Forming an LLC is an important step when you’re launching a business in Texas. But many new business owners are intimidated by the paperwork, filing requirements, and obligations for compliance.
Fortunately, starting an LLC in Texas is easy when you’re using an online formation service—and this guide will teach you how.
Why Starting an LLC in Texas is Worth It
LLCs in Texas offer business owners liability protection that they wouldn’t otherwise get as a sole proprietor or general partner. This means that the owner’s personal financial assets aren’t in jeopardy if the business gets sued or goes into debt.
Forming an LLC in Texas also gives owners flexible tax options. By default, Texas LLCs are subject to pass-through taxation—meaning the profits and losses get passed to the individual tax returns of each member and get taxed at the owner’s individual tax rate. But LLCs also have the option to be taxed as a C corporation or S corporation, ultimately giving members more control of how profits are distributed and how they pay taxes.
Legally forming an LLC gives your company instant credibility compared to sole proprietorships and general partnerships. Customers and other companies typically find LLCs to be more legitimate than a single person operating under their own name.
Another reason why starting an LLC in Texas is worth it is the ease of formation. Contrary to popular belief, the process is relatively quick, easy, and painless.
The Investment Needed to Start an LLC in Texas
Texas has a $300 state filing fee for processing your Certificate of Formation—the official document you’ll submit to the Texas Secretary of State’s office. You’ll also need to obtain an EIN (employer identification number), which is free if you request one directly from the IRS.
Alternatively, you can use an online business formation service to assist you with this process. You’ll pay an additional fee for the convenience, but it’s well worth the marginal cost to have the professionals file on your behalf. LegalZoom offers business formation packages starting at just $79 plus the state filing fee.
It takes anywhere from two to 20 business days to start an LLC in Texas, depending on whether you’re interested in paying extra for expedited filing. You’ll also need to appoint a Texas registered agent, which costs about $300 per year. This is a service you can add to your business formation package with LegalZoom.
In addition to the basic filing requirements, you’ll also need to consider other business startup costs. These will vary based on your business type and industry, but examples include rent, electricity, phone services, internet, website, web hosting, office furniture, vehicles, supplies—you get the idea. If you’re planning to hire employees, you’ll need to factor in labor costs as well.
7 Steps to Start an LLC in Texas
Starting an LLC in Texas is simple when you follow the following seven steps.
#1 – Name Your Texas LLC
Coming up with a name is an important first step in this process. The name not only represents your company’s branding but also goes on all of your official filing documents.
Some of you might already have a name in mind, which is great. But you still need to verify that the name is available and meets the requirements for a Texas LLC.
Texas LLCs must include the words “limited liability company” or “limited company” or abbreviations like L.L.C., L.C., LLC, or LC.
Certain words are restricted from LLC names in Texas unless you’re forming a specific type of business. Examples include Olympic, bank, trust, law, medicine, veteran, foreign, and war. Texas does allow foreign words to be included in an LLC name, but those words must be distinguishable from existing Texas LLCs and may not be translated to determine entity name availability.
You can read the full Texas entity naming requirements here.
In addition to ensuring your name meets the Texas guidelines, you should also make sure that the name isn’t federally trademarked. Ideally, you’ll want a name that has an available domain name and social media handles. If someone else already has a website registered with your business name and you can’t purchase it, you may want to reconsider that name.
The great part about using an LLC formation service like LegalZoom is that they’ll run a comprehensive name search for your desired name. If you have a name you like, but you’re not quite ready to proceed, LegalZoom even offers an entity name reservation service.
LegalZoom can also assist you with DBA names. This means that you can register your legal LLC name with the state of Texas but operate the company under an assumed name.
For example, you might legally name your business “Michael Smith Mechanical and Trucking Services Limited Company.” But you could get a DBA name like “Mike’s Garage” and use that to open a bank account, making it easier for customers to write you checks.
#2 – Appoint a Texas Registered Agent
All Texas LLCs are legally required to appoint a registered agent. This must be an individual or organization that’s registered with a physical address in Texas.
It’s the registered agent’s duty to accept, receive, and forward any service of process, summons, or government correspondence on behalf of the LLC.
Technically, you could register yourself as your LLC’s registered agent. But this is generally not advisable. This would require you to be available during all normal business hours at a physical address. Plus, it could be embarrassing if you’re served a court order in front of employees or customers.
LegalZoom offers registered agent services in Texas starting at just $299 per year.
In addition to maintaining compliance with ease, using a registered agent like LegalZoom also makes it easy for your business to scale. LegalZoom offers registered agent services in all 50 states, so if you expand the company outside of Texas, you can continue using the same registered agent when you register in additional states. This would not be an option if you were using a local registered agent that only has a single office in Texas.
