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How to Start an LLC in Texas
By Alison Tobin MONEY RESEARCH COLLECTIVE
If you have a business idea and are ready to get started in Texas, choosing a company structure is one of the first considerations. Forming a limited liability company (LLC) is a great option that protects you and your assets.
This article includes everything you need to know about starting your own LLC in Texas, including the steps to take and what to consider.
Table of contents:
- 6 steps for starting an LLC in Texas
- Key considerations when establishing an LLC in Texas
- Summary of our guide on how to start an LLC in Texas
6 steps for starting an LLC in Texas
An LLC is a business structure that offers some of the same advantages and protections as a corporation with less cost and hassle. Forming an LLC in Texas protects your personal assets if your business faces a lawsuit or bankruptcy.
The process of starting an LLC is relatively easy, but knowing the specific steps and requirements is a good idea before filing with the Texas Secretary of State. Here is a step-by-step guide on how to start a Texas LLC.
1. Choose your LLC’s name
Choosing a name for your new business is a crucial decision. Consider selecting a name that’s easy to remember and spell, aligns with your products or services and isn’t too similar to your competitors’ names.
Additionally, you must adhere to the following Texas LLC naming requirements:
- The name must include “Limited Liability Company,” “Limited Company” or an abbreviation (L.L.C., LLC, L.C., LC or Ltd. Co.) at the end of the company’s name.
- The name must be distinct from any existing Texas company name. However, you may be able to use a similar name if you get consent from the other business.
- The name cannot contain words related to government agencies, such as “CIA,” “FBI” or “State Department.”
- The name must not be offensive.
- You can’t use certain words unless you get a letter of no objection from the appropriate entity. For example, you will need a letter of no objection from the Banking Commissioner to use words like “bank,” “bank and trust,” “trust,” “trust company” or something similar. Other words that require appropriate letters of no objection include “Olympic,” “college,” “university,” “veteran” and more.
- If you use the word “insurance,” your LLC’s name must include other words that remove the implication that you are an insurer. For example, you can use “insurance agency” in your name.
Another important step is to secure a domain (URL) for your business. If you plan to have a business website, you’ll want to secure your preferred URL as soon as possible before someone else does.
Texas business name reservation
If you have an available name for your business but aren’t quite ready to file for an LLC, you can reserve the name beforehand. Filing an Application for Reservation or Renewal of Reservation of an Entity Name (Form 501) and paying a $40 filing fee will reserve your business name for up to 120 days, with the ability to renew it for longer.
It’s important to remember that reserving a name doesn’t guarantee that your LLC adheres to trademark laws. Consult a business attorney for guidance.
2. Designate a registered agent
You are required to appoint a Texas registered agent for your LLC. A registered agent is a person or entity that receives documents — service of process, tax forms, official government correspondence, notices and more — on behalf of your business.
Your registered agent can be an individual resident of Texas — including yourself or an employee of your company — or a business entity with permission to operate in Texas that offers a registered agent service. The agent must agree to accept business paperwork, have a physical address in Texas (not a P.O. Box) and be available at their provided address during normal business hours.
Agents should sign Form 401-A to consent to their duties. The form is not filed with the state but should be signed and held by the LLC.
3. Fill out the Texas LLC certificate of formation
Once you choose a name and a registered agent, you can begin your certificate of formation. A certificate of formation is a document that provides details about your business and officially establishes your LLC.
There are two form options depending on your business. For new LLCs based in Texas, Form 205 can be filed through the Secretary of State’s website SOSDirect or by mail or fax. You can also deliver it in person to the Secretary of State’s office in Austin. The filing fee is $300.
The form requires the following information:
- LLC name
- Name and address of the LLC’s registered agent
- The names of the LLC’s managers if it has them (if not, the names of the members, which are the business owners)
- Document effective date (either when it’s filed with the Secretary of State or at a later date)
- Initial mailing address
- The name, address and signature of the business organizer
Once you file the appropriate form, the Secretary of State will review it. Upon approval, the state will issue you a certificate, and your LLC will officially exist and become a legal business entity in Texas.
