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Ready to start your Texas LLC? Here's everything you need to know.

Texas has no shortage of entrepreneurial spirit: From Midland’s oil fields to the tech scene in Austin, new businesses can thrive in the Lone Star State. And if you’re ready to own a business of your own, there’s no better place to launch a limited liability company (LLC).

Building an LLC can feel overwhelming and exciting: Against the backdrop of Texas’s massive economy, you’ll find plenty of competition and opportunity. You’re probably eager to put your business plan in motion, from developing your products and services to finding your first customers. 

But before you can begin operating your business, you’ll need to complete a key stage in the life cycle of any company. To truly get to work, you need to establish your LLC in Texas formally, completing all the tasks that the process requires.

We get it: No aspiring business owner likes getting stuck doing government paperwork. Thankfully, with the right guidance, you’ll navigate the LLC formation process painlessly — saving you a ton of time and stress as you plan to launch your business.

That’s why we created this comprehensive guide: Here, you’ll find everything you need to know about starting a new LLC in Texas. We’ll explain every step of the process in straightforward language, so you’ll never have to wonder about confusing legal language or worry that you’ve missed a step along the way.

Below, we’ll explain what to do when forming a new LLC, with specific instructions and practical examples to guide your approach. Then, we’ll answer key questions about Texas LLCs, covering everything from Operating Agreements to taxation options.  

If you’re ready to take the guesswork out of getting your business going, you’ve come to the right place. We’ll show you how to handle all the legal details, so you can stay laser-focused on making your LLC succeed.

How do I start an LLC in Texas?

The 5 steps to form an LLC in Texas:
 

1Name Your Texas LLC

2

Appoint a Registered Agent in Texas

3

File Texas Certificate of Formation

4

Create an Operating Agreement

5

Apply for an EIN

Forming an LLC is a multistep process. As entrepreneurs quickly discover, the legal legwork involves completing a few forms with the Texas Secretary of State. This agency maintains records of all businesses in Texas, and you’ll need to add yours to its list to operate legally. 

The process is about more than just paperwork, however: To complete the official forms to found your LLC, you’ll need to make certain decisions about your new company. In some cases, these choices could have a lasting impact as your LLC grows. 

Once you file your formation paperwork with the state of Texas, you’ll need to take another step. If you plan to hire employees (and maybe even if you don’t) you’ll need to register your new business with the Internal Revenue Service (IRS) to receive an Employer Identification Number (EIN). 

At the outset, these obligations can seem overwhelming. But when dealt with in the proper order, they can be entirely manageable. With a little extra advice on navigating each step successfully, you can accomplish each task with total confidence. 

Accordingly, we’ve broken down the process of starting an LLC in Texas into five simple steps. By following our practical advice at each stage, you’ll move through the paperwork like a pro and create a solid foundation for your future efforts.

Form a Texas LLC - ZenBusiness
LLC 1

Step 1: Name Your Texas LLC

Before you start your Texas LLC officially, you face a fundamental decision: What should you name this new venture of yours?

Some entrepreneurs agonize over what to call their businesses, picking a name only after careful consideration. These folks brainstorm witty names or appealing monikers, gauging the opinions of friends, family members, or business associates.

For others, name selection is far more straightforward: They quickly land on a name that works and don’t give much thought to alternatives. This camp includes entrepreneurs who choose to include their names in the title of their new venture. For location-specific businesses, another simple option is to reference the site in question: Customers will know where to look for the Fourth Street Cafe.

Depending on your work’s nature, the name of your new LLC could have big implications for your marketing efforts. You don’t want to decide impulsively and be saddled with a name that doesn’t serve your business well. 

On the other hand, you don’t have to call yourself something groundbreakingly clever to attract customers. Plus, you don’t necessarily need to use the full legal name of your business in all interactions with customers. If you’d prefer to conduct business under a different name, you do have that option in the state of Texas (more on that in a bit).

Accordingly, while naming your business can feel stressful and exciting, the most important part of the process is meeting the Texas Secretary of State requirements for naming new businesses. If you get carried away with creative inspiration, you might discover that the name you’ve picked is unavailable or inconsistent with state requirements.

