Starting a Limited Liability Company (LLC) in Texas can be a strategic move for entrepreneurs benefiting from the state’s robust economy and business-friendly environment. Texas offers favorable tax policies, a large market, and a straightforward process for forming an LLC. This guide, provided by The English Law Firm and Garrison English, Esq., explains how to start an LLC in Texas. We’ll guide you through each step to ensure everything goes smoothly.
Table of Contents
- Before Filing LLC Paperwork
- Appoint a Registered Agent
- Reserve Your Business Name
- Filing Your Texas LLC Documents
- After Forming Your LLC
- Submit Your Annual Public Information Report
- Obtain an Employer Identification Number (EIN)
- Understand Your Tax Obligations
- Draft an LLC Operating Agreement
- Conclusion
Before Filing LLC Paperwork
Appoint a Registered Agent
Texas law requires every LLC to designate a registered agent within the state. This agent can be an individual resident or a business entity authorized to do business in Texas. The registered agent is responsible for receiving legal documents, tax notices, and official correspondence on behalf of your LLC.
Requirements for a Registered Agent:
- Must be at least 18 years old.
- Must have a physical street address in Texas (P.O. boxes are unacceptable).
- Must be available during regular business hours to receive documents.
Options for Choosing a Registered Agent:
- Self-Appointment: If you meet the above requirements, you or another member of your LLC can serve as the registered agent.
- Professional Service: Hiring a professional registered agent can protect your privacy and ensure that important documents are handled properly. Professional services fees typically range from $50 to $300 annually.
Reserve Your Business Name
Selecting a unique name for your LLC is a crucial step. Your business name must be distinguishable from existing entities registered with the Texas Secretary of State.
Steps to Reserve a Name:
- Conduct a Name Search: Use the Texas Secretary of State’s SOSDirect online system to verify the availability of your desired name.
- File a Name Reservation: If your chosen name is available, you can reserve it for up to 120 days by filing a Form 501—”Application for Reservation or Renewal of Reservation of an Entity Name”—and paying a $40 fee.
Filing Your Texas LLC Documents
To officially form your LLC in Texas, you must file a Certificate of Formation with the Texas Secretary of State.
Steps to File:
- Complete the Certificate of Formation (Form 205):
- LLC Name: Ensure it includes “Limited Liability Company,” “Limited Company,” or an abbreviation like “LLC” or “LC.”
- Registered Agent Information: Provide the name and address of your registered agent.
- Governing Authority: List the names and addresses of the LLC’s managers or members.
- Purpose of the LLC: A general statement like “The purpose of the company is to engage in any lawful business in Texas” is sufficient.
- File the Certificate:
- Online Filing: Use the SOSDirect portal for faster processing.
- By Mail: Send the completed form to the Secretary of State’s office at:
- Submit the Filing Fee:
- Fee: The filing fee for a Certificate of Formation is $300.
- Payment Methods: Credit card (for online filing), check, or money order.
Processing Time: Filings are typically processed within 2-3 business days when filed online. Mail filings may take longer.
After Forming Your LLC
Submit Your Annual Public Information Report
Texas requires LLCs to file an Annual Public Information Report and the Texas Franchise Tax Report to maintain good standing.
Key Details:
- Due Date: May 15 each year.
- Filing Method: Online through the Texas Comptroller’s Webfile System.
- Fee: No fee for the Public Information Report, but franchise tax may be owed depending on revenue.
Franchise Tax:
- No Tax Due Threshold: For 2024, LLCs with revenue below $1,230,000 generally owe no franchise tax but must still file.
- Tax Rates: Vary based on business type and revenue.
Obtain an Employer Identification Number (EIN)
An EIN is a federal tax identification number issued by the Internal Revenue Service (IRS).
Why You Need an EIN:
- To open a business bank account.
- To hire employees.
- To file federal and state taxes.
- To obtain business licenses and permits.
How to Apply:
- Online: Visit the IRS EIN Assistant for immediate issuance.
- By Mail or Fax: Complete Form SS-4 and send it to the IRS.
Understand Your Tax Obligations
While LLCs in Texas are generally not taxed at the entity level for income tax, it’s important to understand your tax responsibilities.
Tax Considerations:
- Pass-Through Taxation: Profits and losses pass through to members and are reported on personal tax returns.
- State Taxes: LLCs may be subject to the Texas Franchise Tax and must file the annual report.
- Sales and Use Tax: If your LLC sells goods or services subject to sales tax, you must register for a sales tax permit with the Texas Comptroller.
- Employment Taxes: If you have employees, you must register for unemployment insurance tax and withhold payroll taxes.
Draft an LLC Operating Agreement
An operating agreement outlines the ownership structure and operating procedures of your LLC.
Benefits of an Operating Agreement:
- Defines Roles and Responsibilities: Clarifies the duties of members and managers.
- Establishes Protocols: Set rules for decision-making, profit distribution, and dispute resolution.
- Protects Limited Liability Status: Demonstrates separation between personal and business affairs.
- Prevents Misunderstandings: Reduces the likelihood of conflicts among members.
Note: While Texas law does not require a written operating agreement is highly recommended.
Frequently Asked Questions
What is a Limited Liability Company (LLC)?
- An LLC is a flexible business structure that offers the liability protection of a corporation with the tax benefits and operational simplicity of a partnership.
Why should I form an LLC in Texas?
- Texas has a strong economy and good tax policies. There is no state income tax, which is a plus. The process to start a business is simple. These factors make Texas a great choice for entrepreneurs.
Can I be my own registered agent in Texas?
- Yes, as long as you are at least 18 years old and have a physical address in the state where you can receive documents during normal business hours.
How much does it cost to form an LLC in Texas?
- The filing fee for a Certificate of Formation is $300.
Do I need an EIN for my LLC?
- An EIN is necessary for tax purposes, bank account opening, and hiring employees.
Are annual reports required in Texas?
- Yes, LLCs must file an Annual Public Information Report and a Franchise Tax Report by May 15 each year.
How is my LLC taxed in Texas?
An LLC is usually a pass-through entity for federal taxes. This means that profits and losses are reported on the members’ tax returns. For state taxes, LLCs may be subject to the Texas Franchise Tax.
Conclusion
Creating an LLC in Texas protects your assets while benefiting from the state’s business-friendly environment. This guide provides easy steps for setting up your LLC, which will help create a strong foundation for your business’s success.
Ready to take the next step?
File now at The English Law Firm
Contact Garrison English, Esq. at The English Law Firm for personalized legal assistance. We can help you navigate the formation process and ensure your LLC complies with all Texas legal requirements.