If you’re looking for a reliable DIY guide for starting an LLC in Texas, look no further. Below you’ll find all the information you need to launch your business and handle any associated costs. Follow each step carefully and your LLC will be established and ready to hit the ground running.
That said, the process can be complex, with various filings and costs, so if at any point you need help, you can hire an incorporation service – they’ll take care of the paperwork so you can spend more time growing your business.
Recommended: Compare the Top LLC Services
If you’re new to the process of starting an LLC, you might also be unfamiliar with the LLC formation services that are reliable and offer great value – like ZenBusiness. As a reference point we compared them to the two most well known LLC formation services, IncFile and LegalZoom. See our comparison guides for more information:
Step 1: Name Your LLC
What’s in a name? Quite a bit, actually. Your business name is your Texas LLC’s identity, its personality, its reputation. Find a name that sticks in customers’ minds – while conveying your brand qualities – and you’ve struck gold. A unique, memorable name can draw in new customers and keep existing ones coming back.
Your LLC name is going to appear everywhere: business cards, marketing collateral, websites, legal contracts, bank accounts, invoices, directories, and much more. So be sure that it conveys your product, service, brand, and values.
While you can (and should) be creative with your business name, there are certain state requirements that it must follow.
Texas law requires that your LLC name include some form or abbreviation of the term “Limited Liability Company.” Additionally, your name must not falsely imply affiliation with a government agency, banks, insurance companies, higher education institutions, the U.S. Olympic Committee, or veteran benefits (find a list of restricted words here). And it cannot be “grossly offensive,” so keep it family friendly! On top of all this, the name must be distinguishable from all others reserved or registered with the Secretary of State.
If you find that your desired name is already taken, any of the following changes will effectively distinguish it:
- Changing, adding, or removing a key word.
- Rearranging key words.
- Altering the form of a root word.
- Translating words to a different language.
- Using homophones that have different meanings
- Adding, removing, or changing prepositions that sufficiently alter the name
Check out the Texas Administrative Code Rule §79.38 for more information and examples of distinguishable name changes.
Consider this: your friend Fanny wants to open a flower shop in Austin, Texas. The name she is considering, Flowers by Fanny, LLC is already in use. So she comes up with a new one: Fanny’s Florals and Design, LLC. This name is similar to the original but includes new words, distinguishing it in the Secretary of State’s records.
Determine the Name is Available
Of course, you will only need to make distinguishable changes if your name is already taken. Don’t make the mistake of ordering business cards, creating advertisements, and using a name on documents like the Certificate of Formation without first confirming it’s available. Use the Secretary of State’s Taxable Entity Search to see if there’s an existing business using your desired name.
Maybe you pegged a distinguishable name right away, or maybe it took some modifications, but either way, once you have a unique name, you can lock it down by filing a name reservation.
Optional: Name Reservation
You may have fallen in love with a particular name, but still have some preparation and paperwork to sort out before starting your LLC, and you’re worried that someone will swipe it in the meantime. To calm your nerves, you can reserve that name in Texas for 120 days.
Think about Fanny. After making her name distinguishable, she’s ready to make it official, but if she’s waiting on some paperwork to start her LLC, she can place a hold by filing an Application for Reservation either online or by downloading and completing a paper form. Either method will cost $40. Online filings are processed faster, but if you’d like to go the hard copy route, mail your form and payment to:
Office of the Secretary of State
P.O. Box 13697
Austin, Texas 78711-3697
Live near Austin? You can also drop it off in person at the James Earl Rudder Office Building – 1019 Brazos, Austin, Texas 78701.
Or, if you have a fax machine, go ahead and fax it to (512) 463-5709.
The Secretary of State’s office processes online submissions in one business day, while hard copy filings take three. If that’s too long you can request expedited processing for an additional $25 fee.
Reserving a business name is only useful if you’re not ready to start your LLC yet. Otherwise, skip the reservation and register your name by including it on the Certificate of Formation.
Step 2: Choose a Registered Agent
Fanny’s LLC is quickly taking shape, and if it’s going to operate in Texas, she’ll need a go-between for state and legal communications. This is called the registered agent.
A registered agent is a key component of your budding LLC, handling all of its sensitive communication with the state so you don’t have to. But maintaining an agent isn’t just a convenience, it’s required. According to the Secretary of State website, “The Texas Business Organizations Code (“BOC”) requires every domestic or foreign filing entity to maintain a registered agent and office in Texas,” and that this registered agent is “an agent of the entity on whom may be served any process, notice, or demand required or permitted by law to be served on the entity.”
Taxes, lawsuits, maintenance requirements, and more – the registered agent takes care of it all. If you had to do this yourself, it would pile additional tasks onto your already-full plate. Plus, your agent makes your business available to receive documents even when you’re out of town or away from the office. This is especially important if your physical office is outside Texas.