So, before you settle on a legal name for your business, it’s wise to understand the rules that will dictate whether you can use it. Here’s a quick breakdown of some basic Texas Secretary of State regulations for naming new businesses:

    • Your name must include the words “limited liability company,” “limited company,” or one of the following abbreviations of those phrases: LLC, LC, L.C., L.L.C., Ltd. Co., Ltd. Company, Ltd. Liability Co., or Ltd. Liability Company. Note that Texas code won’t let you use only “limited” or “company” alone. Most businesses prefer to use an acronym rather than the full phrase.
    • You can’t use a name that misleads the public about the nature of your business. For example, you can’t put the words “university” or “bank” in your business name unless approved by the appropriate accrediting agencies in Texas. 
    • You can’t use a name that might convince the public that you’re a government agency. For example, you couldn’t choose something like the “Houston Highway Transportation Commission” for your business selling auto insurance. 
    • You can’t use a name that is “grossly offensive.” You can use your imagination to guess what sort of names might qualify for this category (or, better yet, don’t).

There’s also one last requirement, which is perhaps the most important. The name of your LLC must be distinguishable from existing business entities (including businesses no longer in operation). Simply put, you cannot use the same name another entity is using because the state and general public need to differentiate businesses from each other. 

You are also barred from using slight alterations to another business’s name to skirt around this rule. For example, if an existing business is named “Austin Landscaping LLC,” you won’t be able to use “AUSTIN LANDSCAPING LLC” or “Austin Land Scaping LLC.” Similarly, changing the variation on “LLC” won’t work: In the eyes of Texas, “Austin Landscaping LLC” and “Austin Landscaping L.L.C.” are the same name. 

However, you can pick a name that is somewhat similar but distinguishable from an existing business entity. For example, “Landscaping Professionals LLC” is considered distinguishable from “Landscaping Professionals of Austin LLC.” Similarly, changing the order of certain words can make a new name distinguishable: “Professional Landscaping LLC” is different from “Landscaping Professionals LLC.” 

You can also use a name in another language that has the same name meaning as an existing business entity. For example, you could name your business “Gallo Rojo LLC,” even if a “Red Rooster LLC” already exists. 

How can you tell if the name you’d like to use is already attached to another Texas business? The simplest method is using the Secretary of State SOSDirect website, which enables the public to look up records for existing business entities. 

You’ll need to create an account to access the site’s search function. Additionally, each search costs $1, a fundraising effort designed to pay for system upkeep and upgrades. To save yourself a little cash and annoyance, cast a relatively wide net when searching. It’s better to comb through a lot of results than do a ton of specific searches for variations of a single word.

If you do find an existing entity with the name you want or something very similar, you have two options.

    • First, you could vary your name slightly from the name you had originally intended, using the state’s rules for differentiating names as a guideline. When you’ve decided how to alter your name, you can contact the Secretary of State’s office to confirm the name is distinct enough from the existing entity. To do so, you can call the Business Filing Department at 512-463-5555 or send an email to corpinfo@sos.texas.gov.
    • You can also contact the existing business entity to see if the owners might consent to you using a very similar name. This is only possible only in specific circumstances, however, such as when an abbreviation might alter the name. For instance, “Harris Brothers LLC” might give you consent to use “Harris Bros. LLC.” You’d need this permission in writing, but the state could still deem it inappropriate.

Once you do settle on an official name that complies with Texas rules, consider reserving it with the Secretary of State’s office. That way, no other business can snatch it up before you found your new LLC formally. Your reservation will last 120 days, so you’ll have plenty of time to finish filing the other paperwork. 

To file your name reservation digitally, use the SOSDirect website, and select “Application for Name Reservation” under the section of the home screen titled “Reservation * Formation * Registration.” You can also file via mail by printing and completing Form 501 and sending it to the specified address. The price for submitting a name reservation form by mail or online is $40. 

When it comes to naming, there’s one other subject worth discussing. As briefly mentioned above, you don’t need to use the full, official name of your LLC when doing business with customers. 

