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How to Form an LLC in Texas

Forming an LLC (Limited Liability Company) in Texas will help protect your personal assets from lawsuits and judgments against your business.  An LLC is a popular business structure that separates the assets of the business from the personal assets of the owners.  By not having your business in a separate legal structure, you can be held personally liable for certain debts and lawsuits incurred by the company.  Forming a Texas Limited Liability Company gives you liability protection and does not require an attorney to form.  You can save a lot of money if you do it yourself with the six simple steps below.

Before getting into the six steps of LLC formation, here are a few things to know about Texas LLCs.

How Much Does It Cost to Get an LLC In Texas?

The filing fee for a Texas Limited Liability Company is $300, payable to the Texas Secretary of State.  Expect 14-21 business days for approval.  For an additional $25 you can have your application expedited which will take 2-3 business days. 

Payment can be made via credit card, money order or cashier’s check.

Texas Annual Report and Annual Fees

Texas does not require an annual report or annual fee for LLCs.

Member/Manager Information

  • Minimum Number – one or more
  • Members/Managers- at least one is required to be listed in the Certificate of Formation.  A member-managed LLC is one that the members also have day-to-day responsibilities of the business while a manager-managed LLC is one that the members hire a manager to run the business.
  • Residence Requirements – none specified
  • Age Requirements – none specified

Business Licenses & Permits

In addition to forming your Texas Limited Liability Company, you will need to check for Texas business licenses and permits.

Steps to Forming a Texas LLC

Step 1. Registering a Name

Texas LLC Name Search

Before settling on a name, you want to be sure nobody else is using it as the name of each LLC must be unique.  Here’s how to search available LLC names in Texas.

Name Guidelines

Your corporate name must end with the words Limited Liability Company or an abbreviation of these words (“LLC,” “L.L.C.,” “Limited,” “LTD.,” “LTD”.).  Check out our article on naming your LLC  for the requirements when naming an LLC.

Also, there are some words that aren’t allowed to be used in the state, like those that could refer to a state agency or that require licensing from the state.

Step 2. Choosing a Registered Agent

What is a Registered Agent?

The registered agent must generally be available during normal business hours at a physical street address in the state ofTexas to accept service of process.   A Post Office Box or personal mailbox is not acceptable. If the registered office includes a suite number, it must be included in the registered office address.

Registered Agent Requirements

A registered agent in Texas can either be an individual resident or a registered business entity authorized to do business in the state. The registered agent must have a physical address and be available during normal business hours to accept service of process. A Post Office Box or personal mailbox is not acceptable.

Who can be a Registered Agent?

A registered agent can either be a resident of Texas or a corporation authorized to do business in the state.

Provided you as the business owner have a physical presence in Texas, you can be the registered agent, however, there are additional privacy benefits to having a third-party registered agent.

Check out our article on why an LLC Registered Agent may be a good choice for your business for more details.

Step 3. Filing the Certificate of Formation

The Certificate of Formation is the paperwork used to form an LLC with the state. This is the most important step and many people believe that you need an attorney to file.  While we don’t discourage having a lawyer, forming an LLC in Texas can be done by most people.

You can save considerable money filing yourself, but many people still want some guidance to make sure everything is filed correctly.  If that’s the case, consider using a formation service such as ZenBusiness.

The LLC certificate can be filled out online or by downloading Form 205 with the Texas Secretary of State.  Learn how to file a Certificate of Formation in Texas  

Step 4. Creating an Operating Agreement

A Texas LLC operating agreement is not required but is typically a good idea, especially for one owned by multiple people.  The primary function of the operating agreement is to govern the relationship between the owners of the business, but also outlines who makes what decisions, how profits or losses are distributed and the operating procedures of the entity

Learn how to create an LLC operating agreement.

Step 5. Apply for an EIN

What is an EIN?

The Employer Identification Number (EIN), or Federal Employer Identification Number (FEIN), is used to identify a business entity. It is essentially a social security number for the company.

In addition to the EIN being an identifying number for the LLC it serves a few other purposes such as:

  • Opening a business bank account
  • Federal and State tax purposes
  • The business account to pay payroll taxes for employees paid by the company

How to Register an EIN for a Texas LLC

To file an EIN for your LLC, visit the Internal Revenue Service (IRS) or obtain the SS-4 form.  They show the steps on how to apply, but here is a video on how to apply for an EIN for more details.    In about five minutes, you will have your number free of charge.   Be sure to wait until your LLC is approved before applying for your EIN as the name that is registered for the LLC must be the same as the EIN.

Step 6. Selecting the Tax Status of the LLC

In addition to the personal liability protection the Limited Liability Company provides its members, another key benefit of an LLC the four business entities don’t provide is the flexibility in taxation.  There are four ways an LLC can be taxed, compared with two ways for a corporation.

