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How to Set Up an LLC in Texas: Forming a Texas LLC

If you’re looking to start a new business, Texas is a state that has many benefits depending on what type of business you want to operate. Every business owner with personal assets should operate as a limited liability company, or LLC. Operating your business as an LLC protects you and your members from being required to use personal assets, such as homes, cars, or personal accounts to pay off debts or lawsuit settlements that may arise when operating the business.

There are many advantages that come with doing business in the state of Texas besides asset protection. Operating your Texas business as an LLC will also make your business more credible, it will prevent double taxation, and running your business as an LLC requires much less regulation than running it as a corporation.

There are many things to consider when starting an LLC, and there is a lot of paperwork required before you can get your business up and running. At LLC Formations, we have the expertise and the available tools to help you form your Texas limited liability company.

Here is how you can prepare to set up an LLC in Texas:

The Steps to Forming Your Texas LLC

1. Name Your Texas LLC

You must first choose a name for your business so you can start to fill out paperwork with the business name. The name of the LLC must be unique, as there cannot be another business in Texas that shares the same name. You should have at least three options in case your top name choice is not available. Once you decide what to name your LLC, you can choose one of three ways to search all of the Texas LLC names for similarity before you choose the name for your LLC.

Texas LLC

Phone Call

To search for a similarly named Texas LLC, you can start by calling the Texas Secretary of State office at 512-463-5555 during their normal business hours to verify if your chosen LLC name is available to use in Texas. If it is available, move on with the next steps in the process.

Keep in mind that this name check will only check for names that are currently registered in Texas. There is a small chance that the name you’ve chosen is not available by the time you’ve submitted all of your documents to set up your LLC. If this is the case, the State of Texas will refund any fees associated with your filing.

 

 

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Email

Consider emailing Texas’ Secretary of State to check for any similarly named LLC in Texas. You can email them by clicking on this link or by sending an email directly to [email protected]. Use the message template below to request a name search verification:

Greetings,

I wish to verify an active name registration for the following names:

  1. [Name One]
  2. [Name Two]
  3. [Name Three]

Please contact me with any questions

Thank You,

Your Name

Your Email Address

Your Phone Number

Ask for your top three names in case your top choice is not available. If your name is available, proceed to the next steps of the filing process.

 

 

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Online Search

The Texas Secretary of State’s office has an online database that allows you to conduct a Texas LLC lookup for your chosen name. Although this is a good tool to use, it is not the most reliable for a Texas LLC search because email and phone will place the search in the hands of a state representative who will ultimately give you the desired result. If you are unable to inquire by phone or email, online is your next best option.

The Secretary of State office has an online database that allows you to conduct a Texas LLC lookup for your chosen name. To get started, visit the Taxable Entity Search web page on the Secretary of State website and load the form to conduct your search. Be sure to leave off the LLC designation when searching. For example, if your business name is “Chili Pepper’s Tex-Mex Tavern, LLC,” these are the name variations you should search for when trying to choose the name of the LLC:

  1. Chili Pepper’s Tex-Mex Tavern
  2. Chili Pepper’s Tavern
  3. Chili Pepper Tavern
  4. Chili Pepper Tex-Mex Tavern
  5. Chili Pepper’s
  6. Chili Pepper

If your name is too similar to another LLC in Texas, you may face trademark issues when it comes to advertising and branding your business, so be sure that your business name is unique. Once you have found a good name for your Texas LLC, move on to the next steps of the filing process.

You should be looking for results that return a similar entity already registered. Keep in mind the industry should play a factor in your consideration. There may be a business called “Chili Pepper’s Swimming School.” You would still be able to use your chosen name but note that you may face trademark issues when it comes to advertising and branding your business. The best thing to do is to ensure your name is completely unique and let someone else from another industry worry about trademark issues should they want to have similar wording in their business name.

Once you have found a unique name for your Texas LLC, move on to the next steps of the filing process.

2. Appoint a Texas Registered Agent

Before you can form an LLC in Texas, you must first find a registered agent or hire a registered agent service in Texas. You can either choose a trusted individual, or you can go with a professional registered agent service that will accept mail and other correspondences on your LLC’s behalf. A registered agent service is the best option, but it’s not the only option.

