Q: How Do I Form an LLC in Texas?

You’ve decided to start a business in Texas. Huzzah! Now it’s time to figure out how to register your LLC. The good news is that forming an LLC in Texas is relatively straightforward and doesn’t require a lot of paperwork.

Simple time tracking that syncs with payroll.

If you’ve already researched entity types and have decided that forming a limited liability company (LLC) is the best option for you, you can skip to Step 2. If you still need help picking the right entity type for your business, we’ve laid out the pros and cons for LLCs below.  

Step 1: Choose the business entity type that’s right for you

Before you start setting up an LLC in Texas, make sure that an LLC is the best entity type for your business.

Your business structure determines how you’re taxed, how your business operates, and how it’s governed. Here are some other entity types you may want to consider:

There are two significant advantages of forming an LLC:

1. Streamlined taxation

For the most part, an LLC is taxed similarly to a sole proprietorship (if there is only one owner ) or to a partnership (if more than one person is involved).

This means that your business income gets passed to you as personal income and is taxed only once—aka streamlined taxation. Corporations, on the other hand, get taxed at both the business and individual levels.

2. Limited personal liability

LLCs protect their owners from being personally liable for debts incurred by their business. If your business files for bankruptcy or gets sued, your personal assets will be protected.

This is different from a sole proprietorship or general partnership, in which your personal assets can be used to offset business liabilities.

You can read more about the advantages and disadvantages of each entity type here.

Step 2: Fill out a Certification of Formation

If you decide that setting up an LLC is the right move, you’ll need to file Form 205, also known as the Certification of Formation for a Limited Liability Company.

Texas LLC Certificate of Formation

Here’s what that entails.

Article 1: Your entity name

Pick a name for your company, and then search to see if it’s similar to existing entity names in the state of Texas. The Texas Secretary of State will likely reject your application if it finds that the name of your company is the same as that of another entity or if the name has already been reserved.  

You can find do a preliminary search on your business name by:

  • Calling 512-463-5555 (Texas Secretary of State) and dialing 7-1-1,
  • Emailing corpinfo@sos.state.tx.us, or
  • Searching and reserving a name for your LLC in Texas for up to 120 days by using SOSDirect.

You won’t definitively know if your name has been accepted until after your filing has been reviewed, so it’s best to wait until a final decision has been made before you spend money on branding or a company website.

Don’t worry if the name you register under isn’t perfect—it’s also possible for you to form an LLC under one name and then use a different name to conduct business.

That’s known as a “doing business as” name, or DBA. For example, Gusto’s legal business name is ZenPayroll, Inc.

Article 2: Registered agent and address

You’ll need to designate a registered agent with an address in Texas. This agent is considered your representative in Texas and must be able to receive legal mail on your behalf.

The registered agent can either be a different business that is registered to operate in Texas or an individual resident of the state (including yourself). An LLC cannot be its own registered agent though.

Your registered agent address needs to be a street address. Mailbox and telephone answering services don’t count.

If you do choose to be your own registered agent, you can also use your home address as the business address. Just remember that this address will be public.

If you’d prefer more privacy, you can explore other options, including:

  • Hiring an attorney with a physical address as a registered agent,
  • Getting a coworking space that offers a business mailing address, or
  • Using a registered agent business service.

Make sure to keep your registered agent information updated. You’ll need to file a statement with the Texas Secretary of State’s office if anything changes. Otherwise, the state may terminate your LLC.

Article 3: Governing structure

Next, you’ll need to decide whether your LLC will be member-managed or manager-managed.

In a member-managed LLC, all of the company’s members are in charge of decision-making.

With a manager-managed LLC, you’ll have to appoint one or more manager-members to be in charge. Other members will share in the distributions, but they won’t have as much control.

You’ll also need to include the name and address of each manager or member in your LLC filing.

Article 4: The purpose of your LLC

This last section ensures that your LLC is being formed for lawful purposes as permitted by the Texas Business Organizations Code.

