How to Form an LLC in Texas
A limited liability company (LLC) is a common option amongst Texas business owners because of the liability protection, administrative flexibility, and tax benefits it offers.
Comprehending about forming an LLC is important for business sustainability. The most popular perk an LLC offers is that If the company gets sued, the owners will not lose any of their personal assets.
The basic criteria about starting an LLC differ slightly from one state to the next. The following are the basics of starting an LLC in Texas.
Choose a Name for Your LLC
When creating an LLC in Texas, you must pick a business name that complies with Texas LLC name requirements.
Any LLC name you choose in Texas must end with one of the following designators:
- Limited Company
- Limited Liability Company
Your submissions will be refused if the name has already been registered by someone else, and you will have to resubmit under a new name.
Texas LLC Business Name Reservation
By filing an Application for Reservation/Renewal of Reservation of an Entity Name (Form 501) with the Texas Secretary of State, you can reserve a name for 120 days.
The reservation can be submitted either online or by mail via the Texas Secretary of State's website and it costs $40.
Assign a Registered Agent
You must appoint a Registered Agent for your Texas LLC when filing your Certificate of Formation (Form 205) with the Secretary of State of Texas.
If your LLC is sued, a Texas Registered Agent is an individual or company who agrees to receive legal mail on your behalf. Service of process is the term for this form of "legal mail." The Registered Agent for your Texas LLC is an integral part of the court and legal systems.
The issuance of legal mail and court papers can be properly tracked by requiring all Texas LLCs to have a Registered Agent on file with the state. For official documents sent to your LLC, the Texas Secretary of State will use your Registered Agent's address as the contact point.
Your LLC's Registered Agent should have a physical street address in Texas, according to Section 5.201. It can't be a PO box. You can also appoint yourself as a Registered Agent.
File the Certificate of Formation
To form a Texas LLC you need to file a Certificate of Formation for a Limited Liability Company (Form 205) with the Secretary of State.
You can file the formation documents online at the Secretary of State website, or by mail.
If sending by mail, please print out and complete Form 205 and mail it to Secretary of State, P.O. Box 13697, Austin, TX 78711.
If you're a veteran and starting a 100 percent veteran-owned company, the Secretary of State will eliminate the filing fee for eligible veterans who file by mail, in person, or fax. The Secretary of State of Texas does not ask LLCs to file annual reports.
What is the Cost of Forming an LLC in Texas?
Filing an LLC Certificate of Formation with the Texas Secretary of State costs $300 plus a 2.7 percent convenience fee mandated by the state.
Make an Operating Agreement
Your Texas LLC's operating agreement is an internal and governing document. It should be in place for any Texas LLC owner to secure their company's operations.
While an operating agreement is not legally mandated by Texas, it helps in setting specific rules and standards for your LLC while also ensuring your legitimacy as a corporate personality.
An operating agreement's content isn't specified, but it usually covers topics like how meetings are held, how the business is operated, what major investments are expected from each member, and how profits or losses are distributed. It is not necessary to file the operating agreement with the state.
Finally, when it is time to open a business account, the operating agreement is a valuable asset. This document is often required by bank managers to open your business account.
Obtain an Employee Identification Number (EIN)
When beginning a business in Texas, one of the first actions most businesses would take is to apply for an Employer Identification Number (EIN) and Texas state tax ID numbers.
An EIN is a code that is assigned to businesses in order to classify them for tax purposes. Every EIN, like a Social Security number, is exclusive to a single company.
You can get your EIN for free from the IRS website.
Texas LLC Franchise Tax
In Texas, LLCs are required to give a franchise tax. LLCs must file an initial franchise report with a public information report in their first year, and then an annual franchise tax report with public information report every year after that, according to the Texas Comptroller.
Starting an LLC in Texas generally requires a significant amount of legal documentation. Make sure you're doing your research and properly filling out each of the required forms.
Instead of being refused by the Texas Secretary of State because of filing errors, you can always hire an expert to help you start an LLC in Texas.