LLC in Texas: Limited Liability Company Requirements

An LLC, or Limited Liability Company, integrates features of partnerships (sole proprietorships) and corporations. Its flexibility, among many other benefits, makes it a popular choice for business owners.

If you’re in this structure, you’ll need to inform yourself about what it is, how it works, and how it can help your business. We’ll walk you through the steps to start an LLC in Texas and explain what you can expect during the process.

How to Start an LLC in Texas

There are a few steps that you need to understand if you want to create or form this hybrid legal business entity. Here’s what you need to know to start a Texas LLC.

Texas LLC Filing Requirements

A limited liability company is like a corporation but has more tax flexibilities and a less formal structure. Setting up an LLC is a little more complex than owning a sole proprietorship, but it’s easier than forming a corporation.

Starting your business as an LLC in Texas offers simpler formation, long-term cost savings, and easier growth potential compared to corporations. It also contributes to Texas’ economic development.

Registering Your LLC

You’ll need to register your Texas LLC to get things rolling. Start with picking a distinct name for your company.

Choose a Name for Your LLC

Your LLC’s business name must include “LLC,” “Limited Liability Company,” or “L.L.C.”

The business name must be unique and pass the business entity search test on the Secretary of State’s website. The name of your LLC has to be different from the names of other business establishments already on file with the Secretary of State (SOS) in Texas.

You cannot form an LLC with the same name as an existing business that operates in Texas. Similar company names can raise trademark issues and may need clarification.

Determine the Type of LLC

• Single-Member LLC: For individual entrepreneurs who want to harness the benefits of an LLC without sharing the reins.
• Multi-Member LLC: For entrepreneurs to combine their resources, skills, and visions, allowing more than one member to form the LLC.
• Series LLC: A “master” LLC that holds and manages separate legal business entities with distinct names, membership agreements, bank accounts, and records.
• Professional LLC (PLLC): An LLC that offers a service that requires a professional license (e.g., Attorneys, Doctors, Physicians, or Architects).

Appoint a Registered Agent

A registered agent is a person or company who receives legal documents (called “Service of Process”) if your LLC is involved in a legal proceeding. The LLC cannot act as its own agent.

The agent must have a physical street address in Texas and be available during regular business hours. You can choose an agent from a service provider or another business entity that provides registered agent services.

File the Texas Certificate of Formation

Before an LLC can legally transact business in Texas, it must file Form 205 (Certificate of Formation) with the Texas Secretary of State and obtain any necessary licenses or permits.  This document officially forms your LLC.

Here are the key points to keep in mind:

• The Certificate of Formation is a formal document that details how your Texas LLC is structured and managed.
• The document must include information about your LLC, including its name, address, and purpose.
• The filing fee for the Certificate of Formation is $300, and more costs may apply.
• When you file the Certificate of Formation online by SOS upload, your LLC will be approved within 13-15 business days.
• If you file online using SOS Direct, the approval comes within 10-12 business days.
• If you file the same using email, the LLC will be approved in 4-8 weeks, excluding the mail time.

Get an Employer Identification Number (EIN)

An EIN is a nine-digit number given to your Texas LLC by the Internal Revenue Service (IRS). The EIN is essential for getting bank accounts, credit accounts, and filing business taxes. You can apply for a free EIN directly with the IRS, which is issued immediately.

Create a Texas LLC Operating Agreement

An operating agreement is an internal document that outlines how the company will run day-to-day business operations. While not required by Texas law, it’s advisable to have an operating agreement to outline the LLC’s ownership and management structure.

 The agreement should include information about the company’s purpose, management structure, and financial responsibilities. The operating agreement helps reduce conflict and ensures that members and managers are on the same page.

File for Texas State Taxes

Texas does not impose a personal income tax, but LLCs may need to register for state tax accounts (such as sales tax, franchise tax, or employer taxes) depending on the business’s activities. You can register with the Texas Comptroller of Public Accounts for tax obligations.

File an Annual Public Information Report and Franchise Tax

LLCs in Texas are required to file an annual Public Information Report (PIR) along with the state Franchise Tax Report. The report provides updated contact information for the LLC, and the franchise tax is based on your LLC’s revenue. 

File for Any Necessary Business Licenses and Permits 

Depending on your industry and location, you may need more licenses or permits applicable to operate your Texas LLC legally. 

 If you have additional questions, you could check with local city or county governments and the Texas Department of Licensing and Regulation for specific requirements.

