Looking to start an LLC in Texas? There are many important choices that must be taken while starting a new firm. You must also pick what form of business structure you desire, in addition to establishing your objective and market. A limited liability company, or LLC, is something that a lot of businesses wish to do.
Forming an LLC can be daunting. Each state has its own set of filing requirements and fees. If you want to form an LLC in Texas, you’ll need to focus on certain measures to meet the state’s criteria. Learn more about how to form an LLC.
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Compared to typical partnerships, the LLC has numerous advantages. However, in order to form an LLC and avail of the benefits, you must move immediately. We have assisted many clients in forming LLCs in an easy way. Prospective customers frequently inquire about how to start an LLC in Texas and question if they can do so without legal assistance.
Here, we’ll walk you through the steps of forming an LLC in Texas and point out some possible risks. Don’t be concerned. We are here with a detailed explanation and have done all of the efforts for you. Continue reading to learn how to set up an LLC in Texas.
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What Is An Limited Liability Company(LLC)?
A Limited Liability Company (LLC) is a legal entity that is permitted under state law. If you want to form a Limited Liability Company, you should verify with your state to see what requirements apply to you.
Members are the people who own an LLC. Individuals, businesses, other LLCs, and international entities may all be members in most states because ownership is not restricted. There is no limit to the number of people who can join. Most states also allow “single-member” LLCs, which are limited liability companies with only one owner.
The limited liability company (LLC) initially appeared as a business entity in Texas in 1991 and quickly grew in popularity. It combines the liability protections of a corporation with the ease of formation of a partnership, as well as tax and management practices that are more flexible.
Many different sorts of companies can benefit from an LLC as a corporate structure. Members of a limited liability company (LLC) might be a single person or a group of people.
Why Should You Start An LLC In Texas?
Whether you run a business as a sole proprietorship or general partnership, you should think about forming an LLC to protect yourself from liability. An LLC protects you from personal liability to a great extent. The majority of corporate debts are not personally accountable to LLC owners.
Therefore, liability protection provided by an LLC is not perfect. If a member engages in unethical or illegal behavior or fails to follow required company operations, the member may be held personally accountable.
Moreover, an LLC also offers tax benefits, as it passes tax duties to shareholders rather than imposing the “double tax” that a corporation imposes. However, because of the flexibility of LLC tax arrangements, members can elect to have the LLC taxed as a company if they so choose. LLCs also avoid the complexities of corporations by removing the necessity for officials, directors, and stockholders.
What Are The Requirements Before You File An LLC In Texas?
Before filing your LLC, it’s usually a good idea to understand the precise stages and requirements. There are a few unique conditions you’ll need to clear in Texas, as in every state, before continuing forward with the procedure.
Here are the Texas LLC filing requirements, which include:
- Must Put LLC In The Name: “Limited Liability Company” or “Limited Company” in the name is required under Texas law. You can use the abbreviations “LLC,” “L.L.C,” “LC,” or “L.C.” “Limited” and “Company” could also be written as “Ltd.” and “Co.”, accordingly.
- LLC can’t share a name with an existing business: Your LLC can’t have a name it’s the same as, or confusingly similar to, any Texas-registered business. Your registration will be rejected if your suggested name breaks this guideline. You can look for the names of existing firms using the Texas Taxable Entity search engine. While it’s simple to discover if a firm with the same name as yours already exists, it’s more difficult to tell if an “identical or similar” name already exists.
- A Registered Agent Is Required: A registered agent is required for all LLCs functioning in the state of Texas. An ordinary Texan, including the LLC’s owners and workers, a Texas firm, or a corporation registered to do business in the state can all serve as the registered agent. The agent must agree to take legal notices and lawsuits on your behalf and must have a physical location in the state. The LLC, crucially, cannot operate as its own registered agent. Several companies charge a fee for registered agent services, which typically ranges between $100 and $300 each year. Make sure you’ve done your research and that the agent’s services will cover all of your bases.
Moreover, certain licensed professionals can’t form an LLC whereas a professional limited 1iability company or PLLC. Whereas, this restriction doesn’t apply to professional services where an individual must have a license.
Steps For How To Start An LLC In Texas
If you’re asking how to form an LLC in Texas, you should do your research and take extra precautions. It’s worth investing the time and effort right from the start. There are various requirements for forming an LLC in Texas, and your efforts will save you money over the long term.
In order to form an LLC in Texas, you must follow certain processes. Your LLC structure may be illegal if you skip a step or form it improperly. In the event of a lawsuit, an LLC that has been constituted incorrectly may subject you to personally liable, putting your own company at risk.
Here are the steps you need to take to form a limited liability company (LLC) in Texas:
1. Choose A Name For Your Texas LLC
Before you can register your LLC, you’ll have to choose a name that can be used in your articles. The names must conform to Texas naming regulations. The following are the important considerations to make:
- The words Limited Liability Company, LLC, or L.L.C. must appear in your company name.
- Your company name must not be similar to that of another company in the state. To see whether a specific business name is in use, go to the Secretary of State’s site and run a search.
