How to Create an LLC in Texas: Start Your Texas LLC
by Luke Iovino
Updated May 5, 2021
If you’re interested in creating an LLC in the lone star state, you’re not alone! Texas has one of the highest rates of newly formed LLCs in the country! Each state has slightly different laws when setting up an LLC. If this is your first time setting up an LLC, congratulations! We put this free guide together to help you get through the confusion of creating an LLC in Texas.
In this guide, you will find recommendations and detailed steps to help you form your LLC in Texas. Make sure to follow the steps in order. This article is for blossoming business owners who want to know the process of forming an LLC in Texas. Read along closely, we explain the required steps, tips and what to look out for when creating your own LLC in Texas.
Nowadays every business is on the web, and you should be right up there as well. Even if you’re not planning on building your business website immediately, you should grab the domain.
GoDaddy or Bluehost are great platforms to check and see if your domain is available.
Take your time choosing your LLC name. It’s important to have a few options if your number 1 choice is taken.
Texas used to be very strict about LLC names and their availability. Now Texas is more lenient, although, most LLC rejections are directly related to name issues.
If you decide to get in contact via phone or email, we recommend double-checking that your name really is approved with a phone call.
Most rejections are based on the LLC name, because of that, we would recommend playing it on the safe side and double-checking.
2. Choose a Registered Agent in Texas
A Registered Agent is a person or company that agrees to receive legal notice (“Service of Process”) and maintain good compliance with the state. For example, if your LLC is involved in a court case, your Registered Agent will be summoned. This is a law in all states.
Incfile offers Free Registered Agent service for the 1st year!
Can anyone be a Registered Agent?
Well, not exactly.
For your LLC, a Registered Agent must be a resident with an address in Texas. You can be your own Registered Agent or ask a friend/family member if they have an address in Texas.
If you don’t live in Texas and you don’t know anyone there, you can hire a Registered Agent. The cost ranges from $100-$300 a year.
check out our review of the best registered agents, we cover everything you need to know.
3. Form Certificate of Formation (“Articles of Organization”)
Certificate of Formation (aka “Articles of Organization”) are documents that outline the initial statements required by the state of Texas to form an LLC.
There a few methods that you can choose to file your Certificate of Formation:
Secretary of State
PO Box 13697
Austin, TX 78711
James Earl Rudder Office Building
Austin, TX 78701
Log into SOSO Direct Systems to pay the filing fee. You need to first give your credit card information first. They don’t charge you unless you submit the form at the end. It’s simply to prevent fraud filing.
There is a flat fee of $300. If you are a Veteran owned LLC there is no fee! Thank you for your service!
On average it takes 5-7 business days to receive approval by mail and 2-3 business days online. If you decide to walk-in, you will get an answer on the spot.
Upon approval, you will receive a Certificate of filling along with a stamped Certificate of Formation. If you mailed your Certificate of Formation, then you’ll receive it back in the mail stamped (if approved). If you sent it online, you’ll get an email.
4. Prepare an Operating Agreement
An Operating Agreement is a legal statement that explains how your LLC is managed. It is recommended that single and multi-member LLCs create an Operating Agreement.
An Operating Agreement is a testimony to the fact that the LLC is a separate legal entity. If you are ever summoned to court, it is a good thing to have.
It is critical to add how your LLC is controlled and operated in your Operating Agreement. Key subjects to go over are:
Ownership of the LLC (single/Multi-member)
Initial Capital Contributors
Distribution of profit
In Texas, the Operating Agreement is called an “Internal Document”. That means that the state authorities do not request it and it is not a requirement to receive LLC approval in Texas. Although it’s not a demand, it is highly recommended.
5. Obtain an Employer Identification Number (EIN)
An Employer Identification Number (EIN) is a 9 digit identification number that is given to your LLC. The EIN is directly connected to your LLC by the Internal Revenue Services (IRS) to identify taxpayers.
It is important to apply for your EIN only AFTER your LLC is approved. If you apply for an EIN before you are LLC approved, your EIN will be connected to your personal ID.
This will result in having an EIN attached to a non-existing LLC. It’s not the end of the world, you can always cancel your first EIN and apply again.
An EIN is free and will be issued by the IRS.
Having an EIN for your LLC in Texas allows you to open a separate bank account for the business, apply for licenses and permits and handle employee payroll.
Employer Identification Number (EIN) Responsible Party
Texas requires an EIN Responsible Party when applying for an EIN for your LLC.
An EIN Responsible Party is basically a contact person. That person will be the go-to guy if the IRS needs something from your LLC.
If you are a single member of a Texas LLC, you are the EIN Responsible Party.
If you are a multi-member of a Texas LLC, one of the members will be the EIN Responsible Party.
