Benefits of structuring a LLC in Texas.
A Limited Liability Company (LLC) is a very beneficial option if you are thinking of starting your business in Texas or have already been operating as a sole proprietor. LLCs limit an owner’s personal liability for lawsuits and business debts and offer a lot of flexibility when it comes to taxes, management and ownership.
An LLC is not only limited to companies. If you are a self-employed with professional experience as a dentist, certified public accountant, attorney, architect, etc, you could benefit from an LLC (PLLC). Generally, if you provide a service that requires you to obtain a Texas state license before practicing, then you are a professional service provider. Each member of the company must be licensed in order to form a PLLC.
You can also form a single-member LLC. For most formation purposes, a Texas single-member LLC (SMLLC) is considered the same as a multi-member LLC, plus, you have the added benefit of extra flexibility when it comes to filing taxes.
The next steps will help you form your own Limited Liability Company (LLC) in Texas.
First, you have to name your LLC. You must have a distinguishable name from the names of other business entities already filed with the Texas Secretary of State. Check the Texas Secretary of State SOSDirect website for name availabilities.
Also, an LLC must contain the words “Limited Company” or “Limited Liability Company” or the abbreviations “LC”, “LLC”, “L.L.C.” or “L.C.”. “Limited” may be abbreviated as “Ltd.” or “LTD” and “Company” as “Co.” After creating your name, you may reserve it for 120 days by filing an Application for Reservation or Renewal of Reservation of an Entity Name (Form 501) with the Texas Secretary of State. The filing fee for the reservation is $40.
Because it is essential to make sure that your LLC’s name is distinguishable from the names of other existing businesses on file with the Texas Secretary of State, you can conduct a name search for free on the Texas Comptroller of Public Accounts website to make sure your desired name is available. Business name availability can also be checked on the Texas Secretary of State website prior to filing your LLC, although the SOS will collect a $1 fee for these searches.
You don’t have to use the LLC’s official legal name registered in your Certificate of Formation when doing business. You can instead use an assumed name, called a “DBA” (Doing Business As), fictitious business name or trade name. To do so, you must register an Assumed Name Certificate (Form 503) with the Texas Secretary of State in the county where your LLC’s office is located. The filing fee is $25 and you can register online through SOSDirect or by mail.
Next on, file your certificate of formation. To create a Texas LLC, you must file a Certificate of Formation for a Limited Liability Company (Form 205) with the Secretary of State. The certificate must include:
- The LLC’s name and LLC designation,
- if the LLC is member-managed or manager-managed,
- name and address of each initial manager, (if it’s manager-managed), and
- name and address of each initial member, if it’s member-managed,
- name and address of the LLC’s organizer,
- signature of the organizer,
- effective date of the certificate,
- name and address of the registered agent,
- a general purpose clause.
All of this information should be filed online through the Texas Secretary of State SOSDirect website, or by mail. There is a filing fee of $300 USD.
Next, you have to assign your registered agent. A registered agent or agent for service-of-process is required by law for every Texas LLC. The register agent is a business entity or individual that willingly accepts to receive legal documents on the LLC’s behalf if it was to be sued. This agent may be a local resident of Texas or a business entity authorized to work in the state. The agent must have a physical address in Texas. It is important to know that the LLC cannot be its own registered agent.
For LLCs with more than one member, an EIN (IRS Employer Identification Number) must be filed, even when there are no employees. If you have a one-member LLC, you must acquire an EIN for it only if it will have employees or you elect to have it taxed as a corporation instead of a sole proprietorship. To obtain the EIN you need to complete an online EIN application on the IRS website. The good news is that there are no filing fees for this procedure.
Even though an LLC operating agreement is not required in Texas, it is highly recommended to have it. This agreement is an internal document that establishes how your LLC will be managed. It needs not to be filed with the state (it doesn’t need to be filed with the other official documents). An OA underlines the rights and responsibilities for each member and manager, including how the LLC will be run. It can reduce everybody’s personal risk by showing that the LLC is a separate business entity. Without an OA, state LLC laws will determine how your LLC will operate.
The OA should include the way profits and losses will be allocated, each members’ percentage interests in the LLC, provisions, buy-sell, or buyouts determining what happens when a member wants to sell their interest, becomes disabled or dies, each members’ voting powers, the rules for taking votes and holding meetings and each members’ rights and responsibilities.
What are the costs and business taxes for an LLC in Texas?
To form an LLC, it will cost $40 to file a name reservation application, if you plan to reserve your LLC name prior to filing the Certificate of Formation. The Texas Secretary of State charges a $300 filing fee, plus an additional state-mandated 2.7% convenience fee to file an LLC Certificate of Formation.
Filing yourself is the best way to save money, but completing all of the forms and filing them yourself can also be complicated. You may also hire a lawyer, but this will cost you hundreds, if not thousands of dollars.
In the case of business taxes, for example if you will be selling goods and collecting sales taxes, you will need to register with the Texas Comptroller of Public Accounts. You also have to consider that Texas imposes an annual franchise tax on most LLCs. Depending on the tax involved, you may be able to register online, by mail (using the correct form), or in person at a comptroller field office.
If you are forming a 100% veteran-owned business, the Secretary of State will waive this filing fee for qualifying veterans (honorable discharges only).
Out of State and Foreign LLCs in Texas.
Every LLC created outside of the state must register with the Texas Secretary of State if they plan on doing business in the state. Foreign LLCs must appoint a registered agent for the service of process. The agent has to be a Texas resident or a business entity authorized to do business in the state.
To register, file an Application for Registration of Foreign Limited Liability Company (Form 304). The application may be filed online or by mail. The filing fee is $750 USD.
You must make sure the LLC name is available in Texas by checking the Texas Business Name database before filing the application. If by any chance the name is not available, the foreign LLC must adopt an assumed name for use in Texas. The LLC Assumed Name Certificate (Form 503) must be filed online or by mail with the Secretary of State and you have to pay a $25 filing fee.
What is not required, but recommended for an LLC in Texas?
Unlike most states, Texas does not require LLCs to file annual reports with the Secretary of State. However, LLCs must file annual franchise tax reports.
The State of Texas does not require a general “business” license. Nevertheless, some types of businesses require state-wide licenses. Because most Texas cities and counties do not require a local business license, it is important to check with your city or county government website to determine your local requirements.
Suspending my LLC.
When you are ready to cease all operations and close your business, it is highly recommended to properly dissolve your LLC. This will end all government fees and limit your liability for lawsuits.