How To Set Up A Texas LLC

If you are looking to start a business in Texas, you may be wondering about forming a Limited Liability Company (LLC). An LLC is a type of business structure that provides limited liability protection for its owners. This means if the business is sued, the owner’s personal assets are generally protected.

While it can be intimidating to form an LLC for the first time, with a little research and patience, you can learn how to form an LLC in Texas without an attorney. Let’s break down the steps to complete the Texas LLC formation process.

Related: Starting A Business In Texas Checklist

Steps to Form a Texas LLC

Step 1: Choose a Name for the LLC

The first step in forming a Texas Limited Liability Company is to make sure the name you want is available.  

It’s critical to do a Texas LLC name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Texas. The Texas Secretary of State makes it easy to search and verify if your LLC name is available. 

In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:

• Limited Liability Company
• Limited Company
• L.L.C.
• LLC
• L.C.
• LC

A comma may be used after the business name and before the designator.  “Lone Star State Solutions LLC” and “Lone Star State Solutions, LLC” are both acceptable.

Other naming guidelines include restrictions on using terms such as insurance, bail bonds, surety, bank, trust, engineer, architect, interior design, college, university, veteran, Olympic, and others unless the business is registered with the state to provide those services.

Last, the name can’t imply that the entity is affiliated with a governmental entity unless it is affiliated with one.

If you plan to use a different name from the legal name that you register (perhaps you want to run multiple businesses under the LLC), you can use an assumed name (sometimes referred to as a fictitious business name, trade name, DBA, or Doing Business As name).  To register the name, file a Texas Assumed Name Certificate with the county clerk in the county where the LLC is located.

If there is an LLC name you want, but you are not ready to register the LLC, you can file the Name Reservation Form (Form 501) to hold a name for up to 120 days.

Step 2: Appoint a Texas Registered Agent

Every LLC in Texas must have a registered agent, simply someone with a Texas street address who will be responsible for any legal correspondence, most often if the business is served papers in case of a lawsuit.

The basic requirements to be a registered agent in Texas include:

• The agent must be a Texas resident at least 18 years of age or a commercial registered agent service with a registered office in the state.
• The agent must have a physical address in the state (PO Boxes aren’t allowed).
• The agent must generally be available during normal business hours at the address provided to receive service of process.

Many LLC owners will act as their own registered agents, particularly if they reside in the state. However, some opt to hire a professional registered agent service. This choice is often preferred in two scenarios: when the LLC owner lives out of state or wants to keep their personal address off public records. Professional services offer the added benefits of ensuring compliance with state regulations and managing important legal correspondence, making them an attractive option for those seeking convenience and privacy in their business operations.

Related: How To Appoint A Texas Registered Agent?

Step 3: File the Texas Certificate of Formation

The paperwork to officially create an LLC in Texas is called the Certificate of Formation (called the Articles of Organization in many states). To submit the paperwork, either file online through SOSDirect, which is the Secretary of State’s website to file online, or download the Texas LLC Certificate of Formation (Form 205).

Related: How To Fill Out The Texas Certificate Of Formation

A few sections and terms can be confusing when filling out the Certificate of Organization. We’ll review a few of these sections to help you get your LLC started correctly.

Governing authority: This article asks if the LLC is Member-Managed or Manager-Managed.

• Manager-managed LLCs are hired by the members to run the LLC, similar to a corporation’s CEO. This is generally used when there are passive members in the LLC, and the members do not actively manage or operate in the business’s affairs.
• Member-managed LLCs have active involvement in management and the authority to act on behalf of the LLC.

Most LLCs are member-managed.

Purpose: This article asks for some basic information about what the business does.  Sticking with the standard business purpose statement, “The purpose for which the company is formed is for the transaction of any and all lawful purposes for which a limited liability company may be organized under the Texas Business Organizations Code.” keeps the business purpose open-ended and allows an LLC to operate in any type of business as long as it is legal.

Organizer information: An LLC Organizer is someone involved with forming the Certificate of Formation. The Organizer may or may not become an LLC member, such as a mentor, attorney, or accountant, but any LLC member can be listed as an organizer.

Effective date: This is an optional section if you want the LLC to start on a later date, up to 90 days in the future.  The main reason for delaying the LLC start date is when the filing is made close to the end of a calendar year, and the business isn’t going to have any activity until the start of the year. You can eliminate the need to file a partial-year business tax return by delaying the start date until the following year.

What To Do After Forming A Texas LLC

Once the LLC has been formed, there are a few additional steps to take. Below is a list of the most common tasks.

Prepare a Texas LLC Operating Agreement

The LLC operating agreement is an internal company document that governs the framework of an LLC. It covers items like ownership rights, membership interests, member responsibilities, how profits and losses are distributed, and more.

Most states (Texas included) do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:

• The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
• Member’s personal liability protection may be diminished.
• Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.

Obtain an EIN

If the LLC will hire employees or is owned by more than one member, an EIN is required. 

The EIN or Employer Identification Number (also referred to as a Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Like an individual’s social security number, the EIN identifies business entities for tax purposes.

Related: How To Register For An EIN

Open an LLC Bank Account

Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.

Several documents will be needed to open a business bank account, such as:

• A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
• Copies of the original LLC formation paperwork from the state showing the creation of the LLC.
• Driver’s licenses of the members.
• Occasionally, the bank will request a Texas Certificate of Good Standing to prove the LLC is active and in good standing with the state.

Apply for Business Licenses and Permits

Depending on what your business does and where it is located, various business licenses and permits will likely be needed before starting the business. Some common registrations include:

• Business license: Some cities require businesses to obtain licensing before they can start.
• Professional license: Certain services, such as barbershops, accountants, salons, and others, must be licensed.
• Sales tax permit: A Texas sales tax permit from the Texas Department of Comptroller is necessary to sell products and certain services and collect sales tax.

Related: How To Register A Business In Texas

File the Annual Public Information Report

LLCs are required to file a public information report with the Texas Comptroller each year.

File the Texas Annual Franchise Tax Report

All LLCs will file the Texas Franchise Tax Report by May 15th each year. The Texas franchise tax isn’t a tax on a franchised business such as McDonald’s. Rather, it is a tax on the privilege of doing business in the state. The tax is based on the gross sales of the business and paid to the Texas Comptroller of Public Accounts.

Common Questions To Starting An LLC In Texas