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Below you’ll find a step by step guide to starting an LLC (Limited Liability Company) in Texas.
Let’s start from the basics. Deciding what type of legal structure is right for your new venture is one of the most important decisions you will make when starting a business. This is true whether your starting a Texas-based business or anywhere else in the US. The business structure you choose will affect the management, operations, and taxation of your new business.
The three traditional options include a sole proprietorship, partnership, or corporation. A Limited Liability Company (LLC) is somewhat of a hybrid option that offers many of the same tax and legal benefits as a corporation without the hassle involved in forming and running a corporation.
Why open an LLC? Limited liability protection is one of the most important advantages of starting an LLC. This means that the members of the LLC might not be held personally responsible for the debts or losses of the business. Instead, the personal liability a member may have, might be limited to their investment in the LLC. The limited liability protection is not granted automatically, but can remain intact if properly and legally managing your LLC.
With a booming economy and a gross state product (GDP) of $2.4 trillion as of 2022, accompanied by relatively lenient and business-friendly regulations, Texas is known as a hub for industry and entrepreneurship. It is no wonder that many people are interested in starting an LLC in Texas of all states.
Forming an LLC is a fairly simple process, but it may seem daunting, especially if you’re doing it for the first time!
We’ll explain everything below.
Here are the steps you’ll need to take in order to start your LLC in Texas.
Below, you’ll find a detailed explanation to walk you through each step.
When you form your Texas LLC, you must choose a name for the business and register that name. It’s also a good idea to check domain names and social profiles availability, to start building your company’s online presence.
Naming your LLC is slightly different from naming your business, since there are a few unique requirements. The main ones include:
Before you move on to reserve a name, it’s a good idea to do a preliminary check to see if the name is available. You can request a preliminary check from the Texas SOS by calling (512) 463-5555, dialing 7-1-1 for relay services, or e-mailing your name inquiry to the Corporations Section at [email protected]. Check out the Texas SOS website for more information about name availability.
To make sure that you lock down the name you chose for your business, you need to register your name with the Texas Secretary of State.
To get started, you must file a name reservation with the Texas Secretary of State (SOS), which can be filed through SOSDirect 24 hours a day, seven days a week. Your name reservation is good for 120 days but can be renewed by filing a renewal within the 30-day period preceding the expiration of the current reservation. There is no limit to the number of times you can renew a name reservation.
Once the SOS has reviewed and accepted your name, the name registration is valid for one year and may be renewed.
The legal name of your LLC will be the name you chose on your formation documents (more on that later); however, you may choose to use another less formal name on a day-to-day basis. “Assumed Business Name”, “Doing Business As” name, or a “DBA”.
This step is optional, and could be relevant for you in certain cases, for instance if you plan to open a franchise, or if you plan to open more than one business under the same LLC. Read more about filing a DBA here.
If you decide to do business under any name other than the official name of your LLC, you will need to file an Assumed Name Certificate with the SOS as well as file an Assumed Name Certificate with the county clerk in each county in which business premises are maintained.
If you’re still unsure whether or not you need an assumed business name, read more about filing a DBA in Texas here.
This step is not technically part of forming your Texas LLC, but it is highly recommended.
You may also want to legally protect the name of your LLC to ensure that others cannot use it. To do that, you will need to register a trademark or a service mark.
A trademark is “a word, name, symbol, or device, or any combination of those terms, used by a person to identify and distinguish the person’s goods, including a unique product, from the goods manufactured or sold by another, and indicate the source of the goods, regardless of whether the source is unknown,” according to Tex. Bus. & Com. Code § 16.001(10). Similarly, a service mark is used to identify and distinguish services.
It is important to understand that filing a Certificate of Formation, an Assumed Name Certificate, or other LLC formation documents with the Secretary of State does not prevent someone else from using your business name nor give you any rights to use that name in commerce.
To establish your right to the name and protect your name from unauthorized use, you must register the trademark or service mark with the SOS. Before doing so, you should conduct a conflict check with the SOS to make sure that the name, or a confusingly similar name, is not already on file. You can search registered Texas trademarks and service marks by calling 512-463-9760, by sending an email with your request to [email protected], or sending the request to SOSDirect ($1 per search).
For a mark to be registered in the state of Texas, both of the following must be true:
An application for trademark or service mark must be submitted to the SOS for each class in which you wish your mark to be registered. For example, if you sell sporting goods and firearms, you must file two separate trademark applications. You will also need to submit a drawing of the mark along with three specimens of use with the application. Examples of “specimens of use” include things such as labels, photographs of a display, and brochures.
A trademark application may be filed:
Once filed, a trademark examiner will review the application to determine if the mark meets the requirements for registration and compare it to other marks to ensure that it is not so similar to a registered mark that it is likely to cause confusion.
Note: Registering a trademark or service mark in the state of Texas only provides protection within the state. If you plan to use the mark in interstate commerce, you may wish to file your mark under federal law. Information on searching and/or registering a federal mark may be obtained from the Trademark Section of the United States Patent and Trademark Office.