Texas allows business entities to operate using “assumed names,” or titles other than their legal names. This is also referred to as a DBA or “Doing Business As.” For example, a company with the legal name “Everpower Energy and Resource Development LLC” might operate under the assumed name “EverPower Energy” for branding and simplicity.

You must file an Assumed Name Certificate with the Secretary of State and renew it every 10 years. You can do this online via the SOSDirect website or by mailing Form 503. The cost to file is $25.

Interestingly, Texas allows multiple companies to use the same “assumed name” so long as they’ve filed the appropriate paperwork. For example, a security consulting company and home health aide agency could use the assumed name “Guardian Angels.” But this rule doesn’t allow one business to pose as another to deceive potential customers. Trademark and copyright regulations still apply, as do laws concerning fraud and false advertising.

Finally, to make sure you’re entirely in the clear with your business name, visit the United States Patent and Trademark Office website to see whether your business name or logo is federally trademarked. Trademarks can also happen at the state level. To find out more and/or apply for a state trademark, go to the Texas Secretary of State website page for trademarks.

Idea

Dojo Insights

Bill and Bradley Thomas are brothers living in Austin. They’re planning to launch an LLC that will offer short-term bike rentals to tourists downtown. They want to call their new company “B&B Bikes LLC,” so they check the SOSDirect website to see if it’s available. Unfortunately, they find that a bike shop in Waco is already using that name. After a little brainstorming, Bill and Bradley switch their company’s name to “B&B Bike Rentals LLC” and confirm with the Secretary of State that the new name is different enough from their original idea. They then reserve the name using the SOSDirect website, paying a $40 fee to do so.

Decoration

Something else to think about with your LLC name is the availability of website domains. Be sure to double-check through a domain name search, and then ZenBusiness can help you reserve your website domain name once you’ve made your choice.

Locked

Step 2: Appoint a Registered Agent in Texas

For new entrepreneurs, the term “registered agent” may not ring any bells. But you’ll need one to launch your LLC — and throughout the life of your business.

Here’s the basic function of registered agents: Texas, like all other states, needs to serve legal documents or tax notices to business entities. If, for example, your business is sued, the courts need to know where a process server can deliver the legal paperwork. 

Accordingly, your LLC’s registered agent must be a resident or business entity with a physical address in the state of Texas. This “registered address” cannot be a P.O. box: It must be a real location that can be visited in person. 

Additionally, in Texas, your registered agent must consent to perform this role and sign a form indicating their agreement. While you do not need to submit this form to the Secretary of State, your business must record it.

Many business owners automatically assume they’ll serve as registered agents for their own companies, and some ultimately choose to do so. But this decision could have potentially problematic consequences, which you should certainly consider:

    • If you serve as your registered agent and provide your business address, you’re required to be available during standard business hours. If you plan to work outside the office or take business trips, this requirement could be problematic.
    • If you provide your business address as your registered address, you risk being served with legal paperwork in front of customers or employees. Being served with a lawsuit so publicly could be embarrassing.
    • If you provide your personal or business address as your registered address, you’ll need to update your registered agent paperwork with Texas each time you move. At rapidly growing companies, it’s easy to see how this essential step could get overlooked.

ZenBusiness offers extremely affordable registered agent services in Texas, with professionals ready to serve on behalf of your business. Our customer platform allows us to upload legal documents for you to view digitally, so you always receive important paperwork promptly. Let us take the stress out of selecting a registered agent and add value to your business.

Idea

Dojo Insights

Bill and Bradley discuss one of them serving as the registered agent for their bike rental business. They soon realize, however, that providing a registered address will be problematic. They’re looking for a new location, and even when they find one, they’ll both be away from the shop fairly often. Bill and Bradley decide to hire an outside registered agent instead. This choice will keep things simple and ensure their legal documents are always handled properly.

Information

Step 3: File Texas Certificate of Formation

When starting an LLC in Texas, the most important form of all is the Certificate of Formation. This document provides the Secretary of State with the crucial information related to your business, including your business’s members, registered agent, and general purpose. Once this form is processed and approved, your LLC is formed officially.

You can file your Certificate of Formation online through the SOSDirect website, or submit the associated form (Form 205) by mail. When you do, you’ll be asked to pay a fee of $300, plus an extra $25 if you choose expedited processing (see more on these fees in the sections on costs below).