If you choose to have an individual service as your registered agent, ensure that this person meets the Texas state requirements since this individual will receive legal mail on behalf of your business. These are some key requirements a registered agent in Texas must meet to be listed when you form your Texas LLC. Your registered agent needs to have:

  • A legal address in Texas, not a PO box
  • Availability during normal business hours
  • Legal recognition in the state of Texas

Legal mail will be received by your registered agent at his or her address in Texas regarding your LLC. It is important that you choose someone that is dependable and trustworthy, as you do not want to miss out on important communication like subpoenas or a summons. Texas law requires your agent to have a physical Texas address or your LLC could be dissolved.

Always stay up to date with the information for your registered agent. If your registered agent moves, dissolves, or no longer is available to be your registered agent, you must update it immediately with the Texas Secretary of State’s office or you may not receive your mail. Do this by filing form 401 or updating the status online on SOSDirect to report that your registered agent is at a new address and so your mail can be handled accordingly.

Looking for a registered agent to setup your LLC? Save time and money by filing your application with us. No contracts. No hidden fees.

3. File the Texas Certificate of Formation

Our Texas LLC Certificate of Formation is the form that organizes your business start-up details with the Secretary of State for your Texas business. The Certificate of Formation will require key information about your business such as the owners, officers, and the managers. Every business in Texas must file this form when forming an LLC, otherwise your business will not be regarded as a legal entity and you will not have the personal liability protection.

Filing Fees

The filing fee is $300 for your Texas Certificate of Formation. This fee is the same when you file online and via mail. However, the online fee requires an additional $8.00 for convenience as opposed to sending by mail.

Processing Times

When filing for a Texas Certificate of Formation online, the processing time is 2-3 business days after submitting everything you need to file. If you file by mail, expect a processing time of 7-10 business days.

Filing procedures depend on the type of business you are forming. Any business that requires professional licensure, such as a medical office or law practice, needs to file a Professional LLC (PLLC). The filing instructions are different as is the personal liability requirements. If this falls into your business type, skip ahead to “Professional LLC Filing.”

Completing the Texas LLC Certificate of Formation Sections

To file a certificate online, you must create an account with SOSDirect.

  • Start by setting up an account. Use your business name, your name, or any other officer or manager’s name. Next, provide your contact information. Lastly, create a password. Now that you have created your SOSDirect account, you can begin the filing process for your LLC in Texas.
  • When you file online, you must enter your credit card information. Texas state law requires this step early in the process to weed out fraudulent filings. You won’t be charged anything until you’ve completely processed your filing for the formation of your Texas business.
  • Review the terms and conditions carefully and agree to them. After you have agreed to them, you will receive a user ID assigned to you by email within 30 minutes. If you do not receive this communication, contact the SOS by phone at (512)-475-2755 or by email to [email protected]
  • Once you have received your user ID, go back to SOSDirect Login and use your credentials to log in.
  • Once you have logged in, click on “Credit Card” on the top of the page and re-enter your credit card information. After you have done so, you will be directed to a page that will provide you with a session ID. This session ID should be recorded because you will use it to check on the status of your filing after it has been sent.
  • Go to the Menu and click “Business Organizations”.
  • You will see “Reservation Formation Registration Documents”. Click this.
  • Then you will see the option to click on “Domestic Limited Liability Company” and then click “Filing Document.”
  • Next, click on “Certificate of Formation” in the “Filing Type” dropdown, then click continue.

To successfully file a Certificate of Formation for your Texas business, you must fill up these three articles:

Article One – Entity Type and Name

Select LLC type as your Texas business structure. In this case, you will select, “Limited Liability Company” and you will enter your unique business name.

Article Two – Registered Agent Information

You must include the name and address of your registered agent in your application. Be sure to select the proper registered agent option depending on which type of Texas registered agent you’re using.

If you are using an entity registered agent service, enter the Texas business name and leave the first and last name fields blank. Be sure to include the legal address for your LLC in Texas. If you are using an individual registered agent to form a Texas LLC, enter the individual’s first and last name and address.

Article Three – Governing Authority (Management)

The governing authority section of your Certificate of Formation designates the officers of the Texas LLC and who will serve as managers of the Texas LLC. You must know how you plan to manage your Texas LLC for this section. This is something you figure out as you form an LLC.

  • Your LLC can be managed by the LLC members (this is called a member-managed LLC) or it can be managed by managers hired by the LLC members (this is called a manager-managed LLC). All you have to do is decide between a member-managed or manager-managed LLC.

