formation process. A registered agent is responsible for receiving all official government mail, tax documentation, and legal documents like service of process on behalf of the business. You can choose to be your own Texas registered agent or appoint someone else to do it for you. 

Some businesses use a commercial registered agent service, where the professional service handles all responsibilities instead of an individual.

To be a registered agent in Texas, you must: 

Texas also requires that any registered agent provides written or electronic consent to their appointment.

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In order to establish your LLC, the primary document that you need to provide is the Certificate of Formation. This is the application that includes all the necessary information about your organization to the state so that they can approve the business. You can submit this online, via mail, or in person through the Secretary of State’s office by filling out Form 205. 

Information you’ll provide when filing the Texas Certificate of Formation:

The form also allows additional space for any supplementary documents you may choose to provide, such as information on an LLC’s duration where it differs from the default.

In other states, the Certificate of Formation is referred to as Articles of Organization.

Filing fee 

There is a filing fee of $300 in order to form an LLC in Texas. Payments can be made using a personal check, money order, LegalEase debit cards, or most major credit cards.

Texas processing time 

For Certificates of Formation submitted online, the expected processing time is 3 business days. For those submitted by mail or in person, it is 5 to 7 business days.

While Texas does not require LLCs to have an operating agreement, also known as a company agreement, it is best practice to have one in place for any business. 

An LLC operating agreement is a legally binding document that outlines how a business will be run, how ownership will be managed, and how decisions will be made. Having this in place ensures there is no confusion when it comes to business practices and lessens the risk of conflict in the future.

An operating agreement should include: 

For more complex businesses, it may be wise to use a business attorney to draft your operating agreement. There are also many templates available online. 

The agreement does not need to be submitted to the Texas Secretary of State but should be signed and kept on file for your own reference.

Once you have taken all the necessary steps to create your LLC, you can begin business operations. In addition to providing goods and services and growing your customer base, there are additional administrative tasks that are important to keep your LLC in good standing.

An EIN, or employer identification number, is a unique identifier issued by the Internal Revenue Service (IRS) to businesses. This is the equivalent of your personal Social Security Number, but for businesses. 

Not all businesses need an EIN. However, you do need an EIN if your business plans to:

Even if you are not required to obtain an EIN, it can be helpful to have one. Some banks and lenders will require an EIN, and it prevents you from needing to share your personal Social Security Number on any paperwork.

While some LLC owners choose to use only their personal bank accounts, the best practice is to have at least one separate bank account just for your business. Having separate accounts for your business and personal finances prevents any mistakes and makes paperwork much easier come tax time. 

In order to open bank accounts in a company name, the LLC must be officially formed, and you will typically need an EIN. A checking account is where most people start, but it is also wise to have a business savings account and a business credit card. 

To open a business bank account, you’ll need an EIN. If you don’t already have one, you’ll need to get one from the IRS website.

LLCs are treated as separate legal entities for tax returns rather than having profits and losses included on the owner’s personal returns. However, at least some of the profits are able to “pass-through” to the owner, avoiding corporate taxation at the state level. 

Texas is known for having favorable income tax laws when it comes to business owners, but there are some specific rules to understand.

Most local businesses in Texas are subject to a franchise tax, which is about 1% of some portion of the company’s profits. For businesses that make it below a certain threshold, this rate can be lowered when they file the E-Z Computation form through the Texas Comptroller of Public Accounts. This tax is due May 15th each year. 

All LLCs in Texas must file an annual report through the Texas Comptroller. Even if the LLC makes below the taxation threshold, it must file a report that shows no taxes are due. These reports are due by May 15th each year, with the exception of the year an LLC was formed. While there is no state fee, late fees are assessed if the deadline is missed.

An LLC is designed to protect the personal assets of its owner, but it is still important to ensure the business’s assets are protected as well. This is typically done by purchasing some type of business liability insurance that can guard against lawsuits and damages the business may owe. 

The most common forms of insurance are professional liability insurance, business liability insurance, and business property insurance. Certain industries or businesses may require additional insurance policies. 

There are also filing requirements for most LLCs to have disability insurance, workers’ compensation insurance, and unemployment insurance. 

Additional resources to help you set up a business in Texas

Texas prides itself on being a business-friendly state and therefore has many resources dedicated to helping business owners start and become successful.