Texas foreign LLCs
Existing LLCs based outside of Texas that want to do business in the state are considered foreign LLCs and can file Form 304 instead for a fee of $750. In addition to some of the information above, you’ll have to provide your company’s assumed name if its name isn’t available in Texas or doesn’t meet naming requirements, your federal employer identification number (EIN), the date you plan to start doing business in Texas, and more.
4. Create your Texas LLC operating agreement
An operating agreement is an internal document that outlines how the company will operate and how members will share profits and losses.
Texas does not require an operating agreement to form an LLC. Still, this document is essential to help minimize conflict and confusion. Without one, the courts would decide any disputes based on Texas law instead of what is best for the LLC and its members.
You can find operating agreement templates online, but you should customize your document according to your business. It may include the following information:
- Percentage of ownership among members
- Voting responsibilities
- Management structure (member-managed or manager-managed)
- Responsibilities of managers and members
- How decisions are made
- How profits and losses are distributed
- Procedures for admitting new members
- Procedures for outgoing members
- Dissolution procedures if your LLC will dissolve once it fulfills its purpose
5. Get your employer identification number
Once you form your LLC, you can apply for your EIN via the IRS website or mail. You will use this number to file state and federal taxes (if you have employees), open a business bank account, apply for business credit cards and hire employees.
6. File any other documents needed for business operations
Before operating your new business, file any other necessary legal documents. Depending on your type of business and industry, you may need to apply for business licenses and permits.
Other documents you may need include a seller’s permit to collect sales tax on taxable transactions or unemployment insurance tax if you have employees.
The Texas Comptroller’s office also requires LLCs to file a Public Information Report (PIR) each year.
Key considerations when establishing an LLC in Texas
With the basic steps to form an LLC in Texas covered, there are some other important things to consider.
Filing process and formation services
While you can start an LLC on your own, consider hiring an LLC formation service. A formation service can walk you through the process, ensure you meet deadlines and answer questions along the way. They typically offer packages of different costs with features beyond just help with filing your documents.
If you complete your LLC’s application process and realize you have made filing errors, you can correct them. After identifying all necessary corrections, you can fill out Form 403 and file a certificate of correction for $15.
Tax obligations
Texas LLCs offer pass-through taxation by default, which means the LLC itself doesn’t pay an income tax. Instead, the income “passes through” to the business owners, who file it on their own personal tax returns. Owners aren’t considered employees, so they may owe a self-employment tax on their earnings.
You can elect to have your LLC taxed as a S corporation instead. A professional accountant can help you decide what’s best for your business. They can also help you avoid fines, penalties or other tax errors.
Additionally, Texas imposes a franchise tax on businesses that reach an annual threshold, which is $2.47 million in 2024 and 2025. Annual franchise tax reports are due each year on May 15 (or the next business day).
The Texas Comptroller of Public Accounts office published new rules for 2024, including the elimination of the no-tax-due annual report previously required by LLCs under the threshold. However, there may be other forms you’re required to fill out.
Retail or wholesale businesses pay a franchise tax rate of 0.375%. Companies in other industries that exceed this threshold will pay 0.75%.
Insurance
Certain insurance policies can help safeguard your business. Business insurance can help protect you financially from injuries or damage caused by your LLC. You may also want to purchase workers’ compensation for your employees, who would receive payment for lost wages and medical expenses if injured at work.
Summary of our guide on how to start an LLC in Texas
An LLC is a business structure that offers liability protection to the LLC’s owners in the event that the business is sued or owes debt. It’s easier and less expensive to set up than some other business structures, but there are still some things to consider. The state fees are $300 for a new LLC in Texas and $750 for a foreign LLC that wants to do business in the state.
You can take the following steps to start your LLC in Texas:
- Choose your LLC’s name
- Designate a registered agent
- Fill out the Texas LLC certificate of formation
- Put together your Texas LLC operating agreement
- Retrieve your employer identification number
- File any other documents needed for business operations