Check out Texas Secretary of State Trademark FAQs for more information.
A Registered Agent is responsible for receiving and forwarding services of process or official notices addressed to your Limited Liability Company. For example, if your business is required to be notified or served legal documents by a court or a government agency, the notice or documents will be sent to your Texas Registered Agent.
You must designate a Registered Agent when you file your LLC Certificate of Formation with the Texas Secretary of State. More on that in Step 3!
The Registered Agent must have a physical address in Texas at which the Agent can be personally served with process during business hours.
You can also use a registered agent service, or designate yourself as the registered agent. However, keep in mind that being your own registered agent means that your address will be part of the public record. Most business owners prefer to keep their privacy, and opt for a registered agent service instead. Learn more about what is a registered agent here.
When you form an LLC in Texas, one of the very first steps is filing a Certificate of Formation.
Certificate of Formation (sometimes called articles of organization in certain states) is a document that contains the basic information about your LLC, like who is the organizer of the LLC (that would be you!), who will manage it, and what’s the purpose of the LLC.
Think of it as a way to declare to the state of Texas that you’re starting an LLC!
Starting a Texas LLC requires you to submit a Certificate of Formation to the SOS. The Certificate of Formation requires information such as:
Most LLCs are member-managed, so most likely this would be the best option for you. If you’re unsure about choosing the governing authority, read more about member-managed LLC vs manager-managed LLC here.
The organizer name is needed as a contact person while your LLC application is being processed.
Your Certificate of Formation may be filed:
Typically, non-expedited documents are processed within five to seven business days. For an additional $25 per document, next-business day expedited service is available. According to the SOS website, increased demand for services in recent months has caused delays in processing. Non-expedited documents sent by mail or fax are currently (as of January 2022) taking approximately 40 business days to process. Expedited documents and documents sent via SOSDirect and SOSUpload are being processed within four to five business days.
If you will be performing professional services, then you may be required to form your LLC as a professional entity, and supply the relevant credentials. Professional associations can only be formed by doctors of medicine, doctors of osteopathy, podiatrists, mental health professionals, optometrists, therapeutic optometrists, chiropractors, dentists, and veterinarians. Depending on the type of your business, this may not apply to you.
When forming a Texas LLC, you will need to pay fees. The total amount of fees will differ, depending on things such as the use of an Assumed Name and how many trademark classes you register. Some of the most common fees required by the State of Texas when starting an LLC are:
An Operating Agreement outlines how your LLC will function, both financially and practically. It will include rules, regulations, and provisions that govern the management and operation of the business. Once the members of your LLC sign the Operating Agreement, the terms of that agreement will become a legally binding contract between the members.
Creating an Operating Agreement is also important to assist in protecting your limited liability status. Without such an agreement, the law could impose personal liability on the members.
If you create a multi-member LLC, an Operating Agreement is even more important because it sets forth the duties and responsibilities of the members as well as reduces to writing any verbal agreements the members have regarding the management or operation of the LLC.
Management authority should be another important provision addressed in your Operating Agreement. Texas allows an LLC to be member-managed or separately managed. If your LLC is member-managed, every member has management authority. If you have a separate group of managers, they are not required to be – but can be – members of the LLC.
For a single-member LLC, the default management type will usually be member managed. This means that the owner of the LLC is the sole manager, responsible for all decision making.
Though filing an operating agreement is not a requirement from the state of Texas, it is so highly recommended, we consider it a must. An operating agreement lays out the different obligations and core decisions made by your LLC, and plays a vital role in improving the chances of liability protection.
And remember, even if you’re a single-member LLC, you would still need to create and file an operating agreement. Don’t be tempted to skip this step!
Although the state of Texas does not require an LLC to create an Operating Agreement, it is in your best interest to create one to ensure that the members are protected and to avoid confusion that could lead to legal disputes.
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is issued by the Internal Revenue Service (IRS) and is used to identify a business entity for taxes and other purposes. Think of it as the business equivalent of a personal Social Security number. Most businesses need an EIN because it is required for things such as opening a bank account, filing tax returns, and applying for licenses and permits.
You may apply for an EIN online through the IRS website if your principal business is located in the United States or a U.S. Territory. To apply, you must have a valid Taxpayer Identification Number (SSN, ITIN, EIN) and are limited to one application per day.
If we help you create your Limited Liability Company, we can take care of your EIN application for you.
Your LLC will be subject to both federal and state tax laws. With that in mind, you need to understand how the state of Texas will view your LLC for tax purposes and whether any unique taxes apply to your Texas LLC to make sure your business remains in compliance.
The way in which your LLC is treated for tax purposes is critical because it will directly impact your own federal income tax liabilities. The state of Texas does not impose state income taxes; however, it remains important to know how the state treats your LLC for general business tax purposes. For all tax purposes, your LLC will not be taxed as a corporation unless you specifically elect to have it treated as a corporation
Both the state of Texas and the IRS will treat an LLC as either a corporation, partnership, or as a “disregarded entity” for income tax purposes. A disregarded entity is one that is disregarded as an entity separate from its owner, meaning the income from the LLC is passed through to the members and must be claimed on their individual tax returns.
