How to File an LLC in Texas: Setting up a Texas LLC
How To Set Up An LLC In Texas
If you’re looking to set up an LLC, Texas is a great place to do so. Setting up a Limited Liability Company in Texas is a big move that often requires potential business owners to invest a lot of time and money into starting their LLC, but it’s a sure way to protect yourself from personal liability. There are various entity types that the state of Texas requires to operate a business legally. The most common type of business entity is a Texas LLC.
Filing an LLC is not a difficult task, but there are a lot of things you need to file in order to get your company started. Here’s how you can prepare to set up an LLC in Texas. Once you have decided to form an LLC, you’ll have a few documents to get to the Secretary of State. Here’s what you can do:
Naming Your Business
The name of your Texas LLC must be unique, as there cannot be another business in Texas that shares the same name. Once you decide the name of the LLC, there are three ways to look for a similarly named LLC in Texas. You should have at least three in case your top name choice is not available.
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, Monday – Friday, 8am – 5pm. It’s best to contact them early in the morning within the first hour of operation to avoid long hold times. Let them know that you would like 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. Review the Texas Filing Code 79.45 for additional details.
Consider emailing the Texas Secretary of State’s office to check for any similarly named LLC in Texas. You can email them by clicking on this link or sending an email directly to [email protected]. This link should open your email client for you to compose your message. Use the message template below to request a name search verification.
I wish to verify an active name registration for the following names:
- [Name One]
- [Name Two]
- [Name Three]
Please contact me with any questions
Your Email Address
Your Phone Number
Ask for your top three names in case your top choice is not available. This may prevent you from having to go through the name search process a second or third time. If your name is available, proceed to the next steps of the Texas LLC filing process.
Let Us Help You!
Let Us Help You!
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 Texas Secretary of State’s office has an online database that allows you to conduct a Texas LLC lookup for your chosen name against other Texas LLCs. Although this is a good tool to use, it is not the most reliable for a Texas LLC search. Email or phone are the best ways to get current information about other Texas LLCs, but if you are unable to inquire by phone or email, online is your next best option.
To get started, visit the Taxable Entity Search web page. The page will load to a form that directs you to begin your search. Always 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:
- Chili Pepper’s Tex-Mex Tavern
- Chili Pepper’s Tavern
- Chili Pepper Tavern
- Chili Pepper Tex-Mex Tavern
- Chili Pepper’s
- Chili Pepper
The best thing to do is to ensure that your LLCs name is completely unique. If your name is too similar to another Texas LLC, you may face trademark issues when it comes to advertising and branding your business. Once you have found a unique name for your Texas LLC, move on to the next steps of what you need to file.
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.
Before you can form an LLC and conduct business in Texas, you must first find a registered agent. This is required per Texas law in Texas statute section 5.201.
Ensure that your registered agent meets the Texas state requirements before you employ them too, as this individual or business will receive legal mail on behalf of your business.
These are some key requirements a registered agent must meet to be listed on 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 a registered agent that is dependable and one that you can trust, 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.
Who Can be a Registered Agent
- Be your own registered agent
- Hire a friend or family member
- Hire an business or other entity
Whichever option you chose, your registered agent must have a legal Texas address. Your registered agent is listed publicly as the point of contact for your LLC. If you list yourself as your own registered agent for your LLC, keep this in mind, especially if your business is a home-based Texas business. If you are concerned about the privacy and protection of your home, it is best to seek a registered agent that has a separate address. You can hire a registered agent that specializes in business development and who can be set up as your point of contact. The address of your registered agent must be a legal Texas address.
Your registered agent must consent to service for all llcs in Texas. You should complete form 401-A and include it with your registration records when forming an LLC, but it is not required to file this form with the State of Texas. If you list registered agents without their consent, you could face fines and legal issues.
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.
How To File A Texas LLC 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. You must file this form, otherwise your business will not be regarded as a legal entity and you will not have the personal liability protection.
In Texas, the filing fee for your Texas Business is $300 for your certificate. 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.
