Looking to start a Texas LLC? Whether you’re a startup founder in Austin or a small business owner in Dallas, understanding the intricacies of setting up an LLC in Texas is crucial for your business’s legal and financial health. This comprehensive guide walks you through everything from initial costs to ongoing compliance requirements.
We invite you to join us as we discuss how you can navigate the process of creating a domestic LLC in Texas efficiently and effectively.
Key Takeaways
- Texas LLC formation costs $300 to file your Certificate of Formation (Form 205), with processing taking 10-12 business days online through SOSDirect.
- Most Texas LLCs (90%) don’t pay franchise tax if annual revenue stays under $2.47 million, and Texas has no state income tax.
- Every Texas LLC needs a registered agent with a physical Texas address to receive legal documents and maintain compliance.
- Annual compliance requires filing by May 15 each year to keep your LLC in good standing with the state.
What Is An LLC?
An LLC, or limited liability company, is a flexible business entity that blends elements of partnerships and corporate structures. It’s a popular choice for small to medium-sized businesses due to its simplicity and flexibility.
In an LLC, owners are referred to as “members,” and there can be one or multiple members. Texas LLCs can be structured as single-member LLCs (one owner) or multi-member LLCs (two or more owners), with each structure offering the same liability protection but different management and tax considerations.
The key feature of an LLC is the limited liability protection it offers, meaning members are typically not personally liable for the debts and liabilities of the business. This separates your personal assets from your business purpose and operations, which is a significant advantage over a sole proprietorship.
What Are the Pros and Cons of Starting a Texas LLC?
When considering LLC formation in Texas, it’s essential to weigh the benefits and potential challenges. By knowing the pros and cons of starting an LLC in the Lone Star State, you gain a balanced perspective for making informed decisions.
Pros
Some advantages of starting Texas LLCs are:
- Limited Liability Protection: Members’ personal assets, like homes and savings, are protected from business debts and lawsuits.
- Flexibility in Taxation: LLCs enjoy flexibility in how they are taxed, which can be advantageous under Texas law.
- No State Income Tax: Texas has no state income tax on individuals, meaning LLC profits pass through to members without state-level taxation.
- Enhanced Credibility: Operating as an LLC can boost your Texas business credibility with customers and partners.
- Ease of Ownership Transfer: Transferring ownership is generally simpler than with other business structure types.
- No Double Taxation: Unlike corporations, LLCs are not subject to double taxation.
Cons
With that in mind, there can also be certain downsides. These include:
- Administrative Tasks: Running an LLC requires adhering to certain regulations and paperwork, like Articles of Organization and operating agreements.
- Formation and Ongoing Costs: There are costs associated with forming and maintaining an LLC, including state fees.
- Self-Employment Taxes: Members may be subject to self-employment taxes on their share of the profits.
- Limited Capital Raising Options: LLCs cannot issue stocks, which could limit capital-raising options.
- Personal Liability in Some Cases: In certain situations, like fraud or failure to maintain corporate formalities, members could be held personally liable.
Creating an LLC in Texas can be a smart move for many business owners, offering a blend of liability protection, taxation flexibility, and credibility. However, it’s crucial to weigh these advantages against the responsibilities and costs involved.
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Texas LLC Formation Requirements
Before you begin your Texas LLC application, it’s important to understand the state requirements. Texas law mandates that all LLCs must have a unique business name, a registered agent with a physical Texas business address, and proper business filings with the Secretary of State.
The main content of your formation documents must include your LLC name, registered agent information, and management structure. You’ll also need to verify name availability through a taxable entity search on the Secretary of State’s website to ensure your chosen LLC name isn’t already taken.
Steps to Start an LLC in Texas
Establishing an LLC in Texas involves a few critical steps that you’ll need to take. Here, we walk you through each of them to ensure you’re well-equipped for a smooth start.
1. File a Certificate of Formation (Form 205)
Step 1 of filing the Certificate of Formation is critical in establishing your Texas LLC, marking your entry into the official business realm. Filing can be done online through SOSDirect or via mail, with a standard filing fee of $300. Processing typically takes 10-12 business days for online submissions.
Here’s what this process involves:
- Texas LLC Name: Select a unique name for your LLC that complies with Texas state requirements, including the mandatory inclusion of “LLC” or similar designations. Ensure it’s distinguishable from existing business names by checking the Texas Secretary of State’s database for name availability.
- Business Address and Legal Name: Provide a Texas business address for your LLC, which will become part of the public record through open records requests. This could be your physical business location or a mailing address. Accurately list your LLC’s legal name as you’ve chosen.
