How to form an LLC in Texas in 6 easy steps
As the saying goes, “Everything’s bigger in Texas,” so it should come as no surprise that Texas is also a state that hosts big dreams and even bigger dreamers. Many of those dreams are housed by individuals who one day hope to open their own businesses. If you possess the entrepreneurial spirit, you may want to explore how to start an LLC.
Forming an LLC is a great way to launch the business of your dreams with the flexibility of operating your venture like a renegade navigating the wild wild west. Whether you’re looking to start a cattle farm or a cowboy boot boutique, the following 6 steps will help guide you through the LLC formation process so that you’re riding off into the sunset of success in the most efficient way possible.
1. Check if your business name is available
The first step on your LLC formation journey is to choose a name for your business. It’s essential to take some time to think through your business name options because a catchy, memorable business name could be the difference between getting a high volume of customers or little to no traction. Ultimately, your LLC should elicit excitement from your clients while also being a name that excites you and makes you proud.
When you’re choosing the name of your LLC in the state of Texas, you’ll need to follow a few naming guidelines. Somewhere in the title, you’ll need to include the phrase “limited liability company” or one of its abbreviations, “LLC” or “L.L.C." The word “company,” can be abbreviated as “Co.,” and “limited,” can be abbreviated as “Ltd.” If your LLC provides professional services—such as those offered by doctors, lawyers, or architects—you may use the “professional limited liability company” designation, or PLLC.
Certain words that may confuse your business with a government entity—such as “State Department,” “FBI,” and “Treasury”—are prohibited from being used. Other words like “Attorney,” “University,” and “Bank” are restricted, meaning you can only use them if you intend to fill out additional paperwork.
Once you’ve verified that the proposed name for your business meets the Texas naming requirements, you’ll then want to conduct a name search on the Texas Secretary of State’s website, SOSDirect. If your desired name is available, you may also want to register the corresponding domain name so that you’re ready to launch your website when the time is right.
If you’re between a few names and unsure which name to choose, consider reserving a name for 120 business days, which prevents you from losing the name without officially registering it. You can reserve a name for your LLC by submitting Form 501—Reservation or Renewal of Reservation of an Entity Name—to the Texas Secretary of State. The form can be filed online or by mail for a $40 filing fee.
You also have the option to choose a trade name—or DBA (Doing Business As)—if you wish to conduct business under a different name other than the legal name you plan on registering. To snag a fictitious name, you’ll need to submit an Assumed Name Certificate—Form 503—to the Texas Secretary of State, as well as to the county clerk in the county in which your LLC resides. The form can be submitted online or by mail, along with a $25 filing fee.
2. Claim your name
After you’ve locked in your desired business name, your next step is to lock in a registered agent—or agent for service of process—for your Texas LLC. A registered agent is a company or individual tasked with handling the official legal documents for your company and is the point of contact for any potential lawsuits.
If the registered agent you’re selecting is an individual, they’ll need to be a resident of Texas with a physical street address in Texas—not a P.O. Box. If the registered agent you’re selecting is a registered agent service company, the company needs to be authorized to conduct business in the state of Texas. You can find a list of Texas commercial registered agents on the Texas Secretary of State website.
Additionally, the Texas registered agent must consent to being the registered agent for your LLC, which can be recorded either in a hand-written document or electronically. You must include the following information on the consent form: The name of your LLC, the name of the registered agent, a statement from the registered agent expressing their consent to be your LLC’s registered agent, the registered agent’s signature, and the date. You also have the option to be the registered agent for your Texas LLC, or you can nominate one of your other LLC owners if you have multiple members.
Now that your registered agent is selected, you can enlist their help filing your Certificate of Formation—Form 205—with the Texas Secretary of State in Austin. You can file your Certificate of Formation online or by mail, along with a $300 non-refundable filing fee. Included on the form needs to be the name of the LLC, the name and address of your LLC’s registered agent, a designation if your LLC is member-managed or manager-managed, and the name, date, and signature of the LLC organizer. The form will be processed in 3 business days if you’re submitting online and 5 to 7 business days if you’re submitting by mail.
If you operate an existing LLC in another state but now want to conduct business in Texas, you’ll need to fill out a Foreign LLC form, which allows an LLC to operate as a single entity across many states. The Foreign LLC form–Form 304—can either be submitted online or by mail along with a $750 filing fee.
3. Write your operating agreement
Drafting an operating agreement in the state of Texas isn’t a requirement, but it’s encouraged. An operating agreement outlines your LLC's ownership and operating procedures and the rights and responsibilities of each LLC owner and member. Think of the LLC operating agreement as a blueprint for your organization’s day-to-day functions and a roadmap for how you envision your LLC running in the future.
You should include the following information in your operating agreement: A designation if your LLC is a single-member LLC or a multi-member LLC, the business hours your LLC will hold, the business formation rules for setting meetings and voting on impactful decisions, the process for handling profits and losses, and the specific business organizations code of conduct your LLC follows for deciding what happens when a member of your LLC leaves, becomes disabled, or is deceased.
Should you forgo writing an operating agreement, you might encounter legal snafus should your LLC ever become embroiled in a lawsuit. The vision you had for your LLC would also be subject to Texas state LLC laws rather than what’s outlined in your document, meaning an operating agreement also helps demonstrate that your LLC is its own entity. This helps protect your personal assets from any claims and also keeps your personal liability out of the equation.
4. File your Statement of Information
The next step in your Texas LLC’s formation is to fill out an annual report—or Statement of Information—with the Texas Comptroller of Public Accounts. The annual report can be filed online or by mail for free and is due by May 15th each year. For the first year of your LLC’s formation, you do not need to file an annual report, though if you fail to file your annual report on time in the ensuing years, you’ll be charged a $50 penalty.