Now for the practical application, the “how-to.” Make your registered agent official by including their name and address on your Certificate of Formation. Your agent can be either an individual or a business, like a registered agent service.
Individual as Registered Agent
You may think that an individual registered agent would need specialized training or experience, but this isn’t the case. Anyone can serve as your registered agent, as long as they live in Texas and have a physical address in the state (P.O. boxes are not allowed). You can even serve as your own LLC’s agent, as long as you fulfill these requirements and are okay with taking on the responsibilities.
Registered Agent Service
It can be a lot easier, though, to use an LLC formation service like IncFile or Northwest Registered Agent, so we highly recommend it. Not only will they take care of business formation requirements, but they’ll also include a free registered agent service. Or, if you’d rather start your Texas LLC on your own, you can use a national registered agent service to cover your agent duties.
During the life of your LLC you may, at some point, need to change your registered agent. Perhaps you want to switch from an individual to a professional service, or maybe your existing registered agent resigns. Either way, you’ll want to make the change as soon as possible because operating without an agent on file can lead to administrative dissolution.
Step 3: File the Formation Documents with the State
This is where the LLC formation process kicks into high gear. Let’s check back in with Fanny.
She’s reserved her unique business name, designated a registered agent, and she’s ready to get her LLC off the ground. It’s time for Fanny to take on the most important LLC document: the Certificate of Formation. This filing creates a record for Fanny’s Florals and Design, LLC with the Texas Secretary of State, giving it the authorization to commence business in the state.
When it comes to filing the Certificate of Formation, you have options. You can file online, by mail, in-person, or by fax, so choose the method that works best for you. Before you begin, know that the Certificate of Formation’s cost reflects it’s importance – it isn’t cheap. Be prepared to pay $300, no matter which filing method you choose.
Head over to the Texas SOSDirect filing system. This is the quickest and easiest way to file. Once submitted, your form will be processed within one business day.
Download and complete the paper application, then mail it, with your payment, to the address below. It will be processed within three business days of receipt.
Office of the Secretary of State
P.O. Box 13697
Austin, Texas 78711-3697
This will get your form there quicker than postal mail, but the processing time will be the same. Complete the form linked above and fax it to (512) 463-5709. Faxed forms must be accompanied by a Payment Form, on which you can include your credit card information.
If you complete the paper form and don’t want to mail or fax it, you can also hand deliver it to:
James Earl Rudder Office Building
Austin, Texas 78701.
Step 4: Create an Operating Agreement
The operating agreement is the framework that holds up an LLC, the vital underpinning that establishes processes for its procedures, activities, and conduct. Essentially, it serves as your company’s bylaws.
Texas LLCs aren’t required to adopt operating agreements, not officially anyway. But when you think about all the benefits – the customized procedures it institutes, the legal protection it provides, the legitimacy it establishes – you’ll see just how important this document can be. Your LLC will be much better off with an agreement on file.
As an example, let’s say our friend Fanny sells a percentage of her company to two other owners. Her operating agreement could stipulate how the LLC’s assets would be distributed among them in the case of dissolution. But if she decided to maintain sole ownership, the agreement could be used in court as evidence that the LLC’s assets are separate from her personal ones. These are just two examples, but the operating agreement governs everything from member duties to the tax structure.
If you’ve decided to draft an agreement, there are two ways to go about it:
- Write it yourself. Don’t be intimidated by this option. There are plenty of free online templates that serve as helpful guides. You can create an effective document from most of the templates out there, but we recommend getting one through ZenBusiness, which includes a free LLC operating agreement with every package. This will save you a lot of time and money.
- Hire an attorney. If you want to be absolutely sure that you don’t miss any important details, an attorney can write or review the agreement for you, ensuring that it complies with state law, includes all necessary information, and avoids the state’s default laws.
What are default laws?
Each state has its own set of generic, baseline laws for how LLCs should operate. These laws, however, only govern matters not included in your operating agreement. Take dissolution, for example. If your LLC ever dissolves, your operating agreement would determine what happens to its remaining assets and debts. But if you fail to include it in the agreement, the state will make that decision for you.
Because default laws are broad and not tailored to your specific business, they often aren’t in your LLC’s best interest, so it’s best to avoid them by being as comprehensive as possible in your agreement.
Step 5: Get an EIN
There’s simply no way to avoid taxes. In fact, it’s illegal to try, so don’t do it.
Federally, LLCs are classified as “pass-through” entities, businesses that don’t file corporate tax returns, but whose owners include income and losses on their individual returns. Still, there are certain circumstances that require LLCs to pay federal taxes, like classifying as a corporation or partnership, hiring employees, or selling merchandise. So, in Fanny’s case, if she plans on hiring additional florists and selling bouquets, she will need to apply for an EIN.