Texas LLC Filing Fees 

Here’s what you can expect to pay in fees for your Texas LLC, depending on what you need:

• Certificate of Formation Filing Fee:  The fee for filing the Certificate of Formation with the Texas Secretary of State is $300. 
• Name Reservation Fee (Optional): If you want to reserve your LLC name before filing, the fee is $40 for a 120-day reservation. 
• Assumed Name Certificate Fee (If Applicable): If your LLC will operate under a different name than its registered name, the fee for filing an Assumed Name Certificate (DBA) is $25. 
• Franchise Tax and Annual Report Fees:  The fee varies based on your LLC’s revenue but generally starts at $0 for small businesses. To keep your LLC compliant with state law, you must pay and file your Franchise Tax Report (variable amount) before May 15 each year after your LLC is formed.
• Professional Services Fees: If you hire professionals to help with the formation process (lawyers, accountants, formation services), more fees will apply.
• Texas Registered Agent: There’s no fee when you list the agent on your LLC formation paperwork. You, your business partners, family members, or friends can serve as the registered agent at no cost.  Alternatively, you can hire a commercial registered agent service, which typically costs between $50 and $300 annually. This option is beneficial if you lack a Texas address, want to maintain privacy, or prefer professional management of legal documents. Your LLC can also contract with another business entity for this service. 
• Business Insurance: The cost of business insurance for an LLC in Texas can vary widely depending on several factors, including the type of business, size, location, and specific coverage needs. You can expect a range of $300 to $5,000 per year.

Foreign LLC

In case of a foreign limited liability company, you can ensure a proper and compliant dissolution of your foreign LLC by following these steps, whether or not it is registered with the Texas Secretary of State.

1. Do you need to register? If you’re physically in Texas, have employees there, or do substantial business, you probably do.
2. Get a fresh Certificate of Good Standing from your home state (less than 90 days old).
3. Find a Texas-based registered agent to handle your official mail. Remember that you can be your own registered agent.
4. File Form 304 with the Texas Secretary of State. You can do this online, by mail, or in person. It’ll cost you $750.
5. Wait for approval. Once you’re registered, keep up with Texas laws:

• File annual reports and franchise taxes with the Texas Comptroller
• Maintain your registered agent
• Keep your LLC info up-to-date

Staying compliant is key to keeping your LLC in good standing.

How to Keep Your Texas LLC Active and Compliant

Once you get all your paperwork squared away, you’ll need to take the necessary steps to stay compliant and maintain your legal status as a Texas LLC.

Maintenance Fees And Taxes

It’s essential to understand the taxes you will have to pay for your business structure. We’ll examine the different kinds of taxes levied on LLCs in Texas, when the taxes are due, and how an individual can achieve compliance under the law. Certain Taxes are ongoing costs and have to be paid by you each year.

Franchise Tax for LLCs in Texas

Texas LLCs are primarily subject to the franchise tax. The total annual LLC income minus the legally allowed deductions.

The amount of franchise tax due varies based on business gross receipts—higher gross receipts mean higher taxes.

On the plus side, if your revenue is below the 2022/2023 No Tax Due Threshold of $1,230,000.00, you generally won’t owe any state taxes. In that sense, this threshold creates a huge advantage for new or smaller businesses.

Texas Sales Tax for LLCs

LLCs in Texas must also account for sales tax. Sales tax applies whenever an LLC sells a product or a service, yet some exemptions exist. It depends on where the sale occurs, as each state has its own rate, and the counties can also add local taxes.

The critical point to remember here is that although your business is in Texas, you must pay sales tax if you sell in another state under that state’s laws.

Employer Taxes for LLCs in Texas

You’re liable for employer taxes if your LLC has employees. These typically include the following: Social Security and Medicare taxes, also known as FICA; federal unemployment insurance, also referred to as FUTA; and finally, state unemployment insurance or SUTA.

All these are usually withheld from employee wages, but an employer must pay an equal amount when preparing the quarterly returns. Additionally, employers must withhold federal income tax from their employees’ wages. They also have to make remittances periodically within the year by filing Form 941.

Tax Compliance Tips

It is essential to keep tabs on what forms apply to your business and their specific due dates in complying with all applicable laws and regulations.

Networking and Local Resources

Connecting with local business groups and participating in online forums can help you stay updated on Texas business regulations and trends.

You may want to consult a qualified accountant or tax professional to assist you with quarterly or year-end filing obligations. That way, your business will be completely compliant while reducing the headaches involved in filing taxes.