- A business name cannot include words that are used to identify a federal agency (i.e., State Department, CIA, FBI, Treasury, etc.)
- Additional documentation and licensing papers may be required for certain limited words (bank, lawyer, attorney, credit union, and so on).
- At the very least, by registering your domain name now, you are reserving the possibility of choosing one in the future. It’s important to check if the URL is available before settling on an LLC name.
- You can reserve your LLC name for a given price if you’re not prepared to register it but are concerned that it will be taken by someone else. By paying the money and submitting the required documentation to the state authority, names in Texas can be registered for up to 120 days.
2. Choose Your Registered Agent
Every Texas LLC is needed to have a service of process agents in the state. If the LLC is accused, an agent is a person or company who agrees to receive court documents on the company’s behalf. A Texan resident or a business entity allowed to do business in Texas can serve as the registered agent.
The person or entity permitted to receive service of process and other official legal documents and notices on behalf of your LLC is known as a registered agent. Texas requires you to appoint a registered agent for your LLC and needs to meet the following requirements:
- Registered agent services must be provided by organizations.
- The agent must have a Texas address.
- During regular working hours, the representative must be on-site and prepared to receive documentation.
- The name of the person designated as a registered agent
- The date of execution
It is not necessary to file the consent statement with the secretary. View the Acceptance of Consent Form 401-A for further information on this requirement, as well as a fillable written consent.
3. File The Texas LLC Certificate of Formation
You should file a Certificate of Formation with the Secretary of State to form your LLC. This Certificate of Formation can be filed online with a $300 filing fee. You can also download Certificate of Formation forms and mail them in with the filing fee to the Secretary of State. By submitting a Certificate of Formation for a Limited Liability Corporation (Form 205) with the Secretary of State, you can form a Texas LLC. Check out the top LLC filing companies to start your business.
You’ll generally need the following information to prepare your Certificate of Formation:
- The name of the LLC, with the suffix
- The LLC’s registered agent’s name and address
- Whether the LLC will be administered by members or by a manager
- if it’s a member-managed organization, the name, and address of each co-founder
- if it’s a manager-managed company, each initial manager’s name, and address
- a sentence with a broad scope
- the LLC’s organizer’s name and address
- the certificate’s effective date, and
- the organizer forming the LLC is required to sign the certificate
The secretary of state will review your Certificate of Formation after you file it. The LLC becomes a legitimate business entity once the Certificate of Formation is accepted.
4. Receive A Certificate From The State
After the LLC’s formation documents are filed and approved, the state will issue you a certificate confirming the LLC’s legal presence.
5. Prepare An Operating Agreement
What is a texas operating agreement? Your Texas LLC’s operating agreement is the regulating document. It should be regarded as required documents for your firm, even though it is not officially needed by law. An operating agreement establishes your company’s ownership and fundamental leadership structure.
In Texas, an LLC operating agreement is not required, although it is highly suggested. This is an internal document that lays out how your LLC will be run. It defines the members’ and managers’ rights and responsibilities, as well as how the LLC will be managed. Moreover, it can assist you to keep your limited liability position by proving that your LLC is a separate legal entity. In the lack of an operating agreement, your LLC will be governed by state LLC law.
The following information should be included in the operating agreement:
- The LLC’s members’ percentage interests
- The rights and responsibilities of the members
- The voting rights of the members
- How will profits and losses be distributed
- A set of guidelines for having meetings and gaining support
- Regulations for buyouts or buy-sells, regulate what occurs when a member leaves
- Choose to transfer his or her share, passes away, or become permanently disabled.
- The method for accepting new members and releasing departing members
- Management of the LLC
- Clauses of indemnity and responsibility
6. Get An EIN For Your Texas LLC
The Internal Revenue Service (IRS) issues a nine-digit Employer Identification Number (EIN) to your LLC in order to identify it for tax purposes. You can get your EIN from the IRS by mail or online. The best part? There is no filing fee needed.
Even though your LLC has no employees, it must obtain its own IRS Employer Identification Number (EIN) if it has more than one member. If you organize a one-member LLC, you only need to get an EIN if it will have workers or if you choose to tax it as a corporation rather than a business entity. On the IRS website, you can apply for an EIN by filling out an online EIN application.
An EIN’s purpose is to help with the following:
- At both the federal and state levels, you must file and manage taxes.
- Open a bank account for your business.
- Helps to hire employees
7. File an LLC Franchise Tax and Public Information Report For Your LLC
Texas doesn’t really require LLCs to file yearly reports with the Secretary of State, unlike many other states. LLCs, on the other hand, are required to submit yearly franchise tax reports. Moreover, the details of calculating the tax can be difficult. Every year, on May 15th your LLC’s Texas franchise tax and public information filings are due.
What Are The Next Steps After Forming An LLC In Texas?
The formation of your LLC provides you with a legal base on which to conduct business. You have to intend to keep your LLC up to date and legal on the state’s website. Always remember that combining your personal and company accounts puts you in danger of being sued.