When filing for a Texas LLC Certificate of Formation online, the processing time is 2-3 business days after submitting everything you need to file. If you must file by mail for your Certificate of Formation, expect a processing time of 7-10 business days after submission when it’s filed online. The trade off of a higher online filing fee is that it is easier and faster to file a Certificate of Formation when your Texas business is filed online. We recommend filing online since the fee to file is the same for mailing your Texas LLC formation documents into the Texas Secretary of State’s office.
For Texas LLCs, filing procedures depend on the type of business you are forming. Any business that requires professional licensure, such as a doctor’s office or law practice, must 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.”
File A Certificate Online with SOSDirect
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.
Completing the Texas LLC Certificate of Formation Sections
To successfully file a Certificate of Formation for your Texas business, you must fill up 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.”
- Enter your entity name. Remember, the name must be unique for all LLCs in Texas.
Article Two – Registered Agent Information
You must include the name and address of your registered agent in your Certificate of Formation application. You will have two options on how to fill this section out about your registered agent. Fill it out based on the type of registered agent you’re using for your Texas LLC.
If it is an entity:
- Enter the Texas business name and leave the first and last name fields blank.
- Enter the Texas business’ legal address.
If it is an individual:
- Enter the individual’s first and last name.
- Enter the individual’s address.
In both cases, select whether you want to upload the consent to serve as a registered agent form that shows your registered agent gives their consent to be your registered agent. Remember, this upload is not required by Texas.
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.
- Selected how your LLC will be managed: member-managed or manager-managed.Once you have decided between member-managed or manager-managed, enter each member or manager’s name and address until all have been entered.
Other Formation Processes
After you’ve completed your Articles, you will have a few more sections to complete to close out the certificate of formation process.
This section allows you to add additional information about your Texas LLC. Usually, legal designations are loaded here or other documents advised by your attorney.
Attachment/Letter of Consent
You can attach any letters of consent to this section. Since you have already been given the option to attach the registered agent letter of consent in the registered agent article section, this section may not be beneficial.
Enter the name and address of the person completing the formation documents. This does not have to be a member of the LLC or the registered agent. The organizer does not become a part of the entity by being listed as the organizer.
The person organizing the application must enter their name here which will serve as an electronic signature.
Delayed Effective Date
This section allows you to delay the start date of your Texas LLC up to 90 days into the future. If you do not wish to set a future date as the effective date, leave this section blank.
You have now completed all of the necessary data for the Certificate of Formation. Review each section carefully for accuracy. Make changes where needed.
Click “Submit Filing”. Your card will be charged $300 Texas LLC filing fee plus a convenience fee of 2.7%.
You can expect your Texas LLC to be approved within 3 business days. After it is approved, you will receive the following documents:
Filing By Mail
If you don’t want to file online, you can choose to file by mail. To do so, you must download form 205 and mail it in. The Certificate of Formation form has the same sections that are found when filing online. There are three articles that you much complete. Review page 1 of the form which gives you instructions.
It will also provide you with some definitions. Refer to the steps in the online filing section above for additional guidance.
You can include the consent to serve as registered agent form with your mail-in filing. Texas state will keep this form on file for record purposes, but it is not required.
For the filing fee, you can prepare a check or money order and send it to the Secretary of State for Texas. The check or money order should be made out to “Secretary of State.” Make the payment out for $300 for the filing fee.
Your must include the payment, 2 copies of the Certificate of Formation, and your Consent to Serve as Registered Agent in the packet and mail to:
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 business days. There may be additional time added to this for mail courier. Once your filing is approved, you will receive three notices by mail:
Make sure to track the status of your filing with the Texas Business Filing Tracker. To use the Texas Business Filing Tracker, put in part or all of your entity name in the search engine. You will see the status of your filing. Please allow time for the Texas Secretary of State’s office to receive your filing before attempting to search for the status.
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 limited liability company. Some of the professional services that could form a PLLC are:
- Certified Public Accountants
- 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 a business in Texas. Having the necessary licensure will be the very first step in to form a PLLC. Before getting started, ensure you’ve verified your license status for each member of the PLLC. You should also check with the licensing board for the profession to ensure there are no additional requirements to be met before forming a Texas LLC for professionals.