Statement of Information

Texas lacks a specific information statement. However, the Public Information Report must be current and with the Secretary of State. This includes:

1. Updating Registered Agent Info: Notify the state of any changes to your agent or office. Use Form 401.
2. Amendments to LLC Structure or Address: Inform the Secretary of State about changes to your LLC’s structure or main address.
3. File the Annual Report: LLCs must file a report and pay franchise tax yearly. The report includes the address, management structure, and members or managers.
4. Update Changes: Notify the Secretary of State of any changes to the address, registered agent, or management.
5. Yearly Report Fee and Date: The report is due on May 15 each year, with a fee. Check the Texas Comptroller or Secretary of State for the latest requirements and deadlines.
6. File Online: Submit required reports and documents online via the Secretary of State’s SOS Direct website or the Comptroller’s office.

Also, make sure to keep your LLC compliant with new federal laws, such as the Corporate Transparency Act (CTA).

Employer Identification Number (EIN) 

Apply for an EIN by going on the IRS website. It is FREE and you can easily acquire it through an online form. You get it immediately after completing the form. Business owners need the EIN for federal tax reporting, opening an account, in the company’s name in any bank, and hiring new employees. 

You’ll have to present the EIN when paying federal and state taxes, establishing a company payroll, and applying for a company credit card.

LLC Operating Agreements

An LLC doesn’t have to write an Operating Agreement, but it’s an excellent idea for several reasons: 

• Outlines Structure and Formality: An Operating Agreement puts down a management framework, member roles, and the procedures for operations required to run the LLC. It spells out how members can lessen any conflict or misunderstanding. 
• Legal Shielding: An operating agreement legally separates the LLC from its member, whether an individual or business entity. This distinction helps maintain limited liability status and provides clear protection for the LLC structure.
• Customizable:  The agreement can be tailored to address your LLC’s specific needs, including profit distribution, decision-making processes, and membership changes.

Apportionment and Allotment 

Apportionment and allotment are methods for tax income and expense division across jurisdictions.

• Apportionment: This divides LLC income among states where it operates. Texas uses a single-factor method, basing it on total revenue. This determines the income subject to its franchise tax.
• Allocation: This method assigns specific income or expenses to one state. For example, non-business income goes to the state’s main business location of the LLC.
• How to File: Report apportioned income on individual state tax returns. Use Texas Franchise Tax Report forms to inform the Texas Comptroller. This keeps your Texas LLC operational and in good standing, avoiding penalties.

How to Dissolve Your LLC in Texas

Do you need to dissolve your Texas LLC? Here’s how.

Registered with SOS

Dissolution is the process of officially ending the existence of your Texas LLC. To dissolve an LLC in Texas, the LLC owners need to submit a Certificate of Termination to the Secretary of State. 

You’ll need to pay the required filing fee and follow the instructions provided by the Secretary of State’s Office.

1. Complete the Dissolution Form:

• Fill out the required form, such as the Form 265 (Certificate of Termination), available on the Texas Secretary of State’s website.
• Provide your LLC’s name, entity type, date of formation, and file number.
• List the names and addresses of each governing member.

2. Select One of the Events Requiring Winding Up:

• Voluntary Dissolution & Wind Up
• Period of Duration Specified by Your Certificate of Formation is Over
• Occurrence of Event Specified by Your Certificate of Formation Has Happened
• Occurrence of Event Specified by Texas Business Organizations Code That Requires Dissolution Has Happened
• Court Decree to Dissolve Has Occurred

3. Complete Wind-Up Measures:

• Cease business operations except as necessary for winding up.
• Notify all known claimants of the dissolution in writing.
• Collect and sell any remaining assets.
• Perform any other required actions to wind up the LLC’s affairs.

4. File the Dissolution Form:

• Submit the completed form to the Texas Secretary of State.
• Choose when the dissolution will become effective:
  • Effective Upon Filing
  • Effective Upon a Later Date (up to 90 days after filing)
  • Effective Upon a Later Event (up to 90 days after filing)

Not Registered with SOS

If your LLC is not registered with the Secretary of State, follow these alternative steps:

• Check for Local Requirements: Consult with the local county or city government where your LLC is registered to determine if any additional dissolution procedures are required.
• Follow State Business Closure Procedures: Even if not registered with the SOS, you may still need to file dissolution documents with other state agencies or fulfill specific local requirements.
• Notify Creditors and Settle Debts: Inform all known creditors about the dissolution and settle any outstanding debts or obligations.
• Cease Business Operations: Stop all business activities except those necessary for the winding-up process.
• Close Business Accounts: Close any business bank accounts, cancel business licenses, and take care of any other administrative tasks related to closing the business.
• Confirm Dissolution: Obtain written confirmation of dissolution from the relevant local authorities if applicable.

