From the buzzing tech scene of Austin to the oil fields of Midland, Texas has a massive economy that offers a lot of competition and opportunity.
No wonder so many entrepreneurs grass see it as a great place to start an LLC and lay the foundation for their business.
Plus, starting an LLC in Texas is a straightforward endeavor. All you need to do is meet the unique state requirements.
To help you avoid any missteps, here is our step-by-step guide to successfully starting a Texas LLC.
The Easy Parts of Starting an LLC in Texas
LLCs are an easy, affordable way to protect your personal assets and save that money. And when you start an LLC in Texas, those benefits are only magnified.
First and foremost, the owners are not personally liable for the debts of the business, including debts. resulting from lawsuits judiciaries. There is no limitation of liability for general partnership partners or sole proprietors.
The registration fee is quite cheap at $ 300. Owners also do not have to pay an annual Texas LLC registration fee.
Flexible tax payment is another benefit.
An LLC has the choice as to how it will be imposed. A business with only one member will be taxed as a sole proprietorship unless it chooses to be taxed as a C-Corp or S-Corp. For an LLC with two or more members, they will be taxed as a partnership, unless it chooses to be taxed as a C-Corp or S-Corp.
There are also minimum formalities under Texas law. LLCs don 't need to hold annual meetings or keep detailed minutes.
As there is no shortage of entrepreneurship in Texas,many services LLC offer full service in the state. Incfile , for example, completely takes over the process of training and registration, as well as assign a registered agent to your LLC to meet state requirements.
The tough parts of starting an LLC in Texas
Texas has two types of business taxes for an LLC: sales and taTexas franchise xe.
While all businesses are subject to sales tax, sole proprietorships and ips general partners, whose associates are all individuals, are exempt from paying tax franchise. This adds to the financial burden on business owners.
You may also have difficulty raising capital.
Unlike a corporation, LLCs cannot issue money. actions to raise capital. Any new investor will need to become a member of the LLC, which is a complicated process. Additionally, outside investors tend to favor corporations over LLCs because they see the latter as risky.
Additionally, the federal self-employment tax for an LLC in Texas is the same for LLCs in another state. The same goes for businesses operated as a sole proprietorship, general partnership, LP, LLP or S-Corp. Unless an LLC chooses to be taxed as a C-Corp, all profits of the business flow through to the members, who will have to pay self-employment tax on their share of the profits even if they do. 'They don't actually get a share of the profits.
Now let's take a closer look at how to start an LLC in Texas.
Step 1: Name your Texas LLC
Before all the paperwork, you need to make a fundamental decision: what name should you give to your latest business?
Considering that your business name is your brand identity, you need to choose a name after careful consideration.
Follow Texas Naming Requirements
You can go for something smarter or simpler as you wish, provided that 'It complies with Texas naming requirements and is easily searchable by potential customers.
- The name of the LLC must include the expterm "limited liability company" or its abbreviations (LLC, LLC, Ltd.)
- The name of the LLC should not include words that could confuse the public with a government agency (FBI, Department of 'State, Treasury)
- You need to complete additional paperwork and ask an authorized person, such as a doctor or lawyer, to join your LLC if you use restricted words (bank, lawyer, university)
- Follow all directions from the Texas Secretary of State
All of the above regulations are essential and must be followed if you are to stay on the safe side of the law.
Check name availability
Using a name already in use by other Texas businesses may penalize you. This is why you should check the availability of the name before continuing.
Do a quick search on the Texas Comptroller of Public Accounts Website . If the name is available, you're good to go.
Check URL availability
Your customers will want to visit your website before purchasing a product or service.
Check if your business name is available as than web domain. this even if you don't want to set up a business website right away. If it is available, I highly recommend you buy it to prevent others from acquiring it .
Step 2: Designate a Texas Registered Agent
If you are new to business, you may not be familiar with the term "registered agent" ". But if you want to start an LLC in Texas, you need to appoint a registered agent.
A registered agent is either a resident of the state or a business entity that receives official correspondence and is responsible for filing reports with the Texas Secretary of State. You, or anyone else in your business, can also serve as a registered agent for your LLC.
The registered agent must have a mailing address in Texas. If they are based out of state, they may have a commercial office in Texas.
