Texas is business-friendly, with numerous opportunities for entrepreneurs. Starting a Limited Liability Company (LLC) in Texas may be advantageous for entrepreneurs planning to establish a small business.
Understanding the process and requirements is crucial to meet legal obligations of an LLC.
With years of experience as an expert in business law and Texas regulations, our team has compiled a concise guide on starting an LLC in Texas.
The article will explore the benefits of forming an LLC and fulfilling the legal requirements and ongoing obligations, backed by legal consultation from attorneys and business consultants in Texas.
Quick Summary:
- Starting an LLC in Texas involves five steps: finding a suitable name, hiring a registered agent, filing a Certificate of Formation, obtaining an LLC operating agreement, and applying for an Employer Identification Number (EIN).
- Texas LLCs offer limited liability protection and flexibility in management and taxation.
- It is important to comply with Texas regulations and requirements, such as naming restrictions and annual reporting and seeking professional assistance can be helpful in navigating the process.
How To Start an LLC in Texas?
To start an LLC in Texas, file the required formation documents with the state and adhere to specific regulations outlines by the Texas Secretary of State.
1. Find a Name for Your Texas LLC
When starting an LLC in Texas, find a suitable name for your business. The name you choose should be an accurate reflection of your entity’s identity and should follow the state’s regulations.
Conduct a thorough search to ensure the name doesn’t resemble any Texas or Texas-based business name currently on record.
To look up a Texas LLC, check the Texas Secretary of State's website, or use online business name databases to verify availability [1].
Additionally, ensure that your chosen name meets the Texas LLC naming requirements.
The state of Texas has very strict rules as to what terms you can or can not use in Texas business names. The state requires that all business names include the Roman alphabet and Arabic numerals if needed.
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 you can or can not use in your Texas LLC name, get help from the Texas Comptroller of Public Accounts website [2].
Read our article if you need to change your LLC name in Texas.
2. Hire a Registered Agent in Texas
The Texas Secretary of State requires business owners to appoint a registered agent in Texas.
You’ll get all the names and addresses of Texas agents on the Texas Secretary of State’s website [3].
The registered agent will:
- Be a point of contact between your LLC and the Texas State government
- Receive important legal and tax documents on behalf of your business
- File an LLC annual report in Texas and annual franchise tax
Their service will ensure you stay informed and comply with the state's requirements.
3. File Certificate of Formation
To establish your LLC in Texas, the Secretary of State requires a Certificate of Formation, also known as Form 205.
This document formally registers your business and provides essential information such as:
- The LLC's name
- Registered Agent
- Management structure and members
- Purpose of the LLC
You should file this certificate with the Secretary of State either online or by mail, accompanied by a non-refundable filing fee of $300 filing.
4. 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 remember that the law does not require an operating agreement. However, it's a good idea for your business to have one.
5. 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 also need an EIN for all of your business dealings with state and local taxing authorities.
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 [4].
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.
6. Obtain Texas Licenses and Permits
A Texas limited liability company may need federal business, occupational, or contractor licenses.
The Texas Secretary of State is not responsible for issuing these licenses and permits. Rather, the responsibility falls on the state agency regulating 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 to find out what licenses and permits you need for your LLCs, how much they cost, and how long it will take to obtain them.
FAQs
Can a Single Person Open an LLC in Texas?
A single person can open an LLC in Texas through single-member LLCs. This means that if you're a small business owner and want to create your own LLC, you can do so.
Single-member LLCs are considered disregarded entities, which implies that you will be taxed as a sole proprietorship.
What Happens to LLC When an Owner Dies in Texas?
When an LLC owner dies in Texas, the provisions in the operating agreement will dictate the actions the members should take.
Generally, the deceased's share will be transferred to their estate or designated beneficiary.
Can a Single-Member LLC Be a Parent Company in Texas?
In Texas, a single-member LLC can be a parent company regardless of whether single-member or multi-member.
Parent companies are usually not doing business in the state they're set up (i.e., their home state), but often child companies do business. Hence, they need to be registered locally.
Is Setting Up an LLC in Texas a Challenging Process?
Setting up a limited liability company in Texas is not a challenging process, as long as you comply with state requirements and file all required legal documents.
Future LLC owners have the option to employ professional service and ask legal guidance from ZenBusiness to streamline the process and ensure the company stays compliant with the law.
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References
- https://www.sos.state.tx.us/search.shtml
- https://comptroller.texas.gov/
- https://www.sos.state.tx.us/corp/registeredagents.shtml
- https://www.irs.gov/businesses/small-businesses-self-employed/how-to-apply-for-an-ein