For those who choose to mail their Certificate of Formation, you should send it to:

Corporations Sections
Secretary of State
PO Box 13697
Austin, TX 78711-3697

We’ve already discussed your business’s name and registered agent, and you’ll need to enter these items on your Certificate of Formation. But the form will also ask you to provide several other pieces of information, some of which require additional explanation. 

    • Governing authority: Texas asks business owners to designate whether the LLC will be governed by specific “managers” or members of the LLC. For example, if two members intend to run the business while another is a silent investor, you can designate the two active individuals as “managers.” If every member plans to be involved in daily operations, you can state that the LLC will be member-governed and provide the names and addresses for each member.
    • Purpose: The form includes a generic statement of purpose, stating that the LLC is being formed to conduct business that is lawful in the state of Texas. This is sufficient for the majority of businesses. Certain kinds of LLCs, however, may need to provide additional information to satisfy federal regulations. If an LLC intends to seek tax-exempt, nonprofit status, for example, it would need to provide additional information about its mission.
    • Organizer: The organizer is the individual who files the Certificate of Formation paperwork on an LLC’s behalf. The organizer does not need to be a member of the LLC: An attorney or business representative may act in this role instead. ZenBusiness, for example, often acts as the organizer for our clients’ Certificates of Formation. The organizer must sign the Certificate of Formation before submitting it.
    • Effectiveness of filing: This section allows members to designate a future date (within 90 days) at which the Certificate of Formation will come into effect. Members can also designate an event that will cause the Certificate of Formation to come into effect (for example, when all members sign an Operating Agreement for the business). Otherwise, you can elect for the Certificate of Formation to take effect immediately.

ZenBusiness can connect you with extremely affordable registered agent services in Texas, with professionals ready to serve on behalf of your business. Let us take the stress out of selecting a registered agent and add value to your business.

Idea

Dojo Insights

Bill and Bradley fill out their Certificate of Formation online, providing the name and address of their outside registered agent. Because they’ll both be running the business and have no other partners, they designate their LLC as member-governed. Bill agrees to serve as the organizer, and they indicate that the document should be effective as soon as it is filed. The brothers select expedited processing and pay their fees. The next morning, they receive an email stating that their Certificate of Formation has been approved: Their new LLC is officially legal!

Agreement

Step 4: Create an Operating Agreement

Without clear rules and expectations in place, any business can get complicated quickly. What happens if a member of the LLC needs to step away from the business, or the partners decide to bring a new member in? How will the company move forward if the members disagree on business strategy? What if personal differences spill into the business, clouding the venture in conflict?

An LLC Operating Agreement is the key to preventing and resolving these potential challenges, clearly articulating your new business’s structure and policies. In the event of business challenges or unforeseen troubles among an LLC’s members, an Operating Agreement delineates the company’s rules. These legal agreements can clarify several important concerns, such as:

      • Who has decision-making authority for the company, especially those who have the power to decide if partners disagree.
      • Who is responsible for various aspects of the business, both in terms of daily roles and strategic decision-making. 
      • What happens if a partner decides to leave the business, and what will happen concerning exiting partners’ ownership stakes in the company.
      • What the protocol is for bringing on new members and how their powers and privileges will differ from original members.
      • What happens if partners decide to bring the business to an end.

If you do not create an Operating Agreement for your LLC, these matters will be governed by Texas’s default laws. These standard procedures may not reflect the reality of your business and could prove deeply unfair if a conflict arises. Accordingly, while you don’t technically need an Operating Agreement to form an LLC in Texas, it’s highly advisable to create one.

Operating Agreements can even be advantageous for single-member LLCs, indicating to potential investors or partners that your company is a legitimate and separate business entity. If you hope to obtain a loan or startup capital from a bank or investor, for example, they’ll probably want to ensure you have an Operating Agreement.

We know what you’re thinking: Who wants to pay a lawyer to draft up this document? Thankfully, you don’t have to. ZenBusiness makes creating an Operating Agreement simple and straightforward, with a template that you can customize easily. The template delivers legal clarity without the lawyer’s price tag so that you can protect yourself and the business from future turmoil.