There are a few things to fill out in this section:

  • Supplemental Provisions/Information: If you want to include specific information about the purpose of your LLC, you can do so here. Otherwise, you can leave this box empty.
  • Organizer: This can be anyone who is 18 or older, including yourself. They don’t need to be a resident of Texas.
  • Effectiveness of Filing: This is the date on which you want the formation of your LLC to go into effect. You can delay it for up to 90 days after the signing of the form.

And then just sign the form! (Or have the organizer sign it, if it’s not you.)

Step 3: File the paperwork to form your LLC

Once you’ve filled out the form, you’ll need to print it out and send two copies to the Texas Secretary of State, along with the LLC filing fee of $300.

You can pay by check, money order, or by credit card (for a 2.7% fee). Checks and money orders should be made out to the Texas Secretary of State.

There are three options for filing your paperwork:

  1. Mail it to P.O. Box 13697, Austin, TX 78711-3697
  2. Hand-deliver it to the James Earl Rudder Office Building at 1019 Brazos, Austin, TX 78701
  3. Fax it to 512-463-5709. If you choose this option, you must include credit card information.

Once your paperwork has been reviewed and approved, the Secretary of State’s office will return a stamped copy of Form 205 to you.

Quick note: Don’t forget that if you want to conduct business in states other than Texas, you’ll need to register your LLC in each of those states as well.

Step 4: Create an operating agreement

While technically not required when registering an LLC in Texas, it’s generally good practice to create an operating agreement for your LLC.

An operating agreement lays out the rules and structure of your LLC and covers topics such as:

  • Who the members are and how much of the company each member owns,
  • How company meetings are conducted and how decisions are made, and 
  • How profits and losses are distributed across members.

Here’s a sample LLC operating agreement.

Should there be a dispute, having an operating agreement helps courts affirm your limited liability status. And by laying out roles and responsibilities, operating agreements can also help prevent issues among your business partners.

Step 5: Apply for an EIN

In time, you’re going to need to pay taxes on your business income and maybe hire some employees.

That’s when an Employer Identification Number (EIN) comes into play.

To be clear, you don’t need an EIN if you don’t have employees. However, getting one allows you to do business without sharing your Social Security number.

You’ll also need an EIN to:

  • Set up payroll (if necessary)
  • Pay federal payroll taxes
  • Apply for business permits

Getting your EIN is straightforward. You can apply on the IRS website or by mail or fax. International applicants can also get their EIN by phone.

The IRS will send you a CP-575 letter to confirm your EIN.

Step 6: Open a bank account for your business

Once your LLC has been approved and you’ve received an EIN, you can open a business bank account. (Most banks require an EIN before allowing you to do so.)

A business bank account will help you keep your personal and business assets separate, which makes managing your taxes easier.

You’ll likely also need the following information when setting up a business bank account:

  • Proof of organization from the Texas Secretary of State’s office
  • Personal information, including birthdate, address, driver’s license number, and sometimes Social Security number

Step 7: Complete the Franchise Tax Accountability Questionnaire

The State of Texas requires all LLCs to pay a state franchise tax each year.

Once your LLC has been registered and approved, you’ll receive a letter from the state Comptroller with instructions on filling out the Franchise Tax Accountability Questionnaire.

The questionnaire helps the Comptroller set up a franchise tax account for your business, so it’s crucial to fill it out accurately and keep it updated.

Step 8: Obtain a sales tax permit (if necessary)

If you’re selling, renting, or leasing property in Texas, or if you’re selling taxable services, you’ll need to get a “sales and use tax” permit. You can find the full list of taxable services here.

As a permit holder, you’ll be able to collect sales taxes and other applicable fees as required by the State of Texas.

It doesn’t cost anything to apply for a permit, and you can do so online at the Comptroller’s website.

Step 9: Learn about other taxes you may need to pay

Check to see if there are additional city, county, and state taxes that you need to know about. This often includes payroll taxes, income tax, and business taxes.

If you have employees, you’ll also need to set up a system for managing payroll taxes with each paycheck. A payroll service like Gusto can help you manage federal, state, and local payroll tax requirements without the need for you to get too far into the weeds.

And that’s it! Your LLC is now ready to operate in Texas.

Comments

*Required fields

Your email address will not be published.

Back to top