So, you want to create an LLC in Texas? Congratulations! You're on your way to owning a successful company. But before you start filling out the paperwork and opening up a checking account, it's important that you know what exactly is involved with setting up an LLC in Texas.
This blog post will cover all of these details for you so that starting your limited liability company doesn't seem daunting or confusing.
Find a Name for Your Texas LLC
Choosing a name for your Texas LLC can be an interesting experience. Texas requires that all business names include the Roman alphabet and Arabic numerals if needed.
They may not resemble any Texas or Texas-based business name that is currently on record.
The state of Texas has very strict rules as to what terms you can or can not use in Texas business names.
For some terms, especially those involving banking, education, engineering, and sports, you will need additional permissions issued by appropriate State Boards.
To obtain a comprehensive list of terms that you can or can not use in your Texas LLC name, get help from the Texas Comptroller of Public Accounts website.
It can help you find the availability of any given name before spending time and money acquiring it, so be sure to check for available names in your desired area.
Does Texas Require LLC in a Business Name?
Texas requires that you have LLC in your business name, although you can also choose any of the other variants of the word (limited liability, LC, or limited company). Consider the Texas LLC naming guidelines to ensure your business name adheres to the law.
Hire a Registered Agent in Texas
The Texas Secretary of State requires business owners to appoint a registered agent in Texas.
The Texas Secretary of State publishes the names and addresses of all Texas agents on its website.
A registered agent service can serve as Texas LLC's registered agent; they must be Texas residents and have a Texas residential address.
A Texas registered agent handles processes that involve communicating with the State of Texas on important legal matters and due documentation, including the filing fee, annual report, annual franchise tax, and so on.
Texas law requires every Texas LLC to have its official agent.
The moment you file your LLC at the Texas Secretary of State, you will be granted access to the register of agent services you can appoint.
How Much Does It Cost to Have a Registered Agent in Texas?
The cost of a registered agent in Texas ranges from $40 to $300 annually.
Different billing plans apply depending on whether you are starting your Texas LLC for the first time or you want to change your registered agent altogether.
File Certificate of Formation
Certificate of Formation, also known as Form 205, is required by the Secretary of State to form an LLC.
You should file this certificate with the Secretary of State and pay a $300 filing fee, which is non-refundable.
You can file online or by mail.
You also have to keep in mind that you have to specify the business structure of your LLC before filing for the Texas Certificate of Formation.
That means you must decide whether your LLC will be managed by a manager or by a member or members.
Get an LLC Operating Agreement
A Texas LLC operating agreement is a document that sets forth the rights and obligations of members. The LLC operating agreement governs how an LLC will be managed.
Operating Agreements can regulate many aspects of your business, including:
- How profits are distributed
- What happens to excess cash when it's not needed for operations or expansion
- The duties and responsibilities of the managers
- How decisions are made in the LLC, such as voting rights
- What happens to members' interests if they die or want to leave.
You should also keep in mind that the law does not require an Operating Agreement. However, it's a good idea for your business to have one.
Apply for Your LLC Employer Identification Number
When you form an LLC, the Internal Revenue Service will give it a federal employer identification number (EIN) that's uniquely assigned to your legal business entity.
This means you'll need an EIN for all of your business dealings with state and local taxing authorities as well.
To get this ID from the IRS, simply file for an EIN free of charge.
After submitting your application, you will receive an EIN in about seven to ten days.
You can also apply online at the IRS website or hire someone else to do it on your behalf.
The benefits of obtaining an EIN are that it allows you to open a business bank account, apply for loans and form other legal entities.
Obtain Texas Licenses and Permits
A limited liability company in Texas may need to obtain federal business licenses, occupational licenses, or contractor's licenses.
The Texas Secretary of State is not responsible for issuing these licenses and permits; that responsibility falls on the state agency that regulates the particular industry.
For example, if you're opening your LLC in Dallas County, then you'll need to apply with the county clerk's office for the occupational license.
You'll need to contact that particular agency in order to find out what licenses and permits your LLC needs, how much they cost, and how long it will take before you can obtain them.
How Much Does an LLC Cost per Year in Texas?
The cost of an LLC in Texas is determined by the number of members and managers as well as the number of shares.
As of 2021, the LLC filing fee is $300, while the annual fee is free, although you have to file a No Tax Due Report and Public Information Report annually.
The due date is May 15, and it's payable to the Texas comptroller.
Can a Single Person Form an LLC in Texas?
Texas allows single-member LLCs. This means that if you're a small business owner and want to create your own LLC, then you can do so.
Single-member LLCs are considered disregarded entities, which implies that you will be taxed as a sole proprietorship.
In addition to this, you can also choose whether you want to be taxed as an S or C corporation, which may provide additional tax benefits.
Do I need to renew my LLC Every year in Texas?
You don't have to renew your LLC every year, although you might have to renew specific business licenses or permits depending on your industry.
Can I Be My Own Registered Agent in Texas?
Yes, you can be your registered agent in Texas, provided that you are of legal age and have a physical street address in Texas.
Anyone who meets the state requirements can become an agent. It can be any member of your LLC or even someone who is not involved with the company.
How Much Does a Foreign LLC Cost in Texas?
Setting up a foreign LLC in Texas is not cheap ($750).
You can also expand or move your LLC from another state to Texas, and you can do this in a few different ways.
You can dissolve your former LLC and start a new one under the same name (if applicable). This requires that you obtain a new EIN and a new business account.
You can also file Foreign LLC qualification while keeping your old EIN and bank account, but you will have to pay the annual fee and cover the expenses of the annual report fee.
What Happens to LLC When an Owner Dies in Texas?
In Texas, the death of a member does not always mean that an LLC has to dissolve.
To determine if dissolution is required, first look at the Certificate of Formation and see which type of business entity it's registered as: either perpetual or with a specific duration.
If the LLC is designed to only survive for the duration of a single member's life, then dissolution may be required.
However, if the LLC was formed with perpetual existence in mind, as most are, then dissolution will likely not be needed.
Under the laws of Texas, the company must have at least one member, and that membership interest is considered personal assets to the person.
If that member is married and applicable laws apply, then their membership interest may be community property.
LLCs are governed by their operating agreements and governing documents. If you face the death of a member of your LLC, it is important that you seek legal advice and consult the operating agreement.
How Old Do You Have to Be to Own an LLC in Texas?
The State of Texas does not permit minors to set up LLCs.
An organizer of a Texas LLC may be any person with a capacity to contract in the person's or on behalf of another; i.e., 18 years old or older, notwithstanding residency requirements.
Can a Texas LLC Do Business in Another State?
You can conduct business in other states as long as the laws of that state are not contrary to Texas law.
Additionally, if you want to transact in other states, you will have to go through the foreign registration process and file the necessary documents. Either way, you need to pay franchise tax.
Can a Single-Member LLC Be a Parent Company?
In Texas, a parent company can own an LLC regardless of whether it's single-member or multi-member.
Parent companies are usually not doing business in the state in which they're set up (i.e., their home state), but often child companies are doing business, and so they need to be registered locally.
Setting a limited liability company in Texas is a challenging process. There are different things you need to think about before setting up your LLC in order to make sure everything is done by the law, such as the operating agreement before getting a Texas LLC certificate. It applies whether you're an individual or business entity.
For this reason, it is highly advisable for future LLC owners to find a suitable professional service and legal help to overcome business challenges, such as franchise tax calculations.