You can file your PLLC online through SOSDirect or by mail. To file by mail, download Form 206 to get started. The Professional Certificate of Formation sections are much like the sections required for filing a regular LLC. Refer to this section for additional guidance.
Naming your PLLC will follow the same guidelines as naming a regular LLC. Your name must be unique and the name must have Professional Limited Liability Company or PLLC in it.
Make sure that all members of the PLLC are licensed in the state of Texas to perform the professional services governed by the PLLC. The members are responsible for keeping their licenses up to date.
Some PLLCs may have variety of professional services such as a general physician’s office. There are no rules against this, but make sure to consult with your attorney when structuring complex PLLC situations.
The PLLC will offer some general liability protections that are afforded to those starting an LLC. Generally, the LLC limits liability to the business and not to the members of the LLC. In a Professional Limited Liability Company, the members are shielded from certain cases where other members of the practice are involved in negligence or malpractice.
The limited liability designation also restricts creditors from collecting on debts that the PLLC owes. You should consider the state laws in Texas for Professional Limited Liability Companies and see if your profession requires additional malpractice insurance at set limits.
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.
Why Form a PLLC Over a Professional Corporation?
A professional corporation and a Professional Limited Liability Company have similar attributes. They are different in how the owners take advantage of the business structure. With a Professional Limited Liability Company, the owners are called members who share a certain percentage of interest in the business. With a professional corporation, the owners are considered shareholders and they share stock of ownership in the business.
Other notable differences in the PLLC and the PC is how they are taxed. PLLC members may take advantage of being a pass-through entity for tax purposes which prevents them from being double taxed, whereas the PC will be doubled taxed-once at the ownership level through dividends and once at the entity level through an income tax on revenues.
A professional seeking to start a private practice would benefit best to file their business as a Professional Limited Liability Company. The PLLC is simpler to maintain and the tax structure may be more advantageous. Although the PC and the PLLC may be very similar, most business owners seeking to start a professional service business opt to start with the PLLC.
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 also be 100% owners of the Texas LLC. This means there cannot be any member in the Texas LLC that is not a veteran of the US Armed Forces. This Texas LLC formation type restricts any person who is still an active military member to be involved in the business.
- Obtain a copy of your DD-214. This form will verify that you have been released from duty. Contact the military to obtain this form. Do so 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.
- Remember this form is to prove you are no longer on active duty. Your personal information is not relevant and should be redacted.
- Next, obtain a Letter of Verification of Veteran’s Honorable Discharge from the Texas Veterans Commission (TVC).
Submit a letter requesting proof of honorable discharge. Your wording could look something like this:
Senate Bill 1049 directs my ability to verify my status as an honorably discharged Veteran of the United States Military. Please see my DD Form 214 attached.
- You must include your full legal name and Texas address, phone number, and email address.
- Print out the letter and sign it and mail it to:
Texas Veterans Commission
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 business days. Once completed, they will send you a Letter of Verification along with a unique ID that you will require in the next step.
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.
- Enter your chosen Texas LLC Name
- List all members of the Texas LLC, their unique IDs from their Letter of Verification in the previous step, 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 Texas Secretary of State’s office.
Creating your Veteran Limited Liability Company
Veterans receive additional benefits when opening up a Texas LLC. However, the formation process looks a little different. Here are some additional things to consider when working towards the formation of your Texas LLC as a veteran:
Texas governs how Veteran Organizations can be named. Your Texas LLC organization name cannot contain the following words in any form or abbreviation:
- 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 the Certificate of Formation section for Texas LLCs earlier in the article to be guided step by step on completing the Certificate of Formation 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:
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. You must include your name, contact information, 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.
Remember your existing Texas LLC must meet the name requirements for Texas Veteran LLCs. Other benefits of the Texas Veteran’s LLC is not having to pay franchise tax for five years. We will discuss this in greater detail in the Tax section.