5. Pay your taxes
Along with your annual report, you’re also required to file a Franchise Tax with the Texas Comptroller of Public Accounts. If your yearly revenue is below $1,130,000, you will not need to pay any tax; however, you will need to submit a “no tax due” report. If your annual revenue exceeds $1,130,000, you’ll need to pay a graduated tax that is calculated based on a specific rubric. Like with the annual report, you’ll be required to pay a $50 late fee if you fail to file your Franchise Tax on time, with an additional 5% penalty on your tax owed. The penalty percentage increases to 10% if you fail to file after 30 days.
Like the Texas Franchise Tax, the amount you pay in Texas taxes is dictated by the income your LLC generates as well as the business entity selection you made during your LLC’s formation. The neat thing about being an LLC is that you can choose your business structure and decide whether to be taxed as a sole proprietorship or a corporation.
If your LLC is being taxed as a C corporation or S corporation, you’ll need to apply for a Federal Employer Identification Number—or EIN—through the Internal Revenue service. Your Federal Employer Identification Number—also known as a Federal Tax Identification Number— acts like a Social Security Number for your LLC and is how the IRS monitors your business’s financial activities and income tax reporting. You can obtain your Federal Employer Identification Number for free by mail or online via the IRS website.
Applying for a Federal Employer Identification Number also allows you to open your LLC's credit card or bank account. To do so, you’ll need:
- Your Federal Employer Identification Number
- Your Articles of Organization
- Your driver’s license
Having a business bank account is essential to running a successful LLC. It helps keep your business transactions separate from your personal transactions, making it harder to mix your business and personal transactions. A business bank account and business credit card help keep all of your LLC transactions in one place, making it easier to organize and compile all of your important financial documents for your tax returns. Should you ever be involved in a lawsuit or be taken to court, a business bank account can help mitigate any case against you by demonstrating that your LLC is, in fact, its own separate entity and is unrelated to any of your personal assets.
6. Wrap up other regulation and sales tax requirements
Congratulations! You’ve made it to the final step of completing the necessary paperwork for launching your new Texas business, so take a minute to celebrate and feel good about your accomplishment. But don’t party too hard, as there are still a few housekeeping items you’ll want to take care of.
As you begin to wrap up final tasks, you’ll want to explore which Texas state business licenses and permits are necessary for you to secure under Texas law so that your LLC can conduct its business following all the state rules and regulations.
Texas does not have a universal business license, but certain businesses require statewide licenses. The licenses and permits you may be required to obtain are determined by the industry in which your LLC operates, so check the Texas Department of Licensing and Regulation for more information as to which licenses and permits are necessary for operating an LLC with your specific functionality. You can also consult The U.S. Small Business Administration (SBA) website and your city or county government website to understand any local license or permit requirements further and answer any licensing FAQs.
You’ll also want to explore any remaining Texas state tax requirements that may affect your specific business operations and the amount you’ll end up paying in-state filing fees. For example, if you’re selling goods and collecting sales tax, you’ll need to register your LLC with the Texas Comptroller of Public Accounts to pay Texas state sales tax and use tax. Depending on the tax amount, you’ll be able to file online, by mail, or in person at the Comptroller’s office. With that said, the one cool thing about being an LLC business owner in Texas is that you won’t have to pay any personal income tax. Be sure to speak with your business attorney or another tax professional to ensure that your LLC complies with all state and federal tax mandates and pays all federal and state fees.
The last housekeeping item you’ll want to explore before launching your LLC is small business insurance. Small business insurance keeps you and your business legally protected from the unexpected, which helps put your mind at ease knowing you can spend more time growing your LLC and less time navigating potential legal headaches. While there are many insurance options for your LLC, the following are three of the most common types of insurance that could address most of your LLC’s needs:
- General Liability Insurance: This general policy offers a wide range of liability protection from potential lawsuits to you and your LLC.
- Professional Liability Insurance: Professional service providers such as consultants or accountants are the primary beneficiaries of this policy since it helps cover against different types of business errors and malpractice.
- Workers’ Compensation Insurance: Provides coverage to your employees in the event of illnesses, on-the-job injuries, or even death.
You may also want to consult your business accountant for advice on the other types of business insurance that might be relevant to your specific LLC’s operation. They can also ensure your LLC remains compliant with all federal tax and state tax laws and filing requirements.
Get LLC insurance in minutes by following these steps
Choosing the right business insurance for your LLC can be an overwhelming process, but it doesn’t have to be. That’s where Huckleberry can help.
Huckleberry is a quick and easy solution for all your business insurance needs, making purchasing business insurance simple. Here’s how you can get started:
- Go to Huckleberry.com and choose the “Instant Estimate” option. We’ll then provide you with quotes for LLC insurance and other types of coverage designed to meet the needs of your specific LLC.
- Input the type of work your LLC is involved in, which helps Huckleberry customize your insurance options.
- Answer a few basic questions about the nature of your company, helping Huckleberry tailor its insurance option results to only those that can directly benefit your LLC.
- After a few short minutes, you’ll receive a quote containing customized small business insurance options.
- The Huckleberry workers’ comp calculator provides an accurate cost estimate for workers’ compensation insurance.
Congratulations! You’ve just established your very own Texas limited liability company! While you may want to hop on a horse and ride joyfully off into the sunset, don’t forget first to snag a quality TX business insurance policy to keep you, your assets, and the future of your LLC safe and protected.
For all things business insurance, Huckleberry has you covered. In less time than it takes to lasso a bull, Huckleberry can provide you with a multitude of insurance quotes and policy options that will protect your LLC now and in the years to come.