The Employer Identification Number (EIN) is a nine-digit number that the IRS will use to identify your company’s tax accounts, so if you pay any business taxes, it’s extremely important to have one. Click the “Do I need an EIN?” link on this page to see if you fall into this category. If so, apply for an EIN one of three ways:
Need to get this done quick? File online – it’s by far the most efficient method. You can only complete the process between 7 a.m. and 10 p.m. EST, Monday through Friday, but you’ll receive your number immediately upon finishing the digital form. Keep in mind that you will need to provide a valid individual taxpayer number (like a Social Security Number) as part of the process.
You might prefer the feel and security of a paper form. In this case, download Form SS-4, complete it, and fax it to (855) 641-6935. You will receive your EIN within four business days.
Or, there’s always trusty postal mail. However, this is the slowest option, as processing typically takes around four weeks. If that doesn’t deter you, fill out Form SS-4 and send it to:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Okay, so you’ve filed the Certificate of Formation, designated a registered agent, adopted an operating agreement, and filed for an EIN. Time to start doing business, right? Sorry, there are a couple of additional steps you may need to take first. But don’t worry, you’re almost there!
Step 6: Taxes, Licensing & Income Reporting
For all intents and purposes, most LLCs will be official after completing all the prior steps. Still, it’s important for business owners like Fanny to keep looking ahead, as there are certain maintenance requirements to keep a Texas LLC running smoothly and in good standing with the state.
Before you start doing business, create a plan for the following potential LLC requirements:
As mentioned earlier, LLCs are almost always classified as “pass-through” entities, which means that they don’t pay income taxes directly to the federal government. That responsibility falls instead on the owners, who must include business income and losses on their personal 1040 tax returns and/or Schedule C. LLCs are flexible with tax structure, so you can choose to have yours taxed like a corporation instead. In this case, it would need to file a separate corporate tax return.
As a Texas LLC, you’re in luck, because Texas is one of the few states that doesn’t have a personal income tax. And since an LLC’s income taxes “pass-through” to the individual level, you won’t need to pay them. So, you’re off the hook there, but not completely. All Texas LLCs owe a franchise tax for the privilege of doing business in the state. The franchise tax rate is 0.375% for retailers or wholesalers and 0.75% for everyone else, and it’s due each year on May 15. Mark it on your calendar and don’t be late, because late payments will incur a fee of $50 plus 5% (1-30 days late) or 10% of the tax (over 30 days late).
Payments don’t stop with the franchise tax, though. If your LLC meets certain conditions, it will need to pay other specific, business-related taxes. Does your business sell merchandise? Then it will be subject to a Sales Tax and Use Tax, payable to the Texas Comptroller of Public Accounts. Do you have employees? Your business will also owe an Unemployment Tax through the Texas Workforce Commission.
Plus, depending on your LLC’s location, it may owe a local tax to the city, municipality, or county where it resides. Consult your local government’s website to find out.
The Certificate of Formation may have already made your business legitimate, but your LLC might still need to obtain a license before doing business. This all depends, however, on the type of business you run.
For example, our friend Fanny would need to apply for a Nursery Floral License from the Texas Department of Agriculture before selling a single flower in the state. Don’t worry if you’re unsure which licenses your LLC might need. Texas has a handy comprehensive guide for all state licenses and permits. Check it out to see which ones you’ll need.
Certain cities and counties also require their own specific licenses, so you should also check with your local government to see if there are any additional licenses to obtain.
Many states require their businesses to file some sort of Annual Report, but Texas doesn’t. It does, however, mandate that LLCs submit a Franchise Tax Report when you pay your franchise tax each year.
And we’ve come to the end. It’s a long process, and not always easy, but the reward is well worth it. If you’ve made it this far, congratulations! Your Texas LLC is ready for takeoff. So go ahead and start with that big sale, promotional campaign, or business deal. Maybe you’ll see Fanny out there in the business world, selling her beautiful floral creations.
Need Help Creating Your LLC?
If you even skimmed this guide to look over the steps, you likely got a sense of how many moving parts there are when starting an LLC. Can you do it all yourself? Absolutely. We have complete confidence in you.
But if you’d rather hand it off to someone else and not have to worry about it again, we recommend using an LLC formation service. This way, you can go about your other business responsibilities with the confidence that everything will be submitted correctly and punctually.
Plus, an LLC formation service can handle maintenance items like Annual Reports, so you can take them off your to-do list. And on top of that, many services also provide a registered agent.
Sound good? Whether you know that you’ll need an LLC service or you’re just exploring your options, take a look at IncFile and Northwest Registered Agent. These are two of the top services available. And you can take our word for it because we’ve done a whole lot of research on the topic.