File by Mail or Online

You have the option to file your Certificate of Formation by mail or online through the Secretary of State website. Filing online will be much quicker, but not everyone prefers this option. If you don’t want to file online, you can choose to file by mail and you will also send the payment by mail. To file online, download form 205 from the Secretary of State website and simply mail it in. The form has the same sections that are found when filing online.

Include the payment, two copies of the Certificate of Formation, and your Consent to Serve as Registered Agent in the packet and mail to:

Corporations Sections

Secretary of state

Po Box 13697

Austin, TX 78711-3697

Texas Approval Process for Mail-in Forms

The process to approve your mailed-in documents will take 7–10 working days. If you choose to file online, click “Submit Filing” after filling out the forms. Your card will be charged $300 Texas LLC filing fee plus a convenience fee of 2.7%.

It’s a good idea to track the status of your filing with the Texas Business Filing Tracker. To use the Texas Business Filing Tracker, put your entity name in the search engine to see the status. Please allow time for the Texas Secretary of State’s office to receive your filing before attempting to search for the status.

You can expect your Texas LLC to be approved within 3 working days. After it is approved, you will receive the following documents:

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4. Create Your Texas LLC Operating Agreement

When you form your LLC, you do not need to file an LLC operating agreement within Texas state. The Texas LLC operating agreement is for the smooth operation of your business entity. This agreement pulls together key factors about ownership, management, and how decisions will be made that can drastically affect the business entity to make sure that everything is taken care of professionally.

Every LLC should have an operating agreement as it’s just as important as the asset protection that comes with an LLC. If there is ever a disagreement among the members, the operating agreement will help legal matters to be determined. Your Texas LLC operating agreement becomes legally binding once all members have signed the document.

When creating an operating agreement for your Texas LLC, it should include:

  • The LLC’s name and effective date
  • The name and responsibility of each member
  • The name of the registered agent
  • The purpose of the LLC
  • A discussion about ownership, profits, and distributions
  • An outline about taxation or franchising if applicable

If you’re using a registered agent in Texas, it may be a good idea to have him or her review the information before signing the contract. The agent will have a lot of knowledge about what should be put in an agreement and could benefit you with additional sections.

You should consider hiring an accountant to assist you with determining how profits should be accounted for, and this should be listed in your LLC operating agreement. At minimal, profits should be determined based on each members’ percentage ownership. The LLC operating agreement will outline when the owners will take a distribution from the LLC’s profits. This could be once a quarter or once monthly or at any periodic rate determined by the members.

Voting Rights

Generally, voting rights are determined by the percentage of ownership across members. The operating agreement should outline how the members will take matters to a vote. The operating agreement should answer the following questions:

  • Will the manager have sole managerial authority?
  • What issues should the manager consult members on before making a decision?
  • Will the manager be involved in board decisions?
  • What will be the manager’s salary or other compensation?
  • What will be the process to remove a manager from his/her position?

There are many other questions to consider answering in your operating agreement that will be determined based on your Texas LLC’s needs.

5. Getting Your Federal Tax ID Number (EIN)

Your next step for forming an LLC in Texas is to apply for an employer identification number (EIN). Securing an EIN is totally free and is obtained directly from the IRS. For this reason, you should wait until your LLC is approved before you apply for an EIN. The EIN can be referred by other names as well. It is called Employer ID number, Federal Tax Identification Number, or Federal Tax Number.

The EIN is like your business’ social security number. When you get an EIN, the IRS uses it to track your tax obligations. Other business will also request your EIN through a document called the W-9 whenever they do business with you. This is to ensure that all parties are in compliance with the IRS.

In most cases, you will need an EIN before you can open a bank account since the business bank account will need to be properly registered. You won’t be able to file taxes for your LLC without an EIN or proper LLC state filing. You absolutely won’t be able to hire employees without an employer identification number/EIN. Lastly, having an EIN makes it easier for you to apply for business licenses and permits as well when you form a Texas LLC.

How to Apply for an EIN

To get an EIN for your business entity, go to the IRS website to apply. Complete the electronic forms and press submit. You will be issued your EIN document instantly. Follow these steps when applying online:

  • Include your LLC’s legal name
  • Indicate your type of business and the number of members
  • Select if you wish to be treated as a single-member LLC or a multi-member LLC
  • Select why the LLC is requesting an EIN. For most, it will be to start a new business
  • Designate the EIN responsible party

Once this process is complete, you can now start filing your business tax and income tax through your EIN every year.