Texas LLC Operating Agreement
The Texas LLC operating agreement directs the LLC members on how to operate the business. This agreement pulls together key factors about ownership, management, and how decisions will be made that can drastically affect the Texas LLC. Every LLC should have an operating agreement. It will come in handy if there is ever a disagreement among the members. The operating agreement will help legal matters to be determined should a fall-out between members make it to a court of law.
Here’s what you should know about acquiring Texas LLC operating agreement:
Your Texas LLC operating agreement should list the LLC’s name and effective date. It should designate who the members have agreed to be the registered agent. The purpose of the Texas LLC should be outlined, along with how long the Texas LLC will last. A discussion about taxation should be listed and franchise tax should be outlined if applicable.
If you’re using a registered agent, 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.
Key factors about the Texas LLC Members’ ownership will be listed in the operating agreement. Each member shares a percentage interest in the LLC. This is usually determined by the percentage of investment to total investments made to fund the LLC. This percent ownership also helps to determine percentage of liability against members. This is where the “limited” in limited liability derives. The operating agreement should be very clear on the members of the LLC and the percentage they own in the LLC.
It is best to use funding amounts to calculate percent ownership. Each member should fund their agreed upon dollar amount into the LLC with an indisputable method of payment that traces the payment back to the member. The operating agreement should discuss how members can leave the LLC through the sale of their invested interest in the LLC.
Profits and % distributions
You should consider hiring an accountant to assist you with determining how profits should be accounted for. At minimal, profits should be determined based on each members’ percentage ownership. The 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. The member’s profit-share will be based according to their ownership.
If a two-member LLC splits ownership down the middle, then each member owns 50% of the LLC. If the profits from quarter 1 were $10,000 and the LLC votes to retain $2,000 and pay the remaining $8,000 as dividends, then each member receives payment of $4,000. Including parameters for profits in the operating agreement will reduce the chances of confusion and problems among members.
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. If it will be based on majority ownership, then decisions could be made by a single member if they own 51% or more of the LLC or a combination of members who own 51% or more of the LLC.
Members should vote on the management format for the LLC. They should consider the pros and cons of having a hired manager or electing one of the members to be a manager. The operating agreement will also note how the manager will manage the LLC. It 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 that will be determined based on your Texas LLC’s needs.
An operating agreement will be just as beneficial to a single-member LLC as it is to a multi-member LLC. The cornerstone of having an LLC is the ability to separate the business from the owner in liability situations. A well-thought out and thorough LLC operating agreement can prove your case in a court of law about your business and it’s separation from you as the owner.
Because a single-member LLC can easily be operated as a sole proprietorship, the lines can become blurred and proving separation for the sake of the limited liability benefit of an LLC can become cumbersome. Your LLC operating agreement would help alleviate the problems that may arise from that scenario.
In addition, if you are planning to take on an additional member In the future, an operating agreement could be the written proof that any prior financial success the organization has incurred is the result of your current operating agreement. It could be easily agreed upon with a few amendments for new members being added to the LLC.
Where else does your LLC operating agreement matter?
When operating an LLC in Texas, you are not required to file your LL operating agreement within Texas state. The operating agreement is for your LLC’s operations. It will help you to establish business relationships with other businesses. As mentioned, the operating agreement will become much needed in a court situation with you, your LLC and a claimant. It may also be requested by financial institutions who you are seeking to get funding or credit from. It may also be required by future investors who may be interested in investing in your business as silent members.
Silent members do not have much say in how a business operates but a well-drawn out LLC operating agreement will give them more confidence that what they are investing in is the right decision for them.
Your LLC’s operating agreement becomes legally binding once all members have signed the document. You won’t need to have it notarized or sealed by any official state office. For this reason, you should consider an attorney or a business services organization for assistance in drafting your LLC operating agreement. You may also consider consulting with a CPA about including taxation discussions in your LLC operating agreement.
Leave It To Us!
Leave It To Us!
Employee Identification Number (EIN)
Your next step is to apply for an employer identification number (EIN). Securing an EIN is totally free and can be obtained directly from the IRS. You don’t have to have an entity formation to apply for and be issued an EIN. For this reason, you should wait until your LLC is approved before applying for the EIN.