Idea

Dojo Insights

Bill and Bradley don’t foresee any conflict as business partners. But they do recognize that mixing family and work can sometimes get sticky, and they may not always want to run the business together. Plus, potential investors won’t take them seriously if they don’t have an Operating Agreement. For all these reasons, they get an LLC Operating Agreement template from ZenBusiness. They tailor the document to their business and preferences, then sign their names to make it official.

EIN

Step 5: Apply for an EIN

Once your LLC is formed in the state of Texas, you’ll probably need to obtain an EIN from the IRS. While not all businesses are legally required to obtain an EIN, doing so is prudent for most new companies.

The U.S. government uses EINs for several purposes related to taxation. In certain contexts, you’ll sometimes see them referred to as Federal Tax Identification Numbers or Employer ID Numbers. If you plan to have employees, you’ll need an EIN to manage all of your employer taxes. If you have partners in your new LLC, you’ll need an EIN to manage taxes paid on income from the business.

If you’re operating your new LLC solo, it’s possible that you won’t need an EIN. But it’s probably a good idea to get one anyway because you’ll need one to complete basic tasks, such as opening up a business bank account. An EIN can also help prevent identity theft: Without one, you’ll need to put your Social Security number on business documents, possibly exposing you to prying eyes.

Thankfully, getting an EIN is relatively easy and completely free. All you need to do is complete the EIN application online via the IRS website. You should know that you’ll need to designate a “responsible party,” or member of the LLC whose personal information will be associated with the company in the EIN application. Once you submit the online application, you should get your EIN immediately. 

Idea

Dojo Insights

Bill and Bradley go to the IRS website and begin their application for an EIN. They decide to choose Bill as their “responsible party” (he’s always been the responsible one), and Bill enters a few details about himself and their new LLC. Within a few minutes, they’re issued an EIN for their business. With their EIN in hand, Bill and Bradly head to the bank to open a checking account for their business.

How much does it cost to start an LLC in Texas?

Plans

Do-It-Yourself (DIY) ZenBusiness Starter Plan
Articles of Organization (state filing fee)
$100 $100
ZenBusiness filing
N/A $49
Average Filing Time
??? 2-3 weeks
Registered Agent
+$159/yr Check
Operating Agreement
+$35 Check
Name Reservation
+$10 Check
Accuracy Guarantee
Check
TOTAL COST
Do-It-Yourself (DIY) ZenBusiness Pro Plan
Starting Price
state fee $199 + state fee
Average Filing Time
2-3 weeks 5-8 business days
Registered Agent
+$99/yr Check
Operating Agreement
+$35 Check
State Compliance Help
$119/yr Check
EIN
+$70 Check
DOMAIN NAME
+$25 No
DOMAIN PRIVACY
+$10 No
BUSINESS WEBSITE
+$100 No
BUSINESS EMAIL ADDRESS
+$25 No
SHOW ALL DETAILS
First Year Price
LegalZoom $1017
ZenBusiness $199
SAVE 80%
excluding State Fees3
Second Year Price
LegalZoom $529
ZenBusiness $199
SAVE 62%
TOTAL TWO YEAR PRICE
LegalZoom $1,546
ZenBusiness $398
SAVE $1,148
Do-It-Yourself (DIY) ZenBusiness Pro Plan
Starting Price
state fee $199
Average Filing Time
15 business days 5-10 business days
Registered Agent
+$249/yr Check
Operating Agreement
+$99 Check
State Compliance Help
$280/yr Check
EIN
+$60 Check
DOMAIN NAME
+$25 No
DOMAIN PRIVACY
+$10 No
BUSINESS WEBSITE
+$100 No
BUSINESS EMAIL ADDRESS
+$25 No
SHOW ALL DETAILS

Around the country, state officials charge new businesses for processing their formation documents. This practice helps the state raise revenue and offsets the operating costs of the Secretary of State. 

Unfortunately, Texas charges significantly higher filing fees than many other states, leaving some business owners stunned by unexpected expenses. As you proceed with forming your LLC, you deserve to know what you’ll be charged at each stage, allowing you to plan. 