6. State Taxes for Your Texas LLC

There are different types of taxes that you’ll be responsible for depending upon what type of business you operate. You’ll almost always have to pay income tax, and you might also owe an annual franchise tax if you’re operating a franchise. It’s best to work with a professional LLC formation service so you don’t make any errors when forming an LLC.

State law says that all Texas LLCs, regardless of their business operations or federal filing status, must file Texas franchise tax. This franchise tax is assessed for doing business in Texas and comes in various tax rates:

  • 0.375% of taxable revenue for wholesalers and retailers
  • 0.75% of taxable revenue for all other businesses
  • 0.331% of taxable revenue for businesses using the EZ computation method.

The state of Texas has a “no tax threshold,” and although the franchise tax is assessed on all businesses, most businesses, about 90%, won’t be taxed due to the no tax threshold. To meet the threshold, a business must have revenues greater than $1,130,000 or have a tax bill of less than $1,000. All Veteran LLCs are exempt from the Texas franchise tax for the first five years of business operations, so make sure that you collect that discount if you operate your small business as a veteran.

Whenever a Texas LLC is subject to the franchise tax, it must file the following forms:

  • Public Information Report (Form 05-102)
  • EZ Computation Report (Form 05-169) or a Long Form (Form 05-158-A & Form 05-158-B)

Visit the Texas Comptroller of Public Accounts Website for more details about special situations and other rules.

7. Business Licenses and Permits

When it comes to obtaining a business license, you don’t have much to worry about in the state of Texas. Texas does not have a state-level business license requirement. However, you still may have regulatory permits and licenses to obtain depending on the type of business or services you are providing. You should also check with your local municipalities for local tax rules and requirements for your specific small business.

Check the Texas.gov website to see a list of probable licenses you may require for you to form your LLC. It’s wise to work with an LLC formation professional to make sure that you have the proper licenses to operate your LLC legally.

8. Open Your Texas LLC Bank Account

If you want to operate business professionally, you’ll need a small business bank account. Not only will this make the accounting easier, but it will also protect all members’ personal assets in the event of debt collection or a lawsuit. Just be sure to get an EIN before going to open up your bank account.

You will need to set up a bank account in your LLC’s business name so that you can ensure that you have sufficient funds to properly operate your business. Some banks charge fees for LLC accounts while others do not, so it’s wise to call around to a few different banks so you can understand their policies. LLC Formations can recommend banks in your area for you to start your business account.

If you plan to hire employees or if you need to pay your multi member team, you’ll need to pay them from your small business bank account. Additionally, if you plan to expand your business down the line, it’s important to establish a line of credit with your bank. This way, you’ll have access to loans and a business credit card that can help you organize expenses. Also, a business credit card can have a high line of credit, which can help you to grow your business much more quickly than just being able to spend from savings.

Opening a Texas Professional Limited Liability Company (PLLC)

The Texas professional limited liability company, or PLLC, is a special type of LLC designation for those business owners who will operate a professional service business in Texas. This designation gives these owners additional liability protections that they may not get through a regular LLC. Some of the professional services that could form a PLLC are:

  • Lawyers
  • Doctors
  • Veterinarians
  • Certified Public Accountants
  • Dentists
  • Other professional service requiring certifications

Generally, you are required to obtain board certification or some type of state sanctioned license to perform these services and operate as an LLC in Texas. Having the necessary licensure will be the very first step in to form a PLLC. You can file your PLLC online through SOSDirect or by mail. To file by mail, download Form 206 to get started.

Liability Protections

The PLLC will offer some general liability protections that are afforded to those starting an LLC in Texas. Generally, the LLC limits liability to the business and not to the members of the LLC. In a PLLC, the members are shielded from certain cases where other members of the practice are involved in negligence or malpractice.

Limited liability designations do not prevent you from being liable in all cases. Consider if you are negligent in your operations, you may be subject to penalty through malpractice cases. Limited liability does not waive certain tort laws that you may be subject to should you be found at fault for someone else’s injuries while operating as an LLC in Texas.

