How to Form a Texas LLC
Choosing a business structure is the first step after deciding to start a business. The type of business structure you choose will influence the name of the business and the steps necessary to get it started.
While there are several options for business structures, one popular form of business is the limited liability company (LLC). An LLC is like a hybrid of a corporation and a sole proprietorship, and it has most of the benefits each of those business types has to offer. The actual steps to start an LLC depend on state laws, but all states require that you file paperwork with the appropriate government agency. There are also several steps that you'll need to take after filing to make sure that you comply with local, state, and federal laws.
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Benefits of Starting a Texas LLC
You'll want to consider the benefits and downsides of each type of business entity before you make a decision regarding your new business. For example, LLCs offer limited liability. This is an essential feature for many entrepreneurs because liability protection allows you to keep your personal assets (such as houses or cars) safe in the event of a lawsuit against your company.
While corporations also offer liability protection, you'll need to consider the issue of double taxation if you decide to form a corporation. On the other hand, limited liability companies offer flexibility in terms of taxation.
LLC Formation in Texas
Step 1: Name Your LLC
You'll need to come up with a name for your LLC that both attracts potential customers to your business and complies with the state laws of Texas. Start with a brainstorming session, and create a list of several business names you like. You'll want to have a list of several potential names because a name or two on your list might not be available.
Under the laws of Texas, the name you choose for your LLC must be distinguishable from the other names already registered or reserved with the state. This means your LLC name can't be the same as or similar to a business name that's already on record. You'll need to do a name search to check for name availability.
Also, note that your Texas LLC name must include one of the following phrases or an abbreviation thereof: "limited liability company" or "limited company." Don't use any restricted words (such as "bank" or "attorney") unless you have the required licenses or approvals. Don't use any words or phrases that would lead the public to confuse your organization with a governmental agency.
Step 2: Get a Registered Agent
Texas LLCs must have a registered agent to accept legal papers on behalf of the company if it's sued. Your Texas registered agent could be a person who's a resident of the state of Texas or a business entity that's authorized to do business in the state of Texas.
Either way, you'll need to ensure that your appointed registered agent can handle service of process during regular business hours and has a physical street address. P.O. Boxes aren't acceptable as registered agent addresses.
Step 3: File Your Certificate of Formation
Filing your LLC Certificate of Formation with the Texas Secretary of State is crucial because it creates the LLC. Once you're ready to file, you can decide if you'd like to file online or by mail. The filing fee for a Texas Certificate of Formation is $300, and you'll need to include the following in your filing:
- LLC name
- Registered agent name and address
- Whether the LLC is member-managed or manager-managed
- Effective date
- Organizer(s) name and address
- Purpose of your organization
Step 4: Draft an Operating Agreement
An LLC operating agreement is an essential internal document that outlines how your LLC will be governed. Without an operating agreement, state laws could apply in the event of a dispute or conflict within the organization.
LLC operating agreements tend to cover: ownership, rights, and responsibilities of the members, voting powers, dissolution, admission of new members, and liabilities. You should have an operating agreement that addresses these topics, even though you don't have to file it.
Step 5: Get an EIN
An EIN (Employer Identification Number) or Tax ID number is a number assigned to business entities by the IRS (Internal Revenue Service). It's like a social security number but for your business. You'll need this number to open a business bank account or hire your employees. Get one for free online at the IRS website.
Step 6: Open a Business Bank Account
LLC owners need to keep their business and personal funds separate. If you don't keep your business funds separate from your personal funds, you could lose your personal liability protection.
For this reason, you need to get a business bank account and a business credit card or debit card as soon as possible. It'll also make tax preparation and accounting easier.
Frequently Asked Questions About Starting an LLC in Texas
1. How much does it cost to form an LLC in Texas?
The filing fee for your formation documents is $300, and you'll have to pay an additional $40 fee for name reservation if you decide to reserve your LLC name before filing.
2. How do I handle my state taxes for my LLC?
You need to contact the Texas Comptroller of Public Accounts regarding your state business taxes. You'll likely be responsible for a state franchise tax, as most Texas LLCs are subject to this tax.
3. Do I need to get business licenses or permits for my LLC in Texas?
You may need to get a business license or permit for your LLC, depending on the type of business you're running and the location of the business. To ensure that you're complying with state and local requirements, you should check with government agencies in your area about the specific requirements for your type of business.
Note: State laws are always subject to change through new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
Need Help Forming a Texas LLC?
Fortunately, forming an LLC can be a straightforward process with FindLaw’s Business Formation Service. If you have questions about forming an LLC in Texas or would like some guidance with the process, it's a good idea to speak with an experienced business organizations lawyer near you.
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