The EIN is like your business’ Social Security Number (SSN). 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. Some organizations follow this strictly and will not do business with you or send you payment for services unless you have a valid W9.
The EIN can be referred by other names as well. It is called Employer ID number, Federal Tax Identification Number, or Federal Tax Number. Tax ID number or TIN is the most common alternate name for the EIN.
In most cases, you will need an EIN before you can open a bank account. You won’t be able to file taxes for your LLC without an EIN. You absolutely won’t be able to pay your 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.
There are multiple tax situations your LLC will be subject to depending on the number of members. The IRS will default all single-member LLCs as a disregarded entity and tax them as such. This means that the single member will pay taxes on the revenue of the business only. There will be no double taxation involved. Most times, this revenue is filed on the owner’s personal tax returns on a schedule dedicated for that purpose.
Multi-member LLCs are taxed as partnerships. There is also no double taxation that takes place. However, a multi-member LLC may elect to be taxed as a corporation by filing Form 8832 after they have been issued their EIN. They will be treated as a corporation for tax purposes, and if they elect to be taxed as a C corporation instead of a S orporation, they will be subject to double taxation. The S Corporation designation is the most popular because it enables the pass-through activity where the members are only taxed once on the business revenues.
Apply for EIN
Go to the IRS website to apply for your LLC’s EIN. Complete the electronic forms and submit. You will be issued your EIN document instantly. Follow these steps when applying online:
- Indicate what type of business you have.
- How many members does the LLC have.
- The form will ask you about being a Qualified Joint Venture. Because you are forming an LLC business in Texas and it is a community property state, if you and your spouse are the only joint-members of the LLC, you may be taxed as a qualified joint venture. This will treat you and your spouse as one owner for tax purposes.
- If you are choosing qualified joint venture, it will ask you to select if you wish to be treated as a single-member LLC or a multi-member LLC.
- Select why the LLC is requesting an LLC. For most, it will be to start a new business.
- Designate the EIN Responsible Party. You will have to put in information about this person. See below for more information.
The IRS requires an individual, much like the registered agent, to be on file with the EIN application. They are called the EIN Responsible Party. This person will be considered the contact person for your LLC in regards to matters related to the IRS and your business. The person is usually a member of the LLC. Unlike a registered agent, the EIN Responsible Party cannot be another business or entity. The IRS system will block your application if your EIN Responsible Party listed is a business.
- Enter your business’ physical address information. The IRS will do an address check for tax purposes. This will also be the address where the IRS will send communication to you. If you want mail to be sent to an address that’s different from your physical address, you will see an option to list a different mailing address.
- The IRS will ask you about your LLC. It will request its name, location, business purpose, etc.
- Now you will be asked how you want to receive your EIN letter. You can receive it immediately in a PDF format. You will need to have a PDF Reader enabled on your computer. You can elect to have it mailed to you and you will receive it in up to 4 weeks.
Once this process is complete, you can now start filing your business tax through your EIN.
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. The franchise tax is one of three 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. Most of these will still fall within the 90% of businesses who fall within the no tax threshold.
Even if your LLC does not have to pay the Texas franchise tax because it falls within the no tax threshold, it still must file these tax forms with the state of Texas:
- Public Information Form (Form 05-102)
- No Tax Due Report (Form 05-163)
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 Website for more details about special situations and other rules regarding the Texas Franchise Tax.
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. 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.
Check the Texas.gov website to see a list of probable licenses you may require for your business.
Sales tax and resellers permits
Texas requires sales tax if you plan to sell tangible goods or conduct taxable services within the state of Texas. You must register for a sales tax permit at WebFile.
Texas also requires a Resellers certificate if you will be conducting retail business in the state. You are a reseller if you buy finished goods and resale them to the consumer. If your business falls into this category, you must complete form 01-339.
You will present the certificate to those you buy goods from to avoid paying sales tax on those goods. You will ultimately pay tax on the resale of those goods.
Contact the Texas Comptroller if you have more questions about how to start an LLC in Texas or any other topics on running an LLC in Texas.
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.