  1. Single Member LLC – An LLC with one member automatically becomes taxed as a single-member LLC with the IRS. The owner simply files their Schedule C with their 1040 at the end of the year. Filing as a single-member LLC means the entity does not pay sales tax and goes to the owner which is called pass-through taxation. The owner pays self-employment taxes on the net profit of the LLC, which while simpler to handle taxes, may be more costly.
  2. Partnership LLC – An LLC with two or more members is automatically considered a Partnership with the IRS and will file Form 1065. Like the sole-proprietorship as a pass-through entity, the LLC taxed as a Partnership pays no income tax and profit and losses flow to each member’s Form 1040s via Schedule K-1 of Form 1065.
  3. C Corporation LLC – An LLC can elect to be taxed as a C Corporation by filing IRS Form 8832. The major difference as an LLC that is taxed as a C corporation is that now the entity pays tax on the profits and losses and are not directly passed down to the members. Most, but not all will find filing as a C Corporation will cost more in taxes as now the LLC has double taxation where there is a tax on the profits and dividends.
  4. S Corporation LLC – To get S Corporation status, you will file Form 2553 with the IRS. What makes the S Corp attractive unlike the sole proprietorship or general partnership is that you can potentially shield some of the profits from being subject to self-employment taxes. Dividends aren’t typically subject to self-employment taxes which is a large potential savings. There will be more work in accounting for an LLC that elected S Corporation status.

Each of the four ways for an LLC to be taxed in Texas can have a major impact on the taxes that are charged depending on the business and the member’s personal finances. It’s a very good idea to work with an accounting professional to see which one is most efficient for the business and members.

Step 7. Open a bank account for your business

Opening a separate LLC bank account is important as it establishes a clear division between your personal and business finances.  Should the LLC be sued and you are using a personal bank account for your LLC’s finances, that would be considered a commingling of funds, which may make it difficult to maintain the liability protection of the LLC.

To open a bank account for your LLC, you will need to bring the following with you to the bank:

  • Form of identification for each member, such as a driver’s license
  • Copy of the Texas LLC Certificate of Formation
  • LLC operating agreement
  • Employer Identification Number – If you are a single-member LLC with no employees, you can simply use your Social Security Number

A bank resolution may be needed depending on the bank and the tax election of the LLC.  A banking resolution is a formal document that provides authorization for who has access to the LLC bank account.

Learn more about opening a bank account for an LLC

Step 8. Obtain a sales tax permit (optional)

If your business sells a taxable product or service you will also need to apply for a Texas Sales Tax Permit. This can be obtained through the Texas Comptroller’s office.

Wanting to form an LLC in a state other than Texas to save money on taxes?  This doesn’t typically do as much as you may think as you will likely register an LLC in the other state and will also usually need to file as a foreign LLC in your home state of Texas as well.  In addition to paying two filing fees to start the LLC and two annual reports each year, there will be multiple tax filings as well.  Be sure to do your research as there are a lot of people promoting formation services in other states and weigh all the pros and cons before making this decision as it can be a costly one.

Don’t want to go it alone but don’t want the expense of an attorney? Another alternative is to use an LLC formation service that will do the formation at a low cost.

ZenBusiness has a special offer right now to form an LLC for $49 plus the cost of the state fees.

Common Questions on How to Get an LLC in Texas

Do LLCs pay Franchise Tax in Texas?

Yes.  The Texas franchise tax is what’s called a privilege tax, which is a tax for the privilege of doing business in the state.  Every entity doing business in Texas must pay the annual franchise tax.  The tax rates vary each year.  More information is available from the Texas Comptroller.

What is a Series LLC?

The Texas Series LLC is a Limited Liability Company that is one entity but has multiple LLCs or “series” within it.  A common use for a Texas Series LLC is for a real estate rental company.  Instead of purchasing an LLC for House A and another LLC for House B to provide asset protection for all of the real estate, a Series LLC could be formed where series A holds House A and series B holds House B.  You can even have Business A and Business B run under the same limited liability umbrella and both be essentially separate legal entities but only have to run one LLC.  To properly set up a series LLC it is highly recommended to get professional guidance as it is more complex than setting up a traditional LLC.

Can the Organizer of an LLC be the Registered Agent?

Yes.  The organizer of an LLC in Texas can also be the registered agent provided the registered agent maintains a physical address in Texas.

Is There a Citizenship Requirement to Form an LLC in Texas?

No.  The only law in Texas restricting the formation of a business is that an organizer must be a person who can legally enter into a contract.

Is There an Age Requirement to Form an LLC in Texas?

No.  The Texas Business Organizations Code does not restrict business ownership by age.

Will Filing the Certificate of Formation Stop Others From Using my Company Name?

No.  When filing the certificate of formation with the Secretary of State, a unique name has to be chosen.  No other LLC can register the same name with the Secretary of State.  If you want to protect the name of your business, you will want to obtain a trademark.

Is an LLC Required to Have an Operating Agreement in Texas?

No.  Texas doesn’t require an operating agreement.  An operating agreement outlines the specific rights and responsibilities of each member.  Some items found in operating agreements include profit and loss allocations, voting rights, contributions, buyouts, and dissolutions. While not as important for a single-member LLC, it’s highly recommended to have one for a multi-member LLC.