Are you thinking of starting a business in Texas? Well, one of the most commonly used and accessible business structures is the LLC or Limited Liability Company. It has all the tax-related freedom of a sole proprietorship but the liability protection of a corporation. To put it into a turn of phrase, it’s the best of both worlds. Great, right?
If you’re thinking of setting up your new business as an LLC, you might have a bunch of questions. In this article, we'll tell you everything you need to know to start your LLC in Texas. Let’s gear up and dive right in.
Steps to set up an LLC in Texas
There are many components involved in setting up an LLC in Texas, and all of them are important. But taken one at a time, and with some focus, you’ll get through it before you know it. This article covers all of the steps below:
1. Choosing your LLC business name
2. Finding a registered agent
3. Filing a certificate of Formation
4. Receiving your Texas LLC Certificate from the State
5. Preparing a Texas LLC Operating Agreement
6. Obtaining an Employer Identification Number (EIN)
7. Filing your Texas LLC Franchise Tax and Public Information Report
8. Acquiring a Texas Business License for your LLC (if necessary)
1. Choose a name
One of the first steps is to pick your business name. When it comes to this decision, the floor is yours. The only rules with LLCs are to include “LLC” in it (or some variation of it, like L.L.C.) in the title itself and to ensure that the name isn’t taken by another business. However, there are a couple of other caveats to keep in mind:
Texas LLC name considerations
The first to consider is your online presence. While your business might not need a website right away, it’s always a good idea to factor your eventual website domain and URL into the decision. Your URL has to be unique. Moreover, make sure your name isn’t ruled out by, say, another company having snatched it up already. Create something authentic and new.
Texas LLC name reservations
Did you know that business names can be reserved in Texas for up to 120 days? You can do it online through SOSDirect, and it only costs $40. If you have a burning desire for a specific name, reserving it is a good idea so someone else can’t snatch it up in the meantime. Unless your idea is super unique, in which case you will probably be okay.
2. Select a registered agent for your Texas LLC
Next up, you will need a registered agent. The job of a registered agent is to receive service of process and other various legal documents on behalf of your LLC. It’s required of every formal business operating in Texas. It can be done in a few steps, either by yourself or somebody in your company, if you have a registered agent service up and running. There are a few criteria your registered agent has to meet:
- They must run a service that provides the services of a registered agent
- They must have an address in Texas
- They must be available and able to receive and file documents during regular business hours
3. File a Certificate of Formation for your LLC
Now comes the definitive steps that will solidify your business. The first one? The Certificate of Formation (Form 205). These are called Articles of Organization in other states. It’s a document that lays out basic information about what your business is and what you do.
You need to file it with your secretary of state. It costs a one-time fee of $300 and can be done either via mail or online. Online will cost an additional $8, for a total of $308. And guess what? Two to three days later, your Texas LLC will be approved via email (hooray!). It takes a little longer for mailers to get that sweet approval (7-10 days).
Here’s what you will need to include:
- The name of your business
- The name and working address of your registered agent
- The reasons for starting your business
- The period over which your LLC will exist. Most of the time, these are arranged in perpetuity. As in, from the moment it is established until the end of time. This is fine because perpetual LLCs can be dissolved voluntarily and at your own pace. In this situation, there is paperwork to complete and official notice to hand in.
- If you’re planning on dissolving your business on a determined date, specify on this document
- What is your management structure? Will you do it yourself, or will this be outsourced to managers?
- If the LLC is managed by the members, provide the name and address of each managing member
- If it is managed by managers, provide the name and address of each manager
- The name and address of the LLC’s founder
- The date of the certificate
- The person forming the LLC must also sign the certificate
4. Receive your Texas LLC Certificate from the State
One way or another, you’ll get your approval—and it’ll come in the form of the Texas LLC certificate. This certificate confirms your existence as an LLC. That’s a champagne popper if we’ve ever seen one, and it also unlocks many LLC-shaped doors. For instance, having an LLC certificate allows you to open business bank accounts and obtain other licenses, such as the EIN (Employer Identification Number)—but more on this later. Likewise, there are a number of other important licenses that could be vital for your business. Be sure to check out our other Texas articles, not to mention the Texas License and Permits Guide, and find out which you need!
5. Prepare a Texas LLC Operating Agreement
In many states, LLCs have to file Operating Agreements. An Operating Agreement is a document that describes how the LLC is run. It highlights the responsibilities and rights of the managers and the responsibilities of the founders. In Texas, this isn’t a requirement, but don’t scroll down yet, because an Operating Agreement is a fantastic thing to have anyway. It can be used to settle financial disagreements or obligations. Like a contract, it works as a business guideline so that issues in dispute are solved through a written and agreed-upon policy. Where it works even better is in a litigation situation. Hopefully, that won’t ever happen, but without the Operating Agreement, the state will operate from the general state law rules rather than the OA. Think of it as a contract that covers your back.