Best LLC Services 

Forming an LLC in Texas can be pretty daunting as one navigates the complexities of the process. Listed below are some of the best LLC services.

1. Northwest Registered Agent – Best for Comprehensive Compliance Management
2. ZenBusiness – Best for Budget-Friendly Options
3. LegalZoom – Best for Comprehensive Business Solutions

1

Northwest Registered Agent

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Northwest Registered Agent has a full suite of LLC formation and compliance services. Their primary focuses are outstanding customer support and ensuring that your business complies with the state authorities. They form your LLC, act as your registered agent, file your annual reports, etc.

Pros

• Customer Support with Business Experts: Customized customer support with experts specifically dedicated to the business.
• Registered Agent Service: It includes mail forwarding and the handling of legal documents.
• Compliance Management: Automated reminders and management of annual reports and other compliance requirements.
• Protection of Privacy: Ensure your personal information remains private.

Cons

• Higher Cost: The service is more expensive compared to some of the competitors.
• Minimal Additional Services: Does not offer as many additional features like business credit monitoring or tax advice.

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ZenBusiness

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ZenBusiness offers the best value for business owners looking to form an LLC with low upfront costs. It charges competitive pricing for LLC formation, including extra registered agent services and yearly compliance monitoring. ZenBusiness is known for clean pricing and ease of use on this platform.

Pros

• Pricing on a Budget: Very competitive pricing with tiered levels of service.
• User-Friendliness: An easy online process for LLC formation and compliance.
• Registered Agent Services: Only available on higher-end packages.
• Annual Compliance: Includes ongoing compliance services and reminders.

Cons

• Not as Customizable: Less customized customer support compared to the more premium services.
• More Hidden Fees: Some features are only included in higher levels that can raise the overall cost of the service.

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3

LegalZoom

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LegalZoom also happens to be a company with a very long list of legal services beyond formation—think intellectual property protection and legal document preparation—making it an excellent choice for a business looking to overload its LLC formation needs completely.

Pros

• Many Features: Long list of services, including trademark registration and creation of legal documents.
• Ease of Use: The website is easy to use, with several resources available for utilization.
• Customizable Service Plans: The variety of service plans adapts to different business needs.
• Established Reputation: Decades-long reputation regarding legal services.

Cons

• Higher Costs: Generally, more expensive due to the extent of services provided.
• Upselling: Upselling additional services can be overwhelming for some users.

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Bizee

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Bizee, formerly known as Incfile, offers comprehensive LLC formation services with a focus on affordability and user-friendliness. They provide a range of services including basic formation and ongoing compliance management, making them an excellent choice for new entrepreneurs and small business owners.

Pros

• Free LLC Formation: Offers a $0 + state fee package for basic LLC formation.
• Provide Registered Agent Services: Free for the first year, then competitively priced.
• Lifetime Company Alerts: Automated reminders for important filing dates and deadlines.
• Online Dashboard: Easy-to-use platform for managing your LLC documents and compliance.

Cons

• Upselling: Some users report aggressive upselling of additional services.
• Customer Service: Mixed reviews on the quality and responsiveness of customer support.

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Inc Authority

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Inc Authority stands out by offering free LLC formation services (excluding state fees) with additional perks. They cater to entrepreneurs looking to start their business on a budget while still receiving valuable extras like tax planning consultation and business funding analysis.

Pros

• Form an LLC for Free: Basic LLC formation service at no cost beyond state fees.
• Business Credit and Funding Program: Assistance with building business credit and exploring funding options.
• Tax Planning Consultation: Free consultation to help optimize your business's tax strategy.
• Inc Success Advisor: Personalized guidance throughout the formation process.

Cons

• Limited Ongoing Services: Less comprehensive in terms of long-term compliance management.
• Potential for Upselling: Some users report persistent attempts to sell additional services.

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These services range from complete compliance management to budget-friendly options and extensive legal support. Consider what best fits your business requirements and budget when selecting an LLC service provider.

