Are you thinking of starting a business in The Lone Star State? One of the first steps you have to take is choosing your business structure. You might structure your business as a limited liability company (LLC) for liability protection and pass-through taxation. But getting your LLC up and running takes time, effort, and a little money. Read on to learn how to start an LLC in Texas.
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How to start an LLC in Texas
There are several steps involved in setting up an LLC in Texas, such as naming your LLC and filing the Certificate of Formation. Use the following steps to get started.
1. Choose a business name
You need to research and choose a unique business name. You cannot pick a name that another business in Texas is already using.
Keep in mind that your business name must end with “Limited Liability Company” or an abbreviation. For example, you can end your business name with:
- Limited Liability Company
- Limited Company
- LLC
- LC
You might want a name that does not include the legal “Limited Liability Company” or abbreviations at the end. You can operate under a “doing business as” (DBA) name, which is a trade name you can use for advertising and sales purposes. You must file Form 503, Assumed Name Certificate, and pay a filing fee to operate under a different name other than your legal name.
2. Select a registered agent
The Texas Business Organizations Code requires every filing entity to choose and maintain a registered agent.
Your registered agent accepts legal documents and official mail, so they must have a physical address in Texas.
A registered agent can be:
- A Texas resident authorized to do business in Texas (e.g., officer, owner, or employee)
- A service company that provides registered agent services (for a fee)
- An attorney or accountant that provides registered agent services (for a fee)
Check out the Registered Agents FAQs on the Texas state website for more information.
3. File the Certificate of Formation
File Form 205, Certificate of Formation—Limited Liability Company, to officially form your LLC. The Certificate of Formation asks for information like your LLC’s name, registered agent, and purpose.
Submit Form 205 to the Texas Secretary of State and pay the $300 filing fee.
4. Create an operating agreement
A business operating agreement is an LLC’s ownership and operation guidelines. Texas does not require that businesses create an operating agreement. However, this type of agreement can protect and formalize your LLC, help resolve conflict, and establish procedures.
Consider creating an operating agreement if you have a single-member LLC or multi-member LLC.
5. Obtain business licenses and permits
You may need federal, state, and local licenses and permits to legally operate your business in Texas.
Your license and permit responsibilities may depend on your business activities and location.
What types of business licenses are required for an LLC in Texas?
Types of licenses and permits include sales tax permits, building-related permits, or industry-specific licenses (e.g., a liquor license).
Check with local and state agencies to determine the licensing requirements for your LLC.
6. Apply for an EIN
An EIN, or Employer Identification Number, is a taxpayer identification number the IRS uses to identify a business. You must apply for an EIN if you have employees or meet other requirements.
You can apply for an EIN online, or via fax or mail.
7. Register for taxes
New employers in Texas must register for a state unemployment insurance account (SUI) with the Texas Workforce Commission.
8. Open a business bank account
You must open a separate business bank account if you structure your business as a limited liability company. Your LLC is a separate legal entity, which requires a separate bank account.
Have the following pieces of information handy to open your business account:
- Social Security number
- EIN
- Business license
- Business name
- Articles of organization
9. Set up your accounting books
You must set up your accounting system regardless of your business structure. Your accounting books ensure your records are organized and accurate.
Set up your accounting books by:
- Selecting an accounting method (e.g., accrual accounting)
- Setting up a chart of accounts
- Determining how to record transactions (e.g., accounting software)
10. File the beneficial ownership information (BOI) report
The beneficial ownership information reporting requirement is a federal rule that went into effect on January 1, 2024.
Businesses structured as LLCs must report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). Report information about your company and beneficial owners (e.g., senior officers).
You must file your BOI report within a certain number of days after receiving notice that your LLC registration is effective. You can e-file the report on FinCEN’s website.
Keep in mind that there are exceptions to the BOI reporting rule. For example, large operating companies are exempt from BOI reporting requirements.
Do I need an attorney to start an LLC in Texas?
Starting a business can be overwhelming. You might decide to hire a business tax attorney to help you structure your LLC, especially if your organization is complex.
