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Let's start by checking the availability of your company name in Texas. Don't worry about adding LLC at this stage, we'll take care of that later.
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, it’s a great place to launch a limited liability company (LLC).
Building a Texas 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 understand how to get an LLC in Texas and, put your business plan in motion, from developing your products and services to finding your first customers.
But before you start an LLC in Texas and 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 Texas LLC formally, completing all the tasks that the process requires. We will show you how to create an LLC in Texas.
We get it: No aspiring business owner likes getting stuck doing government paperwork. Here at ZenBusiness, we offer business formation plans and other services to help you avoid much of that paperwork. In this article, we’ll walk you through the steps needed to form a Texas LLC and tell you how we can help you along the way.
The primary way we can help you in the formation process is by registering your new business with the Texas Secretary of State (SOS), which is required for becoming an LLC. This process, which we’ll walk you through, enters your new company into the public record and provides the information necessary for the state to regulate and communicate with your company.
Below, we’ll explain what to do when forming a new LLC. Then, we’ll answer key questions about Texas LLCs, covering everything from operating agreements to taxation options.
LLC formation in Texas is a multistep process. As entrepreneurs quickly discover, the legwork involves completing forms with the Texas Secretary of State. This agency maintains records of all LLCs in Texas, and you’ll need to add yours to its list to operate as an LLC 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. You’ll most likely 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. Accordingly, we’ve broken down the process of starting an LLC in Texas into five steps.
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:
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? Our Texas business entity search page can guide you.
If you do find an existing entity with the name you want or something very similar, you have two options.
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. We can handle this process for you with our business name reservation service. Not only do we handle the paperwork to reserve your name, but we also perform a search to make sure your desired business name is available.
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,” meaning titles other than their legal names. This is also referred to as a DBA or “Doing Business As” name in Texas. 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.
If you’d like help in acquiring an assumed name, our DBA service can help. We can handle filing the Assumed Name Certificate with the Secretary of State.
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.
When you’re coming up with a business name, it’s wise to consider whether you can secure a matching domain name so that your future website can be easily found online. We have a tool to help you do a preliminary domain name search, and our domain name registration service can help you secure the online name that will best serve your company.
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.
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 physical 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’re looking for a registered agent for your Texas LLC, check out our Texas registered agent service to see how we can take care of this requirement for you.
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 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. If you use one of our business formation plans, we can handle this entire step for you.
The Certificate of Formation can be filed online through the Texas SOSDirect website or by submitting the associated form (Form 205) by mail. There’s an associated filing fee, plus an extra fee 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 can send it to:
Secretary of State
P.O. 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.
If you have us handle filing your Certificate of Formation, once the state approves your LLC, your paperwork will be available from your ZenBusiness dashboard, where you can keep it and other important paperwork digitally organized.
Once you get your physical paperwork back from the state approving your new LLC, you’ll want to keep it in a safe location along with your other important documents, such as your operating agreement, member certificates, contracts, transfer ledger, etc. We offer a customized business kit to help you keep these important documents organized and looking professional.
By now you’re realizing how often you’ll need to supply an address for your new business. That can be unsettling for some business owners, especially those running their business from home. In instances where you’re not required to give the registered agent address or official principal address for your business, a virtual business address can come in handy.
With our virtual business address service, we supply you with a physical street address where you can have your mail sent without divulging your real address to more people than necessary.
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 members 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?
A Texas 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:
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, helping to indicate 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 may want to ensure you have an operating agreement.
Once your LLC is formed in the state of Texas, you’ll probably need to obtain a Tax ID number, also known as an Employer Identification Number (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. If you plan to have employees, you’ll need an EIN to manage all of your employer taxes. If you have other members in your new LLC, you’re required to have an EIN.
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.
You can get an EIN for your Texas LLC through the IRS website, by mail, or by fax, but if you’re not very fond of dealing with that particular government agency, we can get it for you. Our EIN service eliminates the hassle.
Once you’ve secured an EIN, you’ll be able to open a business bank account. Having separate accounts for your business and your personal banking is critical for sorting out your finances at tax time and helps you avoid commingling funds. Commingling funds can not only make your taxes more difficult, but it could also be used against you if someone takes you to court to challenge whether you and your LLC are truly separate entities.
We have partnered with LendingClub to offer a discounted bank account for your new business. This allows for unlimited transactions, online banking, a debit card, and more. When you want to authorize others in your business to use the account, we offer a banking resolution template to simplify the process.
For further help managing your new LLC’s finances, try the ZenBusiness Money App. It can help you create invoices, receive payments, and transfer money all in one place.
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 taken aback by unexpected expenses. As you proceed with forming your LLC, you’ll want to know what you’ll be charged at each stage, allowing you to plan.
To get the most current fees, you’ll need to check the Texas Secretary of State website. However, we’ve compiled a list of the kinds of administrative charges you may encounter below:
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.
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 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.
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.
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.
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. We can handle the process of expediting your LLC formation with our faster filing speeds service.
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.
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. 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 other members in your LLC, 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 corporation can be a prudent move, but it’s best to seek expert accounting advice before making this decision.
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.
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.
Different industries require different business licenses. 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.
If all that research sounds daunting, we recommend using our business license report, which will provide you with a comprehensive report of all the licenses and permits required for your Texas LLC.
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 Texas SOSDirect website or by mail. The Certificate of Amendment has a filing fee.
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 a smaller fee to submit and enables your company to interact with the public under a different name than its official one.
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. 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.