There are a lot of advantages to starting an LLC in Texas. Its business-friendly climate and large workforce make forming an LLC in Texas an easy choice. While creating an LLC in Texas is a great business decision, there are some things to know first.
The state of Texas is unique from other states with forming an LLC. There’s different terminology used to describe documents, which may create confusion. Here are six steps to start an LLC in Texas.
Why start an LLC in Texas?
Starting an LLC in Texas can be wise for business owners. Texas is one of the most business-friendly states in the country. Second, Texas offers a strong economy built on several industries, with one of the largest economies in the world.
Finally, Texas has several large cities that can allow your LLC to thrive to reach the right market.
How to start an LLC in Texas
If you want to start an LLC in Texas, it will take six steps.
Step 1: Name Your LLC
The first step to start an LLC in Texas is to name your LLC. The state of Texas has a few naming requirements for LLCs:
- Your business name will need to be available and unique.
- After choosing your business name, you have the option to reserve your name online for up to 120 days.
- To reserve your business name online, it will cost $40.
You also have the option to register your business name by filing a name registration. For LLCs in Texas, this means that other business owners can’t use your business name as a fictitious or legal name.
Finding a unique brand name and (normal-looking) domain to go with it can be a bit of a time-sink for new business owners. This free tool from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes.
Name registrations are valid for one year, and you have the option to renew them.
Step 2: Registered Agent
The state of Texas has two requirements for registered agents. The registered agent will accept documents on behalf of your LLC, and the registered agent must have a registered office.
All domestic LLCs must maintain a registered agent and a registered office in Texas. A registered agent serves as the agent to receive any demand, notice, or process required by law in the state of Texas.
The registered office requirements for LLCs in Texas are:
- A registered office is the business office address of a registered agent.
- The registered office is where the Office of the Secretary of State will send correspondence.
- This business office address can be the same as the LLC’s place of business.
Step 3: Get an EIN
Third, if you haven’t already, you’ll get an EIN. To get an EIN, you’ll complete Form SS-4. The IRS provides small businesses an EIN at no cost, and there are three options to apply:
- If you apply by fax and provide your fax number, you’ll receive an EIN within four business days.
- If you apply by mail, you’ll receive an EIN within four weeks.
- If you apply online, you’ll receive an EIN immediately after completing your application. You’ll need to complete your application in one session.
Step 4: Operating Agreement
Fourth, you’ll form your Operating Agreement. An operating agreement describes how your LLC will govern itself, and it focuses on:
- Buyout and buy-sell rules
- Duties and powers of managers and members
- Holding meetings
- Member ownership percentage
- Losses and profit distribution
- Voting responsibilities and rights
Texas has no formal requirement for LLCs to have Operating Agreements, and there’s no requirement to submit the operating agreement with the Secretary of State.
Step 5: File a Certificate of Formation
In Texas, you’ll also hear Articles of Organization referred to as Certificate of Organization. You’ll file a Certificate of Formation by completing Form 205, which will allow your LLC to operate in the state of Texas.
You have the option of filing the Certificate of Formation either online or by mail. Filing a certificate of formation for an LLC costs $300.
Step 6: Annual Reports
The last step to start an LLC in Texas is to monitor annual reports. In Texas, annual reports are franchise taxes, which business owners pay to operate their business in the state.
Annual franchise tax reports are due May 15. If May 15 falls on a holiday or weekend, the due date will be next business day.
How much does it cost to form an LLC in Texas?
The final cost to form an LLC in Texas will depend on what you’d like for your LLC. There’s a mandatory fee of $300 to file a Certificate of Formation, which allows you to operate your LLC in the state.
There are other mandatory fees for a registered agent. There are additional fees if you want assumed name certificates, certified copies of documents, and name reservations.
How long does it take to form an LLC in Texas?
The time it will take to form an LLC in Texas will depend on if you request only a Certificate of Formation or if you want additional, optional documents.
After you receive your Certificate of Formation from the state of Texas, you can operate your LLC. This may take more time depending on if you request your Certificate of Formation by mail or online.
LLC Fees in Texas
There are five LLC fees you may pay in Texas: an annual franchise tax, Articles of Organization, a DBA fee, a name reservation fee, and a Registered Agent fee.
Annual Franchise Tax
The first fee you’ll pay for your LLC is the annual franchise tax. There are deduction limits, franchise tax rates, and tax rates to know, which for 2021, are:
- Compensation Deduction Limit: $390,000
- EZ Computation Rate: 0.331%
- EZ Computation Total Revenue Threshold: $20 million
- No Tax Due Threshold: $1,180,000
- Tax Rate (other than retail or wholesale): 0.75%
- Tax Rate (retail or wholesale): 0.375%
Articles of Organization
The second fee you’ll pay to form your LLC in Texas is for Articles of Organization. In Texas, this is known as the Certificate of Organization, which has a fee of $300.
You can receive the Certificate of Organization either by mail or online.
Doing Business As
The third fee you’ll pay to form your LLC may apply if you use a DBA (doing business as) name. In Texas, a DBA is also known as an Assumed Name Certificate.
You’ll file an Assumed Name Certificate if your LLC name differs from your last name. An assumed name certificate has a fee of $25.
Fourth, there are several fees for name reservation in Texas:
- A name reservation fee lasts 120 days, for a fee of $40.
- If you abandon an assumed name, there’s a fee of $10.
- There is no fee to withdraw a name reservation.
Registered Agent Fee
The final fee you may pay as you start your LLC in Texas is the registered agent fee. There are two fees. First, there’s a fee of $15 for a change of registered agent or registered office by entity.
Second, there’s a fee of $15, per entity, for a change of registered office by a registered agent.
Let Us Help You Start Your LLC
Starting an LLC in Texas may be the right decision for you. Its large workforce and robust economy make the state attractive for new LLC owners. Plus, the few requirements to start an LLC makes the process straightforward.
When you’re starting your LLC, it should be a stress-free experience. If you encounter delays, problems, or stress, there are pros who can help you at any step of the process. Work with the professionals at 1-800Accountant to form your LLC in Texas.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.