Accordingly, we’ve rounded up the administrative charges you might encounter when forming your LLC, so at least you can anticipate each payment.

    • If you decide to reserve a name for your new business, you’ll have to pay $40 to submit the name reservation application online or by mail. While you don’t need to take this step, it might be well worth the cost to ensure that no other business snags your preferred name before you can. 
    • If you decide to use an assumed name when operating your business, you’ll need to pay $25 to file your assumed name certificate online or by mail. Again, this cost is not mandatory for all LLCs, but it is required for businesses that decide to adopt an assumed name.
    • If you choose to submit a copy of your registered agent consent form, you’ll be required to pay a $15 fee online or by mail. Remember that you don’t necessarily need to submit this document, but if you elect not to, you’ll still need to maintain a copy of the consent form in your records.
    • When filing your Certificate of Formation with the Secretary of State, you’ll need to pay a $300 fee, whether you file online or by mail. If you pay by credit card, a 2.7% convenience fee will also be charged. There’s no way around this sizable fee: All LLCs are required to pay it. 
    • If you choose expedited processing for business filing paperwork, you’ll need to pay $25 extra for each document submittedIf you need to change any of the information filed in a previous form, you’ll need to pay $15 to file a Certificate of Correction online or by mail.

Of course, this list doesn’t include other potential fees that Texas might require from your business, such as the cost of specific licenses and permits or filing your annual report. Additional reports that are unique to Texas LLCs include the Public Information Report (PIR). You can find out more about these ongoing filings by visiting the Texas Comptroller’s website

Additionally, these prices don’t account for the time and effort you’ll spend preparing and submitting the paperwork required. There can be many competing demands on your attention during the critical stages of starting your business. If you’re stressing out about filing official paperwork, you’re not focused on planning for the business’s future — a pretty high price to pay.

Compare Ways to File

That’s where ZenBusiness can deliver excellent value, with comprehensive business formation services. We’ll take the paperwork completely off your plate, so you don’t have to be distracted from your new venture. We spare our clients from dealing with the frustrating bureaucracy — all for a low annual fee.

Here are just a few things we can help you with as you start your new business:

    • Filing all necessary business formation documents in Texas
    • Providing Texas registered agent services
    • A template to help you develop an Operating Agreement
    • Getting an EIN

In other words, we handle all the components described in this guide, with fast, worry-free services and expert support via our business formation plans.

1 All prices and services presented above were reviewed and verified as of 11/2/19.
2 The Starter plan is $49/year the first year and increases to $119/year after that
3 This chart does not include state fees because those will vary in each state.

What are the benefits of an LLC in Texas?

LLCs are popular for several reasons: The majority of our clients choose this structure for their businesses because they appreciate the legal and tax advantages it can provide. 

If you’re unsure whether to form your Texas business as an LLC, consider the following benefits:

    • LLCs provide legal protection for business owners. By establishing your company as a distinct entity, you separate your assets from your business’s legal liabilities and debt obligations. This “limited liability” in the name refers to this important benefit.
    • LLCs protect business owners from “double taxation.” As we’ll discuss in more detail below, LLCs are not taxed as businesses at the federal level. Instead, members of the LLC pay personal income taxes on the money they receive from the business. Accordingly, the IRS takes a slice of your profits just once, not twice.
    • LLCs can accommodate more flexible management structures. Corporations are required to maintain specific forms of oversight and management, including appointing a board of directors. LLCs have no such requirements, meaning they can customize their management structures to meet the business’s needs.
    • LLCs require less “red tape” than corporations. Most states require corporations to jump through certain hoops, including reporting on the finances of their business, holding an annual board of directors meeting, and fulfilling other administrative obligations. LLCs have far less stringent requirements, meaning you’ll spend less time navigating red tape.

To find out more about how forming an LLC could help your business succeed, check out this deep dive into the LLC business structure.

How is a Texas LLC taxed?

LLCs in Texas will need to pay taxes at the state and federal level (and sometimes local). With each, there are multiple elements to consider, so we’ll address them separately below.

