How to Start Your LLC in Texas

LLC protects your personal belongings against business debts or lawsuits and provides the profit and loss to be allocated to individual member tax returns, eliminating corporate taxation.

This is a step-by-step instruction on how to create an LLC in Texas.

1. Name Your Texas LLC

One of the most significant actions in the creation of LLC is the selection of a business name. Your name is your brand and your first impression and as such, it should be memorable, unique, and representative of your business. The first thing to do is to clarify your business idea, brainstorm with your friends or mentors, and check the internet whether it is available.

Business name generators online can serve to help you get an idea, but it requires human creativity to bring a reflection of what your brand is.

Look at the business database of the Texas Comptroller and also at the US Patent and Trademark Office (USPTO) to confirm that your preferred name is not already used in the area and country.

Doing Business As (DBA)

You will need a DBA, which is abbreviated as an assumed name in Texas, in case you intend to use a name other than your LLC. This will enable you to be branded with various product lines or business enterprises within the same LLC. DBAs may not be done online and you must mail a form to the Secretary of State with a registration fee usually ranging in between 15-25 depending on type of business. The assumed names are effective in ten years.

2. Select a Registered Agent

The Texas law has provisions that all LLCs must appoint a registered agent. It is a person or service that is specified to accept legal and official business correspondence. The agent registered should be 18 years old, the agent should have a physical address in Texas, and the agent should be at the office during the usual business hours.

Although you can act as your own agent, lots of entrepreneurs seek the services of professionals due to convenience, compliance, and confidentiality. This means that you will never miss important legal notices and you can run your business at any location that you choose, just because you were attached to a particular office.

3. Decide Your Management Organization

The LLC in Texas may be member-managed or manager-managed. In LLC member managed, day-to-day operations and decision making are actively involved by all members. Manager-managed LLCs appoint certain managers to run the business whereas other members are passive investors.

Smaller LLCs that involve all the owners should use member-managed structures. Manager-managed LLCs are more suitable in large groups or when some of the members would rather stay at the back. Depending on default, in case your Texas LLC does not state a management structure, it becomes member-managed.

4. Certificate of Formation

The Certificate of Formation (also known as Articles of Organization) is your legal document which essentially forms your LLC. The filing is possible on the SOSDirect system of the Texas Secretary of State or by mail.

You'll need to provide:

• The LLC name
• Registered office and information of agent.
• Organizational behavior (members or managers)
• Business purpose
• Chairperson information and organizer information.
• Effective date

5. Create an Operating Agreement

Even though Texas does not imply the necessity of an operating agreement, it is highly advisable. It is an internal document, and it specifies the ownership, roles, and procedures, which aid in eliminating conflicts and your limited liability.

A detailed operating agreement will generally contain:

• Member information and percentage of ownership.
• Voting rights and management duties.
• Profit allocation procedures.
• Addition and removal of members rules.
• Records and dispute resolving.

Although templates can be found in the internet, having an attorney would make sure that your agreement is binding and that it is tailor made to your LLC requirements.

6. Get an Employer Identification Number (EIN)

Multi-member LLCs, hiring of employees or opening of businessbank accounts require an EIN which is a federal tax ID. One can use the IRS site to apply online to receive an EIN. The application also requires the legal name of a responsible party and Taxpayer Identification Number (normally your SSN) that should be indicated by the IRS.

7. Acquire Business Licenses and Permits

The licensing is different in different industries and places. There is no general business license in Texas but you might require state or local licenses on some of the activities such as selling alcohol, serving food, child care or professional services.

In the event that your business deals in taxable goods or services, you will also be required to have a sales tax permit at the Texas Comptroller office. Never forget to verify city and county regulations regarding zoning, building or signage permits. It may be fined, penalized or closed down when it operates without proper licenses. This can be made easy by hiring a business attorney or a company such as MyCorporation.

8. Determine Your Tax Status

LLCs are structure-wise pass-through entities, implying that the profit and loss are passed onto personal tax returns of members. Single-member LLCs are subject to taxation as sole proprietorships, and multi-member LLCs are partnerships. The self-employment taxes are paid by the members on the profits of the members.

LLCs have the choice of corporate taxation, which has to be submitted as IRS forms:

• C-Corporation: LLC is taxed as a corporate on earnings, and the dividends received by the members are taxed once more at the individual level. This has the ability to keep in business profits.
• S-Corporation: The S-Corporation has all profits and losses transferred to the members, however, a reasonable wage must be paid to the members, which is liable to payroll tax. The balance is still disbursed without self-employment taxes, and it may save taxes.

9. Open Your Business Bank Account

It is essential to keep the personal and business finances separate to protect oneself in court and account properly. In order to open up a business bank account, you will require your EIN and Certificate of Formation. Several banks also demand a copy of your operating agreement.

Additional Financial Steps

• Business Credit Card: Assists in establishing business credit and in controlling cost.
• Business Insurance: This is a good idea to take into account general liability, professional liability, workers compensation, property insurance or a Business Owners Policy (BOP).

10. Keeping LLC Records and Annual Reporting

Have LLC documents, contracts and financial records in order. The LLCs in the state of Texas are required to submit an annual franchise tax report and Public Information Report by the 15th of May of every year. Although no tax is payable, not filing the return may lead to penalties, interest and loss of good standing.

Texas LLC FAQs