With the following steps you can secure your LLC in Texas:
1. Open a business bank account
You must separate your personal assets from your company’s assets which is a crucial step for individual asset protection. Moreover, this makes accounting and tax filing a lot easier.
2. Get a business credit card
You can keep your personal and company costs separate with the use of a business credit card. Furthermore, you can improve your company’s credit history, which can help you acquire capital.
3. Hire a business accountant
You can safeguard your firm from overpaying taxes and avoid liability and other tax errors by enlisting the services of a business accountant. Furthermore, it simplifies payroll and allows you to focus on your company’s growth. Lastly, it effectively manages your capital and detects loss and profit.
4. Get Insurance For Your Business
Business insurance allows you to focus on developing your LLC while minimizing risk. The following are the most popular types of company insurance:
- General Liability Insurance (GLI) is a type of policy that covers your company from lawsuits. General liability insurance is purchased by the majority of small enterprises.
- Professional Liability Insurance: Covers claims of misconduct and other business errors for qualified professionals which includes consultants, accountants, and so on.
- Workers’ Compensation Insurance: This is a sort of insurance that covers employees for illnesses, injuries, or deaths that occur at work.
5. Protect Your Name And Logo With A Trademark
The most important step is to name your LLC to make it different from its competitors. It is very important to register your LLC with a unique name. A unique business name will help your business get a separate legal entity in the eyes of law.
Other possibilities you can do after you register an LLC in Texas:
- Get the necessary licenses and permits, such as health department permits, building permits, residential occupation permits, business licenses, and more, to run your business. To conduct sales in some states, you’ll need a seller’s permit.
- The state’s tax department will require you to register your business.
Should You Form A Corporation Or A DBA Instead of an LLC?
One frequently asked a question about LLCs is if they are the first choice or not! The cost of forming a corporation in Texas is exactly the same as that of forming an LLC.
It’s critical to understand the fundamental tax, managerial ownership, administration, and accountability differences between LLCs and corporations before making your decision.
To learn more check out the comparison between Professional Corporation Vs PLLC
The best part is if you are looking for a cheaper state filing fee, DBA, or doing business as is relatively cheaper and you are also required to pay a small country fee. But one downside is, DBA is not for other business structures like LLC or corporations. To conclude, you can rather say that a DBA is a legal name for your business formation.
Even though the LLC is marketed as a straightforward and economical way to start a corporation, it can be confusing. Making business decisions and filing forms that meet Texas and IRS legal standards are both required when forming an LLC. The financial consequences of forming an LLC improperly can be disastrous.
We recommend consulting with an expert company attorney to ensure you meet legal requirements because the LLC provides superior liability protection when formed legally.
So, from the above discussion, it is clear you must follow the said requirements to start an LLC in Texas that will help you to minimize your liability and maximize tax savings.
Ready to start an LLC in Texas? If you still have questions you can leave your comment below! We will be happy to serve you and your business.
Frequently Asked Questions (FAQs)
1. How much does it cost in Texas to start an LLC?
To file an LLC Certificate of Formation, the Texas Secretary of State charges a $300 filing cost plus a 2.7 percent convenience fee imposed by the state.
2. What licenses do I need to start an LLC in Texas?
To form a Texas LLC, you must submit a Certificate of Formation to the Texas Secretary of State, including a $300 filing fee.
3. What licenses do I need to start an LLC in Texas?
To form a Texas LLC, you must submit a Certificate of Formation to the Texas Secretary of State, including a $300 filing fee. You need to follow the steps:
1. Name Your Texas LLC
2. Choose a Registered Agent in Texas
3. File The Texas LLC Certificate of Formation
4. Create a Texas LLC Operating Agreement
5. Get An EIN
4. Do Texas LLCs pay taxes?
LLCs do not pay income taxes, only their members do. Most LLCs in Texas, however, are liable to a state franchise tax. The Texas Comptroller of Public Accounts is the recipient of the tax (CPA).
5. What is better a DBA or LLC?
A DBA is generally less expensive to operate, but an LLC provides more benefits and protection. An LLC also makes things simpler to expand and sell a business, as well as raise funds. A DBA also does not provide individual liability coverage to the business owner.
6. How long does LLC last in Texas?
An out-of-state LLP’s registration to conduct business in Texas is valid for one year, but it can be extended for another year before it expires.
7. Do I need a registered agent for my LLC?
If you’re forming an LLC or corporation, you must have a registered agent and a registered office, irrespective of where you start your firm.
8. Do I have to live in Texas to register an LLC there?
No, you do not have to be a Texan to form an LLC in the state. Your registered agent, on the other hand, should have a physical address in Texas as well as permission to act there.
9. Do I need an operating agreement for my Texas LLC?
Operating agreements are not required in Texas, but they are highly recommended. An operating agreement will assist protect your limited liability position, eliminate managerial and financial disputes, and ensure that you, not state law, choose the rules that govern your organization.
10. Are there annual fees for an LLC in Texas?
In Texas, LLCs are not required to pay an annual registration fee. However, the Texas Governor may require your LLC to file an annual franchise tax statement.