Opening a Texas LLC as a Veteran

The state of Texas offers special exemptions for veterans who wish to start an LLC. Those seeking to get these exemptions will benefit from a $0 filing fee and five years exemption from Texas’ Franchise Tax. There are a few requirements that must be met:

  • The LLC members must all be honorably discharged veterans from any branch in the US Armed Forces
  • They must be 100% owners of the Texas LLC

To form your Texas LLC as a veteran, obtain a copy of your DD-214. This form will verify that you have been released from duty. You can contact the military for this form through milConnect or the National Archives. There are two forms types and you must obtain one or both, Member copy 4 or Service copy 2. Next, obtain a Letter of Verification of Veteran’s Honorable Discharge from the Texas Veterans Commission (TVC). Print out the letter and sign it and mail it to:

Texas Veterans Commission

Attn: VEP

PO Box 12277

Austin TX, 787111

You can also send it by email to [email protected] The TVC will process your request in 7 -10 working days. Once completed, they will send you a Letter of Verification along with a unique ID that you will require in the next step so you can operate as an LLC and benefit from asset protection.

Are you a veteren wanting to file an LLC? Leave the paperwork to us. We offer a comprehensive LLC setup service!

Certification of New Veteran-Owned Business

Obtain the Certification of New Veteran-Owned Business from the Texas Comptroller website. To find the form on the Texas Comptroller site, you can search for it by title or scroll down to “Additional Franchise Tax Forms,” Click on “Certification of New Veteran-Owned Business, then click on “05-904” to download the form so you can open your Texas LLC.

Form 05-904

  • Enter your chosen Texas LLC Name
  • List all members of the Texas LLC, their unique IDs from their Letter of Verification, and how much of the LLC they will own
  • Have each member of the Texas LLC sign the form

This form will then be sent to the Secretary of State office.

Naming Your Veteran Texas LLC

Texas governs how Veteran Organizations can be named. Your Texas LLC organization name cannot contain the following words in any form or abbreviation:

  • Veteran
  • Foreign
  • Legion
  • Spanish
  • Disabled
  • War
  • World War

This type of Texas LLC cannot imply that it is affiliated with or intended to benefit war veterans or their families as a Texas LLC that simply operates as a business.

LLC Certificate of Formation

This step will be similar to the Certificate of Formation steps already covered. Download Form 205 to begin. Refer back to this section for Texas LLCs earlier in the article to be guided step by step on how to complete the form.

The Texas Veteran LLC can only be filed by mail. Mail your completed documents to the Texas Secretary of State’s office.

Be sure you have the following:

  • Letter of Verification
  • Certification of New Veteran-Owned business: Form 05-904
  • Certification of Formation: Form 205

Mail all forms together to:

Corporate Sections

Secretary of State

PO Box 13697

Austin TX, 78711

The biggest benefit of starting a Veteran-Owned Limited Liability Company is the cost breaks. This break is extended to those veterans who may have already started an LLC in Texas but have paid the origination fees for a regular Texas LLC. If you are a veteran and you’ve filed an LLC in Texas and all members in the Texas LLC are honorably discharged veterans of the US military, you may be due a refund. The Texas LLC must be filed any time after January 1, 2016. To get a refund for your filing fees:

  • Create a cover letter asking for a refund
  • Include your name, contact information, business address, Texas LLC name, and LLC file number
  • Obtain a Letter of verification from the TVC
  • Complete form 05-904 (Certification of New Veteran-Owned Business)

Send the documents to the Texas Secretary of State’s office as if you were filing a new Certificate of Formation. Your documents will be reviewed and if you are determined to be eligible, you will be refunded your filing fees and your LLC will be reclassified as a Veteran-Owned Business in the State of Texas.

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How Can LLC Formations Help You?

If all of that sounds like a lot of work, that’s because it is! For first-time business owners, all of the forms, certificates, and processes required to form an LLC can feel pretty overwhelming. At LLC Formations, our team of talented individuals can guide you through every step of the way and offer advice, information, and consultations on state-specific requirements.

That way, you can spend more time worrying about your business structure, your product, and marketing, and less time thinking about things like federal tax, state tax, your business licenses, and the like.

For assistance and guidance on how to form an LLC, acquire a registered agent, file for a certificate of formation, or acquire business licenses, simply fill out our simple application

LLC Formation can also help you to identify the right business structure for you, as well as guide you to all the necessary information you need about starting a business.

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