Obtain written consent from registered agent
Agent registered that you have chosen must consent to the appointment in written or electronic form. The declaration of consent must include the following details:
- The nameof your LLC
- An express statement confirming that the nominee consents to serve as the registered agent of the LLC
- The name of the person nominated as the registered agent
- Signature of registered agent
- Date of execution
You do not need to file the declaration of consent with the secretary of State. You can refer to the 401-A Consent Acceptance Form for more information.
Hire a registered agent service
As the person who initiated of many LLCs, I highly recommend using a registered agent service.
Even better if you use an LLC service that can support the LLC formation and registration process, as well as provide registered agent support. Plus, you get what you pay for since most LLC services offer very affordable packages, with some even offering registered agent services.s free for the first year.
Incfile and Rocket Lawyer are my top two picks, but you can check out our best guide to LLC services for more detailed information and a price breakdown.
Step 3: Submit a Training Certificate
The Certificate of Formation is the most important form in the whole process. As soon as this form is processed and approved, your LLC will become official.
Its purpose is to provide the secretary with State of Texas important information about your business, such as who your business is, its registered agent, and general purpose.
Let's see how to write and file your training certificate.
Prepare your Certificate of Formation
Your LLC's Certificate of Formation should include the following information:
- The name of the LLC, including the chosen LLC designation
- The name and address of the registered agent of the LLC
- Indicate ifthe LLC will be member- managed or managed by a manager
- Depending on whether it is managed by a member or managed by a manager, the name and address of each member or manager
- General purpose clause
- The name and address of the organizer of the LLC
- The effective date of the certificate
- Signature of the organizer
Decide how to submit the certificate
You can submit your training certificate online, by mail or in person.
To register your Texas LLC online, you will need to file Form 205 - Certificate of Training with the Secretary of Texas State. On the other hand, if you wish to send it by mail, you will have to download the form and mail it to the Secretary of State at the following address:
Secretary of State
PO Box 13697
Austin, TX 78711-3697
If you choose submit in person, change addressera. Instead, you will need to submit the certificate here:
James Earl Rudder Office Building
Austin, TX 78701
Remember that you also have to pay a $ 300 application fee. Although you only have to file your Texas Training Certificate once, you will be required to declare and pay Texas Franchise Tax (if applicable) and file a public information report annually by the following. Make sure you know if the franchise tax applies to your business, and if so, set reminders so you don't miss filling it out.
Step 4: Create a operating agreement
An operating agreement is not mandatory in Texas, but is strongly recommended.
This is an internal document that describes the how your business will be managed and managed as well as the rights and responsibilities of each member and manager. In addition, it canhelp preserve your limited liability by verifying that your LLC is truly a separate business identity.
If your business does not have an operating agreement in place, the laws of the State on the LLC will govern its operation. The document is not filed with the state.
Write the operating declaration
The operating agreement is a simple document and must contain the following information:
- The products and services offered by the company
- The name and address of each member (and even the officers, s 'there is one)
- Financial contributions of members or percentage of interest in the company
- Rights and responsibilities of each member
- Voting powers of each member
- How profits and losses will be distributed
- Rules for holding meetings and taking votes
- Admission procedure new members
- Buyout or buyout provisionshat which describe what happens when a member wants to sell their stake, dies or becomes invalid
- Dissolution proceedings
After you have drafted your agreement to operation, keep it with other important business documents. If you decide to hire an LLC service, you can enlist their help with your operating agreement. Most of them offer business building packages that include a customizable operating agreement in addition to registered agent services.
Step 5: Complete others legal obligations
After establishing a registered LLC, all members should focus their attention on meeting applicable legal requirements throughout the life of the corporation. I've discussed this in more detail below.
Get an Employer Identification Number (EIN)
Once you start an LLC in Texas , you need an ID numbertax documentation, also called an Employer Identification Number or IRS EIN.
While obtaining an EIN is not required for all businesses, it is safe for most new businesses. An EIN is used to identify a business entity and track its tax returns.
Visit the official IRS website at apply for an EIN .
Register with the Texas Comptroller of Public Accounts
All Texas LLCs, including Foreign LLCs, must register with the Texas Comptroller of Public Accounts to meet persistent state tax obligations. in most cases you can register with the controller in person at the tax office, by mail or online.
Obtain all licensesthese local requirements
Licensing requirements vary by county in Texas.
Contact your county clerk's office to determine if you need licenses or permits in depending on the nature of your business. For example, if you are planning to open a restaurant, you will need to apply for the applicable licenses from the Department of Health.
You can also contact the Texas Department of Licensing and Regulation for more information. 'information.