Texas State Taxes

Depending on the nature of the LLC you’re starting, your company might be required to pay specific taxes related to the work you do. If you plan to sell goods, you’ll need to pay the state’s sales and use tax. Plenty of industries have specific taxes in Texas, and city or county governments may also charge fees or taxes to businesses operating within their jurisdictions. 

More broadly speaking, all Texas LLCs are subject to the state’s franchise tax. Because Texas has no personal income tax, this is how the state gets at least some money from business owners. All in all, it’s usually a good deal for LLC members compared to what they’d face in other states, especially those with new or fledgling businesses.

Here’s the first thing to know about the franchise tax: If your business pulls in less than $1.18 million in total revenue for 2020 or 2021, you don’t have to pay it. That threshold is typically adjusted slightly over time, but smaller LLCs don’t have to worry about it. However, the state does want you to tell them that you don’t owe anything for this tax by filing a No Tax Due Report (Form 05-163) and a Public Information Report (Form 05-102) every year (due May 15).

For LLCs with more than that amount of revenue, your tax burden will be equal to a percentage of your “taxable margin”: Basically, only part of your total revenue will be assessed for tax purposes, and your rate depends on your industry and how much money you’re bringing in. The highest possible tax rate is 1%, and most businesses pay either 0.375% or 0.75% of their taxable margins. Your taxable margin may also differ depending on how you calculate it, so business owners should seek the lowest possible number.

Federal Taxes

With federal taxes, LLCs can determine which kind of tax entity they’d like to be. By default, LLCs with just one member are taxed as “disregarded entities,” meaning the business’s tax burden is assessed as part of the owner’s income tax return. 

For LLCs with more than one member, the default tax entity is a partnership. This means that the individual members must report their gains and losses from the company to the IRS and pay income tax on their share of the business’s profits.

As we noted above, LLCs avoid “double taxation”: You only pay taxes on profits as personal income, so the business itself won’t owe taxes as well.

Members of LLCs can also elect to be taxed as corporations. Some LLC members choose to classify their businesses as S corporations or C corporations, which can be advantageous in some cases. For a deep dive into the possible benefits and drawbacks of filing taxes as a corporation, check out this guide on the subject.

There are also a few other forms of federal taxation to keep in mind. For example, you will likely need to pay certain kinds of employment taxes, such as Social Security, Medicare, and unemployment. 

Even for business entities like LLCs, taxes can get very complicated very fast. Don’t be afraid to seek out a tax professional for guidance.

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Texas LLC FAQs

What is the processing time to form my Texas LLC?

According to the Texas Secretary of State, the standard processing time for business formation documents is five to seven business days from the day they receive your submission. The agency also cautions that timelines can fluctuate based on demand and staffing capacities, meaning you could wait even longer for your Certificate of Formation to be approved. In our experience, requests are often processed in just a couple of business days, but that’s by no means guaranteed.

Thankfully, you can significantly cut down on your wait time by paying slightly more for expedited processing. When you select this option online, the office processes your documents before the close of the next business day — and often gets the job done by the next morning. At the cost of just $25, expedited processing is a worthwhile investment for entrepreneurs eager to get their businesses going.

Do I need to file an Operating Agreement with the state of Texas?

Technically, LLCs formed in Texas do not need to file an Operating Agreement with the Secretary of State. You won’t be asked for one when submitting your Certificate of Formation, and you can start doing business without an Operating Agreement. That being said, you should probably make one anyway.
As discussed above, creating an Operating Agreement is highly advisable for virtually every kind of LLC, even though Texas does not legally require it. That includes LLCs with just one member: Even if you don’t have partners, an Operating Agreement can be very advantageous for your business.
Plus, with our low-cost template for creating an Operating Agreement, implementing one for your LLC can be surprisingly simple. With the right agreement, you can ensure that you’re protected and positioned for success.

What tax structure should I choose for my Texas LLC?

In most states, LLCs are treated as “pass-through entities,” meaning their members pay income taxes on the share of profits they receive. But because Texas has no personal income tax, it levies a franchise tax to LLCs and corporations.

In other words, there’s no choosing your tax structure in Texas: The franchise tax rule will apply to your LLC, but it’s a much better deal than most states offer. Plus, if your annual revenue is less than $1,180,000 in 2020 and 2021, you won’t pay any franchise tax on your LLC’s earnings. 