Pros and Cons of LLC in Texas

Here are the advantages and disadvantages of forming an LLC in the Lone Star State:

Pros:

• Limited Liability Protection: At the heart of an LLC is the protection it offers. When you form an LLC, your personal assets (like your home, car, or bank account) are usually shielded from business debts and lawsuits. This means that your personal assets are protected and cannot be used to pay off the debts in case your business is sued. It helps you maintain that important separation between personal assets and business assets.
• Pass-Through Taxation: Texas LLCs benefit from pass-through taxation, meaning the business’s profits and losses are reported on the owners’ personal tax returns. This avoids the double taxation that corporations face.
• Flexible management and structure: Starting an LLC in Texas allows you to choose your management structure. Whether you prefer a member-managed or manager-managed setup, you can tailor it to suit your business needs.
• Easy formation and maintenance: Forming an LLC in Texas is straightforward and involves fewer steps than other corporate structures. The simplicity of formation and maintenance encourages you to take that initial step confidently.
• Enhanced credibility: Operating as an LLC in Texas adds a level of professionalism and credibility, which results in attracting customers, vendors, and business partners.
• Perpetual existence: A significant benefit of a Texas LLC is its perpetual existence. The LLC can continue operating without interruption even if a member leaves or passes away.
• Separation of affairs: An LLC clearly separates personal and business finances, reducing liability risks and making it easier to track expenses and revenues.
• Fewer Formalities: Texas LLCs are subject to fewer formalities than corporations. Requirements like annual meetings or having a board of directors are not mandatory.

Cons:

• Limited life span: When a member dies or departs, there’s a risk of the LLC being dissolved. However, if the operating agreement states otherwise, this can be avoided.
• Texas franchise state: Based on the LLC’s annual revenue or “margin,” the owner gives a Texas franchise tax. This tax is sometimes higher in tax liabilities.
• Complex formation: To form an LLC, you should file the Certificate of Formation with the Texas Secretary of State. It is also recommended that you draft an operating agreement.
• Self-Employment taxes: Occasionally, the owner doesn’t choose to be treated as an S corporation. In that case, self-employment taxes will be due, resulting in higher tax liabilities.
• Occasionally, less credible: Certain parties, like vendors or investors, prefer corporations to LLCs. They perceive LLCs as less credible.
• Management Complexity: Management challenges may surface in an LLC with multiple members. An LLC works better for a partnership or a sole business.

Are you confused about the benefits and drawbacks of having an LLC? Then let’s lay down and compare the advantages and disadvantages on a table.

LLC in Texas FAQs

Here are the most frequently asked questions by those interested in starting an LLC in the Lone Star State:

Is it Worth it to Start an LLC in Texas?

Starting an LLC in Texas can be beneficial due to the state’s favorable business climate, including no state income tax and relatively low regulatory burdens. An LLC provides liability protection, separating your personal assets from your business liabilities, and offers flexible management and tax options.

However, the decision to start an LLC should be taken on your specific business needs, goals, and the nature of your operations.

Should I Start an LLC if I Don’t Have a Business?

Starting an LLC without an active business might not be necessary. An LLC is typically formed to protect personal assets from business liabilities and to gain tax benefits.  If you don’t have a business yet, it might be better to wait until you have a concrete business plan or operations.

What Permits Are Needed for an LLC in Texas?

The permits required for an LLC in Texas vary based on the type of business. Common permits include:

• Business Licenses: Generally it is required by the state or local government.
• Sales Tax Permit: Required if selling taxable goods or services.
• Health Permits: Needed for businesses dealing with food or healthcare.
• Professional Licenses: Specific licenses for professions like law, medicine, or real estate.

What Happens if You Start an LLC and Do Nothing?

If you start an LLC and take no further action:

• Annual Reports: You must still file annual reports and pay any associated fees.
• Tax Obligations: You may still have state and federal tax obligations.
• Legal Compliance: Failure to comply with these requirements can result in penalties, dissolution of the LLC, or loss of liability protection.

How Long Does it Take for an LLC to Be Approved in Texas?

The approval time for an LLC in Texas can vary:

• Online Filing: Typically, 2-3 business days.
• Mail Filing: Can take up to 7-10 business days. Expedited processing is available for an additional fee.

Recap on LLC Texas

Starting a Texas LLC is an exciting and sometimes daunting venture. It comes with a lot of paperwork and several key steps in order to get things right so your business is in good standing. 

We won’t say it’s necessarily easy, but if you use this guide along with a little outside research tailored to your specific needs, you’ll be up and running in no time. 

Remember, LLC’s are a popular business strategy because it protects your personal assets and gives you flexibility in how you run your business. Review the necessary federal and state requirements before you dive in. Check that list twice and contact an LLC service if you need help. It’s already a somewhat lengthy process, and no one wants to add extra delays or penalty fees because of minor (or major) oversights. 

As you embark on this new journey, it’s important to stay on top of local regulations, licenses, and taxes, like franchise and sales tax. With your personal assets safeguarded, you can focus on managing the LLC or hiring someone to do it. Stay compliant, and enjoy the ride!