A lawyer can:
- Provide legal advice
- Ensure your LLC is set up correctly
- Protect your personal assets
Accountants can also help you learn how to start an LLC in Texas. Consider consulting a business attorney or accountant for more information.
How much does it cost to open an LLC in Texas?
You must pay initial and ongoing fees to operate as a limited liability company. So, how much can you expect to pay?
Initial costs for LLC formation
Again, there is a $300 filing fee for the Certificate of Formation. You might have other initial costs such as:
- Professional services to help with LLC formation (e.g., attorney, accountant)
- Registered agent services
- License and permit application fees
- A filing fee of $25 to apply for an Assumed Name Certificate so you can operate under a name other than your LLC’s legal name
Ongoing annual costs for maintaining an LLC
LLCs come with ongoing costs in addition to startup fees. Limited liability companies are subject to a state franchise tax.
Your franchise tax liability in Texas depends on your business type and revenue. The franchise tax rate, threshold, and deduction limits vary annually.
For more information, check out the Texas Comptroller’s website.
What documents are required to set up an LLC in Texas?
There are several documents you may need to familiarize yourself with to form your LLC. These documents include:
| Document | Purpose | Mandatory? |
|---|---|---|
| Certificate of Formation (Form 205) | The official document you must file with the Texas Secretary of State to form your LLC. | Yes |
| Assumed Name Certificate (Form 503) | The form you must file if your LLC regularly conducts business in Texas under a name other than your legal name. | Maybe |
| Operating agreement | An internal document outlining ownership and operations. | No |
Can I set up an LLC in Texas online?
Yes!
You can file the Certificate of Formation and other business forms online through the Texas Secretary of State’s SOSDirect website.
How long does it take to get an LLC in Texas?
The Texas Secretary of State office normally processes LLC documents within five to seven business days.
However, there may be delays depending on demand. According to the Texas Secretary of State’s website, non-expedited documents sent via mail or fax can take 70-72 business days to process.
How can I expedite the formation of my LLC in Texas?
You can pay an additional $25 per document for expedited services. The Texas Secretary of State’s office generally processes expedited documents by the end of business the first business day after the date of receipt.
Again, there may be delays depending on demand.
Is LLC worth it in Texas?
Learning how to start an LLC in Texas can be overwhelming. There are several requirements, like filing the Certificate of Formation, that you are responsible for.
Is it worth it?
For many businesses, starting an LLC in Texas is worth the steps. The advantages of structuring as a limited liability company include:
- Liability protection: An LLC is a separate legal entity, which can help protect your personal assets against business debts and lawsuits.
- Pass-through taxation: LLCs are not subject to double taxation like corporations. Taxes pass through the business and onto the members, meaning an LLC is only taxed once.
- Flexibility: LLCs provide flexibility in management and operations, making it easier to bring in new members, restructure management, or update operational procedures.
Not sure if an LLC is worth it? Consider other business structures, such as sole proprietorships, partnerships, and corporations.
Can a single owner form an LLC in Texas?
Yes! You can form a single-member LLC in Texas. A single-member LLC is owned and operated by one member.
Single-member LLCs still get to enjoy the benefits of structuring as a limited liability company, such as pass-through taxation and limited liability protection.
Keep in mind that a single-member LLC is known as a disregarded entity for income tax purposes.
Ready to start your LLC in Texas?
You have your heart set on structuring your Texas-based business as a limited liability company. You’re excited about the benefits of owning an LLC, such as liability protection, pass-through taxation, and flexibility.
Now, it’s time to make your dream a reality. You can start your LLC by:
- Choosing a business name
- Selecting a registered agent
- Filing Form 205, Certificate of Formation (and Form 503, if applicable)
- Creating an operating agreement
- Obtaining business licenses and permits
- Applying for an Employer Identification Number
- Registering for taxes
- Opening a business bank account
- Setting up your accounting books
- Filing the beneficial ownership information report
Remember to budget for LLC startup costs, including the $300 filing fee for the Certificate of Formation and any professional service fees.
After you set up your LLC, it’s time to run your business. Track the money going in and out of your business with Patriot’s online accounting software. Invoice customers, generate accounting reports, and so much more. Try it for free today!
This is not intended as legal advice; for more information, please click here.