However, at the federal level, you do have some choices to make related to your tax status. If you are the only member of your LLC, the IRS will default to treating your LLC as a “disregarded entity,” meaning you’ll pay a personal income tax on the money you earn from the business. If you have partners, the default mode of federal taxation is for each member to pay personal income tax on their share of the LLC’s profits. 

You can also choose for your LLC to pay federal taxes as a C corporation or an S corporation. For owners of some highly profitable LLCs, electing to be taxed as an S corporation can be a prudent move, allowing you to keep more of the money your business brings. 

However, this move necessitates some additional paperwork and administrative requirements, so it’s best to seek expert accounting advice before making this decision. Check out our guide to S Corporations here to learn more about this option.

Does Texas allow a Series LLC?

In contrast to some states, Texas law does permit the creation and operation of a Series LLC. For those unfamiliar with this business structure, a Series LLC allows multiple distinct entities (called series) to function under the umbrella of a single LLC (sometimes called the “master” or “parent” LLC).

Each series can have its own members, managers, assets, and debts. Additionally, each series can enter into its own contracts, operate in a distinct fashion, and manage its finances autonomously. Perhaps most importantly, each series has its own legal liabilities, meaning that if one series is sued, the other series and the master LLC are theoretically shielded from the fallout.

An LLC with multiple locations or lines of service might find the series structure helpful. Imagine, for example, that Bob’s Waste Management company wanted to add junk hauling services to its operations and then later saw an opportunity to move into composting. Bob’s Waste Management could use a Series LLC structure to Bob’s Junk Hauling and Bob’s Community Composting under its master LLC umbrella.

That being said, the Series LLC structure can become quite legally complex. To enjoy the protections that a Series LLC might provide, the Texas Secretary of State advises seeking expert legal and accounting guidance. At ZenBusiness, our team of experts can offer key insights about the possible advantages of creating a Series LLC and help you complete the associated paperwork.

Which licenses and insurance are required for an LLC in Texas?

Different industries require different business licenses and insurance. You can visit the Texas Economic Development website to understand what your business will require at the state level, but remember that licensing and permitting also happen at the federal and local level and vary across industries, so you’ll need to do some research to find out what your business needs. 

In any case, we recommend hiring a professional service like ZenBusiness, who will provide you with a comprehensive package of all the licenses and insurance required for your Texas LLC.

Can you change the name of an LLC in Texas?

You can change the legal name of your LLC in Texas at any time (so long as another business is not using the new name). To do so, you’ll need to file a Certificate of Amendment with the Secretary of State, which you can do through the SOSDirect website or by mail. The cost of submitting a Certificate of Amendment is $150 for LLCs.

If you want to call your business something new but don’t care much about your LLC’s legal name, filing an Assumed Name Certificate will be far more cost-effective. This form costs just $25 to submit and enables your company to interact with the public under a different name than its official one.

How do I dissolve my LLC in Texas?

To dissolve an LLC in Texas, you’ll need to submit a Certificate of Termination to the Secretary of State. This form can be submitted through the SOSDirect website or by mail, with an associated fee of $40. 

However, you cannot submit a Certificate of Termination without first getting proof that your business’s tax obligations are fulfilled in the state of Texas. You’ll need to apply for and receive a Certificate of Account Status from the state comptroller’s office before you can officially terminate your business. When terminating your LLC with the Secretary of State, you’ll be asked to append this document to your forms.

We hope this guide has provided the kind of concrete advice you need to launch a new LLC in the Lone Star State. With the information we’ve provided, it’s time to take part in the Texas entrepreneurial spirit and build your own business. 

And while this guide has explained each step in forming an LLC, you don’t have to walk this path alone. In fact, you don’t even need to handle all the details yourself. With a trusted partner like ZenBusiness, you can leave the paperwork behind and focus on helping your business grow.

Want to learn more about how we can help you start your Texas business? Reach out to us today to see how affordable and efficient our services can be.

If you’re already a small business owner, we also help your company thrive. To find out more about how our services can fuel the growth of your business in Texas, contact our team today!

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