The IRS default rules for income tax purposes state that a single-member LLC is treated as a disregarded entity, while an LLC with at least two members is treated as a partnership. If you want your LLC to be treated as a corporation, you must affirmatively elect to be treated as a corporation by filing IRS Form 8832.
If your LLC sells goods to customers in the state of Texas, you will need to collect and pay sales tax. To do that, you must first register with the Comptroller of Public Accounts (CPA) and apply for a tax permit. You will then be responsible for making periodic sales tax payments for goods sold by your LLC.
You are required to apply for a tax permit if:
Your tax permit covers:
You can apply for a tax permit using any of the following methods:
If you are responsible for reporting income from your LLC on your individual tax return, you will likely need to pay self-employment taxes on that income. Self-employment tax represents Social Security and Medicare taxes for individuals who work for themselves. It is similar to Social Security and Medicare taxes that are typically withheld by an employer when you work for a company as an employee.
If you have net earnings of $400 or more from self-employment, you are subject to self-employment taxes. For 2021, the first $142,800 of your combined wages, tips, and net earnings is subject to self-employment taxes. Self-employment taxes are calculated using Schedule SE (Form 1040 or 1040-SR). The self-employment tax rate is 15.3 percent, which represents 12.4 percent for Social Security and 2.9 percent for Medicare.
If your LLC has employees, it will be responsible for paying payroll taxes in Texas. This may include withholding and paying Social Security and Medicare taxes to the federal government as well as paying an Unemployment Insurance tax to the state of Texas.
Calculating, withholding, and paying Social Security and Medicare taxes to the federal government can be complicated. Refer to the IRS “Employer’s Tax Guide” for more information.
Unemployment Insurance is paid to the state of Texas. Your Unemployment Insurance (UI) tax rate is the sum of the five following components:
Unemployment Insurance is paid to the Texas Workforce Commission (TWC). New employers are required to register with the TWC within 10 days of becoming subject to the Texas Unemployment Compensation Act. You can register with the TWC online through their website.
The state of Texas imposes a state franchise tax on most LLCs that is payable to the Texas Comptroller of Public Accounts (CPA). The amount of franchise tax may be determined in several ways. Your LLC will not owe franchise taxes if the taxable amount is below the “threshold” for that year ($1.23 million for 2022). Moreover, there may be deductions and credits that can offset the amount of franchise taxes owed by your LLC. If you need to pay franchise taxes, you may do so using:
While it is not a tax, if your LLC has employees, you should also consider carrying workers’ compensation insurance. You are not required to carry workers’ compensation insurance as a Texas employer; however, if you elect not to purchase the insurance, you are required to report that election to the Texas Department of Insurance.
Congratulations! You’re ready to create your Texas LLC.
Creating an LLC is just the beginning of your Texas business journey, so we prepared for you a few tips for things you should do after forming your LLC.
Because a Limited Liability Company is a separate legal entity, it’s recommended to open a separate bank account for your newly formed LLC. This is a key step for making sure your business affairs are in order, improving your chances of liability protection.
A primary reason for doing this right away is to help you keep your LLC finances separate and distinct from transactions involving individual members. It also adds to the appearance of legitimacy and professionalism when transacting business using a separate bank account for your LLC.
Another big advantage of a business bank account is that it will make it easier for you to apply for business loans and grants, since some banks will require that.
To keep your LLC listing in order with the Texas SOS, you would need to file a franchise tax statement and a Public Information Report (PIR) to the Texas Comptroller of Public Accounts.
The PIR collects management information for corporations and LLCs from the entity’s that are filed as part of the entity’s franchise tax report. They are due annually by May 15 of each year.
The PIR is how you update the State of Texas about changes in the status of your LLC. For example, management structure changes.
Here are the franchise tax forms as well as annual report instructions.
To keep in good standing with the state, you would also need to make sure your registered agent service is renewed annually.
Before you begin operating your LLC, you should consult with a tax advisor, tax attorney, or certified public accountant to ensure that your company finances are set up correctly and advantageously. Numerous state and federal tax credits, deductions, and incentives are available to businesses that qualify. To maximize your profits and minimize your tax obligations, you need to set up your LLC finances with tax ramifications in mind from the beginning.
The state of Texas does not require a general business license; however, all entities that transact business in Texas are required to register with the Texas Secretary of State and/or county clerk’s office. The Certificate of Formation you filed with the Secretary of State’s Office or the Assumed Name Certificate provided by the county clerk’s office serves as the equivalent of a general business license that is often required in other states.
Your LLC may, however, be required to obtain specific licenses and/or permits depending on the type of business you operate. The 2022 Texas Business Licenses & Permits Guide, published by the State of Texas Business Permit Office, can help you determine which state-level business licenses or permits are required for your business.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
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