But what information does the agreement need to contain? Here is a general list of the kind of information a typical Operating Agreement should have.
- The name of your LLC and its main address
- The duration of the business
- The name and address of your registered agent
- Details of the Certificate of Formation
- The function/mission of your company
- The names of the business members and what they do for you
- The division of financial profits
- The employment process/how you admit new members
- How outgoing members are dealt with
- The LLC management
- Liability clauses and indemnification
6. Obtain an Employer Identification Number (EIN)
The EIN is a 9-digit number unique to your business. It comes from the IRS and allows you to file taxes as an employer, open business bank accounts, and hire staff.
7. File your Texas LLC Franchise Tax and Public Information Report
In a lot of states, LLC companies are required to file annual reports with the Secretary of State. In Texas you don’t have to do this, but you do have to file a yearly Franchise Tax and Public Information Report with the Comptroller. This particular filing is required of all profit-making entities in Texas, so you’re not alone. It’s due every May 15, but don’t worry because the first one isn’t due until the year after your LLC comes into being.
There may be other general taxes to consider for your business, so make sure to check out our handy guide on how small business tax works in Texas.
8. Acquire a Texas business license for your LLC (if necessary)
Now is the time to find out whether you need a license for your Texas business. In Texas, there is no "standard" license for all LLCs, but depending on the nature of your business, you might need to obtain particular permits and licenses that are specific to your business operations. To get a good grasp of what’s out there you should check out the Texas License and Permits Guide. For instance, if you are running a festival, you will need Copyrighted Music Licenses.
Further Texas LLC considerations
Those are the main eight steps required to fully establish an LLC in Texas. Address all of them and your business will be official. Well done, you now exist! After patting yourself on the back, bear in mind that there are still other considerations at play. Some of them are dependent on your initial business strategy, but all of them are worth looking at. So, to finish off, let’s take a look at them together.
Set up business banking
Depending on the size and scale of your business, you might want to consider establishing separate bank accounts for your LLC, along with business credit cards. This is important for the separation between your personal funds and business funds. Having a business account allows you to receive funds and make purchases or set up payroll in your company’s name, which is good for many reasons. For instance, it’s a valid marketing tactic because it presents a reputable and established brand to clients and partners. Furthermore, it also helps to keep business transactions contained within the business. Not to mention the big one: taxation periods. It is good to present your business as compliant with the taxation system so that your business stays in line with the rules and regulations of your county.
LLC business insurance
Business insurance can be a crucial step for fledgling LLCs. Once again, the type of insurance depends on the operations going on in your business. For instance, if you have company cars, you might need commercial auto insurance. Likewise, if you have a number of employees, you will need to look into workers' compensation insurance. The latter is a good example of insurance that is not mandatory but recommended. TLDR: particular industries have specific insurance needs.
Establish accounting best practices
It is important for LLCs to develop their own best practices when it comes to accounting. After all, accounting is tricky for anybody with a company, regardless of that company’s business structure. But with effective financial administration, it’s made easy. If you haven’t yet, consider turning to a tried and tested accounting software to help manage your finances. The decision to do so will alleviate those potential stresses from the get-go (trust us, your future self will thank you!).
Organizing your LLC’s accounting practices will create an overarching organization in your company. It will keep your finances in line (great for taxation periods again, and for ensuring your employees get paid on time if you have any), and will present you as a reputable company for anybody who works with you or for you, not to mention the wider marketing angle.
Start your LLC in Texas today!
Starting an LLC in Texas is complicated, and might cause you a few headaches in the beginning. There are a lot of small details to factor in. But once you reach the finish line, you'll be rewarded by a functional business in which you can now spend most of your working hours running. So take each requirement step-by-step, and you’ll see your own Texas LLC start to take shape. And always remember to refer your decisions back to your individual business goals and requirements. After all, your business ideas are unique, and the set-up process should reflect that. Why? Because the business’s uniqueness will shine through to your potential customers, clients, and employees down the road if the steps are taken with this in mind. Good luck!
If you need additional help or have specific questions about any aspect of starting an LLC in Texas, or if you have other business-related concerns, our Wave Advisor coaching service is on standby. You've got the expertise in your industry, but we've got the expertise in taxes and accounting. Sound like a match made in heaven? Schedule a call any time, we've got your back!
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.