- Domain Name: Consider securing a domain name matching your LLC’s name to strengthen your online presence.
- DBA Names: If operating under a different name than your registered LLC name, file a DBA or “assumed name certificate” in Texas for branding flexibility.
- Existing Businesses: For those transitioning from a sole proprietorship to an LLC, update all business references, including contracts and bank accounts, to reflect the new legal name.
- LLC Formation Services: Utilize these services for assistance with paperwork and compliance, ensuring a smooth formation process.
- Entity Name Registration: Register your LLC’s name with the Texas Secretary of State to solidify its identity and prevent others from using it.
- New Business Essentials: For new entities, this step lays the foundational structure and strategy for your business.
The LLC filing fee is a standard $300, a worthwhile investment for establishing a legal and credible business entity in Texas. You can review the complete fee schedule on the Secretary of State’s website. Addressing these aspects ensures a well-structured LLC that’s positioned for success in the dynamic Texas business environment.
2. Choose a Registered Agent
Selecting a registered agent is not just a formality; it’s a strategic business decision. A registered agent is the designated receiver of important legal and government documents on behalf of your Texas business, including authentication services correspondence.
This role is pivotal for ensuring you stay on top of compliance and legal obligations. The agent must have a physical address in Texas (not a P.O. box) and be available during standard business hours.
A registered agent is crucial for:
- Government Correspondence: Acting as the primary contact for the Secretary of State, the agent receives federal tax and compliance-related communications.
- Legal Documents: In case of legal actions, your registered agent will receive summons, subpoenas, or complaints.
- Forwarding Communications: They ensure all vital communications reach you or the appropriate person in your business.
If you’re wondering why you need a registered agent in Texas, it’s a state requirement for LLCs to have one. This ensures your business stays in compliance and receives crucial legal and government notices.
Here’s who can be your registered agent:
- Business Owner or Employee: You or an employee can serve as the agent, provided there’s a consistent physical presence in Texas.
- Mosey: As an integrated solution, Mosey can serve as your registered agent, included in your existing platform subscription. This offers cost-effectiveness and convenience, with immediate online access to important documents—no need to visit the lobby of a government office.
- Use a Third-Party Service: You can also opt to use a third-party registered agent service. Just keep in mind that this comes at a cost, which can vary depending on the service you choose.
Changing your registered agent is flexible and can be done anytime by filing the necessary change statements with the Secretary of State.
3. Generate an LLC Operating Agreement
The LLC Operating Agreement is the backbone of your business’s internal structure. It’s not legally required in Texas, but it’s crucial for outlining the operational and financial decision-making processes.
This document sets the rules for ownership and management structures, such as manager-managed or member-managed, as well as profit distribution and conflict resolution mechanisms. For multi-member LLCs especially, this agreement helps prevent disputes and clarifies each member’s rights and responsibilities.
4. Obtain an Employer Identification Number (EIN)
An EIN number, or employer identification number, is your LLC’s Social Security number from the Internal Revenue Service (IRS). It’s necessary for income tax purposes, hiring employees, and opening a business bank account. The good news is it’s free and can be obtained online directly from the IRS website, typically on the same day you apply.
5. Apply for Necessary Business Licenses and Tax Permits
Depending on your industry and location, your LLC might need specific Texas business licenses and tax permits. Step 5 is critical for legal operation and compliance with local and state laws.
You’ll likely need a sales tax permit from the Texas Comptroller if you’re selling taxable goods or services. Texas doesn’t have a general statewide business license, but your city or county may require local permits. Check with your local government and review necessary licenses for your specific industry, which may be available in español for Spanish-speaking business owners.
6. Open a Business Bank Account
Keeping your personal and business finances separate is vital. Opening a business bank account requires your EIN number and other documentation, including business copies of your Certificate of Formation. This move not only protects your personal assets but also enhances your business’s professional image.
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7. Procure Business Insurance
Insurance is a safeguard for your business. From general liability insurance to workers’ compensation, getting the right coverage is a proactive step in protecting your enterprise.
8. Register for Sales Tax
If your LLC sells goods or services, you’ll need to register for a sales tax permit in Texas. Timely tax payments are key to avoiding penalties and maintaining good standing. Texas has a 6.25% state sales tax rate, with local jurisdictions able to add up to 2% additional tax.
9. File Annual Reports and Maintain Compliance
Your LLC’s annual report keeps the state updated with essential information like contact details and significant business activities. In Texas, you must file a Public Information Report by May 15 each year to maintain your LLC’s legal status.