Once you’ve completed steps 1-5, you’ve legally established an LLC in Texas! Now we are moving to the permits and licensing section.
To have a running LLC in Texas you must follow local, state and federal regulations. Failing to comply can cause serious difficulties in the future.
Remember that this is a guide to help you create an LLC in Texas, but you must follow your local regulations. Details of business licensing and permits may vary from city to city.
If you want to stay focused on running the business, have a professional online formation service take care of it.
Incfile offers a lifetime of company updates, that way you can focus on running your company and they can focus on the LLC legal requirements.
Alright, let’s jump in!
6. LLC Franchise Tax & Public Information Report (PIR)
Texas, being the unique lone star state, has a Franchise Tax report and a Public Information Report while most states just have LLC Annual Reports.
Franchise Tax is a tax that an LLC must pay for doing business in Texas. It is called a “privilege tax”.
All Texas LLCs are required to file both a Franchise Tax and a Public Information Report EVERY YEAR.
Your LLCs initial Franchise Tax reports are due after your first year as an LLC. Reports are due every year by May 15th.
After you obtain your Texas LLC approval letter, you’ll shortly after receive a Welcome Letter.
In the letter, there is an 11 digit number which is your LLCs Texas Taxpayer Number. It is very easy to mix up your Texas Taxpayer Number (11 digits, state-level) and your EIN (9 digits, federal level).
We strongly recommend that you have a quality accountant who can guide you through your yearly financial obstacles.
7. Obtain Business Licenses & Permits
Things vary by city and by industry in Texas and therefore Business licenses and Permits really depend on your business and where your LLC is located.
Texas doesn’t have a statewide general business license. Therefore, it is important to check what you need specifically for your industry.
Municipalities in Texas require specific licenses for businesses. Again, It depends on your industry.
For this reason, we recommend you get in touch with the borough that your LLC is located in.
Texas.gov is a website that offers a list of business licenses, permits, and personal licenses. You can also renew any of your licenses online through the website.
Resale Certificate (“Reseller Permit”)
If your LLC buys goods/materials from other businesses, your LLC will need a Resale Certificate.
Let’s look at an example
You sell furniture. If your LLC builds the furniture and buys the raw materials from an external seller then you want to show them your Resale Certificate.
A Resale Certificate basically allows your LLC to avoid paying sales tax on goods (only the end customer pays sales tax). The customer who will buy your furniture will end up paying the sales tax.
Your LLC will collect the sales tax on behalf of your local and state government.
Let’s talk about getting your Sales Tax Permit
Sales Tax Permit
If your LLC sells/leases personal property or provides taxable services in Texas, you will be required to obtain a Sales Tax Permit.
It is very easy to achieve a Sales Tax Permit and there is no charge. Log onto tx.us and look for “Texas Sales and Tax Registration. It’s as easy as that.
If you have any questions about sales tax, check out this FAQ.
Taxes can be a challenging topic. We’re going to make it as easy as possible and break down what you need to know.
First, you need to understand that there are 3 levels of Tax:
Each municipality system works slightly differently from the next. Make sure you speak with your accountant, it really depends on where your LLC is located.
There is no state income tax in Texas (one of the few in the country)! Although, there is a Franchise Tax report, as mentioned above.
Most LLCs in Texas are Tax Reporting entities (as opposed to Tax Paying). Just so that you have a quick understanding of the two, let me explain:
Tax Reporting basically means that information is sent to the IRS but not money.
Tax Paying means money is sent to the IRS
If your Texas LLC is a single or multi-member, you are Tax Reporting.
This means that LLCs are “pass-through” entities. LLC owners report and pay taxes to the IRS on their personal income tax return (with form 1040).
Taxes can get complicated. We feel that it’s important for business owners to have an overview of what’s going on. Getting into the nitty-gritty is the accountant’s job.
9. Bank Account
The main idea of creating an LLC is to form a protective wall between your personal assets and your LLCs liabilities. Using your personal bank account can lead to potential personal liability issues if you end up in court.
We strongly recommend opening up a separate business bank account for your Texas LLC.
Your records will be more organized and I’m sure your accountant will be happy!
Opening a bank account is a simple process. The main documents that you’ll have to bring are the following:
Drivers license (Personal ID)
EIN of LLC (an IRS confirmation letter)
Texas Taxpayer Number
Certificate of Formation (Stamped and approved)
Each bank is slightly different from the next, so we recommend calling the bank beforehand to double-check what is required.
Applying for a credit card is a helpful resource to have in a business. On top of that, having a credit card is a great start to building credit for your business.
Luke is the Cheif Operating Officer of FinancePond. He is a certified public accountant (CPA) and started off his professional career at PWC practicing in real estate tax. His passion is to empower small business owners to make the right financial decisions.