You’ve decided to start a business in Texas. Huzzah! Now it’s time to figure out how to register your limited liability company (LLC). The good news is that forming an LLC in Texas is relatively straightforward and doesn’t require a lot of paperwork for entrepreneurs. Plus, it offers limited personal liability protection from your company’s debts and liabilities, so your personal assets are protected.
If you’ve already researched entity types and have decided that getting an 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 set up your Texas LLC, make sure that the choice to start an LLC is the best one for your small business.
Your business structure determines how you’re taxed, how your business operates, and how it’s governed. Here are some other types of businesses 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 for the LLC Certificate of Formation (also known as Articles of Organization).
Here’s what that entails.
Article 1: Your entity name
Pick a Texas LLC name, and then search to see if it’s similar to existing entity names in the state. The Texas Secretary of State will likely reject your application if it finds that your company name is the same as that of existing business 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, during business hours
Emailing [email protected],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 by filing an assumed name certificate.
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 Texas registered agent with an address in the state. 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 become part of the public record for your company.
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 co-working space that offers a business mailing address, or
Using a registered agent 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 LLC’s owners—or “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 filing requirements 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 state 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:
Mail it to P.O. Box 13697, Austin, TX 78711-3697
Hand-deliver it to the James Earl Rudder Office Building at 1019 Brazos, Austin, TX 78701
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 as a foreign LLC in each of those states.
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 are sample Texas LLC operating agreement templates.
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 taxes
Apply for business permits
Getting your EIN is straightforward. You can apply on the Internal Revenue Service (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 Texas Comptroller of Public Accounts 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: See if you need a sales tax permit or other permits and licenses
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. As a permit holder, you’ll be able to collect sales taxes and other applicable state fees. It doesn’t cost anything to apply for a permit, and you can file online at the Comptroller’s website.
In addition, you don’t need a Texas business license, because the Certificate of Formation serves that general business license requirement that exists in some other states. But you may need an occupational license to operate in certain regulated industries. Go to the Texas Business Licenses & Permits Guide to learn more.
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 hire employees, you’ll also need to set up a system for managing payroll and employment taxes with each paycheck. A payroll professional 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 as the business owner.
And that’s it! By following all of the steps above—or hiring an LLC formation service or registered agent service—you will have submitted all the necessary legal documents and are now ready to operate in Texas as a limited company.