Additionally, Texas LLCs are subject to franchise tax, though most businesses (approximately 90%) don’t owe any tax if their annual revenue is under $2.47 million. The franchise tax report is also due May 15. Failure to comply can result in fines and the loss of liability protection.
While the process involves several stages, from filing the Certificate of Formation to choosing a registered agent and beyond, each step brings you closer to establishing a solid foundation for your business.
Mosey is here to simplify these steps for ongoing compliance, offering an integrated solution for your LLC’s compliance needs—all on one platform.
Texas LLC Cost Information
Before forming your Texas LLC, you need to have a good understanding of the financial commitment required. Understanding the LLC cost structure helps you budget appropriately for both initial costs and ongoing expenses.
The costs vary depending on various factors but primarily include the following:
- Certificate of Formation (Form 205): A non-negotiable fee of $300 is required to file your Certificate of Formation with the Texas Secretary of State.
- Registered Agent Service: While you can appoint a business owner or employee as your registered agent at no cost, professional services typically range around $150 per year. Mosey, however, includes this service in your platform subscription, offering a cost-effective solution.
- Employer Identification Number (EIN): Thankfully, this is free of charge when obtained directly from the IRS website.
- Business Licenses and Permits: Costs vary based on your specific industry and location within Texas. Research is key to understanding these expenses. Consult with a business attorney if you need guidance on necessary licenses.
- Business Bank Account: There may be associated costs depending on the bank you choose.
- Business Insurance: Premiums depend on the type of insurance and coverage needed.
- Sales Tax Permit: Registration is typically free, but taxes must be paid on sales as required by law.
- Annual Reports and Franchise Tax: Texas LLCs must file annual reports by May 15. The state also collects franchise tax, though businesses with revenue under $2.47 million typically owe nothing. Details are available on the Texas Comptroller of Public Accounts website.
- Miscellaneous Expenses: These can include costs for legal consultations, accounting services, and any other professional services you might need.
As you navigate this process, remember that Mosey is here to streamline your journey. From acting as your registered agent to assisting with compliance and paperwork, Mosey simplifies the complexities of compliance following your LLC formation.
Our comprehensive platform integrates seamlessly with your business needs, ensuring you remain focused on growth and success.
Manage Your Texas LLC with Mosey
Ready to start your Texas LLC with ease and confidence? Let Mosey be your guide through the intricate landscape from LLC formation into ongoing compliance management. With Mosey’s expert assistance, you can focus on what you do best—running your business.
Mosey streamlines the Texas LLC compliance process, from serving as your registered agent to managing annual compliance deadlines. Our platform consolidates all your business filings, tracks your May 15 franchise tax and Public Information Report deadlines, and ensures you never miss critical compliance requirements.
Unlike traditional formation services that disappear after you file, Mosey becomes your long-term compliance partner. We handle the complexity of multi-state operations as you grow, maintain your good standing, and provide a single dashboard for all your compliance needs across Texas and beyond.
We invite you to book a demo today to discover how we can make your LLC formation in Texas a seamless and stress-free experience. Start your journey with Mosey and watch your Texas business thrive.
FAQ: How to Start a Texas LLC
How much does it cost to start an LLC in TX?
Starting an LLC in Texas costs $300 to file the Certificate of Formation (Form 205) with the Secretary of State. Additional costs include registered agent services (around $150/year if using a third-party, or included with Mosey), necessary business licenses, and optional expenses like business insurance.
How do I set up an LLC in Texas by myself?
You can set up a Texas LLC yourself by filing Form 205 online through SOSDirect or by mail to the Secretary of State. You’ll need to choose a unique LLC name, designate a registered agent with a Texas address, and pay the $300 filing fee—processing takes 10-12 business days online.
Can you start an LLC for free in Texas?
No, you cannot start an LLC for free in Texas. The state requires a mandatory $300 filing fee for the Certificate of Formation, and while some services like obtaining an EIN from the IRS are free, the LLC filing itself always costs $300.
How quickly can I set up an LLC in Texas?
You can set up an LLC in Texas in 10-12 business days when filing online through SOSDirect. Mail submissions take significantly longer (70-72 business days), so online filing is recommended for faster processing.
What taxes do Texas LLCs pay?
Texas LLCs pay federal income tax (pass-through to members’ personal returns), sales tax if selling goods or services (6.25% state rate plus local), and franchise tax if annual revenue exceeds $2.47 million. Texas has no state income tax, which benefits LLC members significantly.