You can easily add this service to your LLC formation package during the checkout process.
#3 – File Your Certificate of Formation
The Certificate of Formation is the official filing document required by the state of Texas to start an LLC. It asks for information like:
- Entity name and type
- Registered agent information
- Governing authority
- LLC purpose
- Mailing address
- Effectiveness of filing
The form can be submitted online, by mail, or by courier. There’s a $300 filing fee due upon submission.
If you’re using a business formation service like LegalZoom, they’ll complete and file the Certificate of Formation on your behalf.
You just need to answer some simple questions about your business, and LegalZoom will take care of the rest. LegalZoom also gives you the option for expedited filing, which files your documents within two to five business days. Standard filing takes up to 20 business days.
Once the document is approved by the Texas Secretary of State, they’ll issue your business an official certificate. The certificate confirms your LLC’s formal existence, allowing you to open bank accounts, apply for licenses, and obtain an employer identification number.
#4 – Get an Employer Identification Number (EIN)
An EIN is a tax ID for businesses. They’re required for any business that hires employees, and it’s common for certain vendors, clients, and banks to require an EIN before working with you.
You cannot get an EIN directly from the state of Texas. These are federal numbers issued by the IRS.
To get a free EIN, you can submit an online request directly from the IRS website. Alternatively, you can pay a small fee and just add this to your LLC formation package with LegalZoom.
Getting an EIN through LegalZoom as a standalone service starts at $79.
But it’s included with LegalZoom’s mid-tier formation service, which starts at $159 and includes an operating agreement. This is a great value, considering the operating agreement alone costs $79—so you’re getting a deal by combining multiple services into a single package.
EINs also come standard with LegalZoom’s Complete Coverage formation package for $199.
#5 – Create an Operating Agreement
An operating agreement is technically not a requirement to form an LLC in Texas. So you can legally form an LLC without one, and the Secretary of State’s office doesn’t ask for you to file one.
That said, it’s definitely in your best interest to create one during the formation process. This is especially true if you’re forming a multi-member LLC with different owners and business partners.
An operating agreement establishes how you’re going to run the LLC internally. It explains the rights and responsibilities of all the members and specifies how the LLC will be managed.
This legally-binding document is crucial if there are ever disagreements or disputes between members. You can always refer back to the operating agreement to see how certain situations will be handled.
What if a member dies or wants to leave the business? Can they sell their stake to anyone without asking? Will their family inherit their stake and take over management?
The operating agreement also explains how profits and losses will be shared, how new members will be added, and who will manage the LLC.
These are just a few examples that would be covered in the operating agreement.
You can get an operating agreement template from LegalZoom for just $99, and it’s included with several different formation packages.
This service includes a peace of mind review by legal experts, ensuring the document contains all of the appropriate information and nothing is missing.
#6 – Obtain Licenses and Permits
This step will look a little different for everyone. But depending on your business type or industry, you’ll need to get certain licenses and business permits to legally operate in Texas. In some cases, your local city or county might have additional permit requirements.
Assistance with obtaining Texas business licenses is included with the Complete Coverage formation service.
Examples may include:
- General business license
- Building and zoning permits
- Sales tax permit
- Professional license
- Certificate of occupancy
- Resale permit
- Health permits
Each of these permit types comes with different fees, renewals, and compliance requirements. So it’s definitely in your best interest to get some help from the professionals when you’re going through this process.
Otherwise, you could forget something and put your newly formed LLC in jeopardy of being fined or shut down.
#7 – Prepare Your Annual Franchise Tax Report
Many states require LLCs to file annual reports to remain compliant. Fortunately, Texas is not one of those states.
However, you do need to prepare and file an annual franchise tax report. This report and any fees are due on May 15 each year. If May 15 falls on a weekend or holiday, the report is due the following business day.
The tax rates, thresholds, and deduction limits change each year. Here’s the table for 2022 and 2023, taken directly from the Texas Comptroller website:
This is another reason why it’s so helpful to use services like LegalZoom for your business formation and registered agent. They also provide services for compliance reminders and annual reports.
This ensures that you don’t forget about these important deadlines, so you can avoid paying late fees, fines, and other penalties.
Now that you know how to start an LLC in Texas, it’s time to take the plunge and get started. LegalZoom is our top recommendation, but you can review our list of the best business formation services for additional options.
If you’re struggling with the first step of this tutorial and need help coming up with a name, we can help. Check out our complete guide to business names. You’ll learn more about the importance of choosing the right one and quick tips for finding the perfect name for your business.
Once your LLC is officially formed, you might be ready to start scaling your team. This can be intimidating if you’ve never gone through the hiring process as an owner or manager. But our tutorial on how to hire employees explains everything you need to know.