Are you considering setting up an LLC in Texas? BetterLegal has developed a complete yet concise guide to help you through the process through our years of experience. The five critical steps to properly set up an LLC in Texas in order are:
Prepare by choosing a Name and Registered Agent
File Certificate of Formation with the State of Texas
Apply for an EIN with the IRS
Obtain an Operating Agreement
Handle Ongoing Texas Compliance and Maintenance
What are the benefits of setting up an LLC in Texas?
An LLC (Limited Liability Company) is a fairly new business structure which combines the best aspects of two older structures.Corporationshave existed since before the US existed, but require heavy maintenance such as quarterly meetings with officially recorded minutes, board approval and distribution of ownership, and more. On the other side of the spectrum is a sole proprietorship (or partnership if more than one person) that possesses tax benefits, but doesn't provide the owners with liability protection.
Combining the liability protection of a corporation and the tax benefits of a partnership, LLCs were created and slowly adopted by all 50 states between 1977-1998. This means that, as the owner of an LLC, you are not personally liable for any debts or obligations of the business. This can be a crucial safeguard for a sole proprietor, as transitioning to an LLC protects your personal assets, such as your home or savings, in the event that the business is sued or faces financial difficulties.
In addition to liability protection, an LLC helps establish credibility for your business. When you officially register your business as an LLC, you are signaling to the public that you are a professional and legitimate operation. This is especially important for a sole owner of a business as customers have more options than ever and are more likely to choose a company that feels more trustworthy. Any credibility you can build with your future customers is extremely important.
1. Choose a Name and Registered Agent in Texas
The first step in setting up an LLC in Texas is choosing a name for your business. The name you choose will represent your company and be used on all official documents, so it's essential to take the time to carefully consider your options.
It may seem tempting to have a very specialized name like "Irene's Texas Ice Cream." However, if you're still iterating on your business offering or may expand, a somewhat generalized name may work in your favor. Don't fret too much as you can always change a Texas LLC's name or use a nickname by filing a Texas DBA. More on those post-formation options can be found underStep 5: Changes and Maintenance.
It's important to choose a name that is unique and not already in use by another business. You can use theTexas Secretary of State's name check serviceto verify the availability of your desired LLC name. If you are having trouble accessing the name check service, you can also call the Texas Secretary of State.Call 512 463-555 (dial 7-1-1 for relay services) or by sending them your name inquiry throug email to[email protected]..
When choosing a name for your LLC, it's important to keep the following guidelines in mind:
- LLC name should be distinguishable (uniqueness is assessed by TX SOS; for example, if similar pronunciation with an existing LLC's name, it will be rejected).
Example: "Three LLC" will be rejected if there is an existing company with the name "3 LLC"
LLC name should NOT be the same as an existing domestic or foreign entity, registered assumed name (DBA), reserved name.
LLC name should NOT indicate or imply that the entity is engaged in a business that the entity is not authorized to pursue (e.g., using Corp. or Corporation as designator when it should be registered as an LLC).
LLC name should NOT falsely imply that the entity is affiliated with a governmental entity.
When choosing a name, it's also important to consider available domain names and social handles. One of our early customers ownedaustineventcollective.comas well asaustineventcollectiveacross every social platform. Unfortunately, someone in Texas already had a registered "Austin Event Collective LLC" and rejected her filing.
If you’re not ready to file, it is possible toreserve your Texas LLC's namebefore officially registering your LLC with the Texas Secretary of State. Please note that this is an additional and separate cost from officially filing your LLC and only holds the name, so you have to decide whether reserving a name for a few months is a better option than simply setting your Effective Start Date for the future (more on this in Step 2).
Choosing a Registered Agent
The next step in setting up an LLC in Texas is choosing aregistered agent. This person or entity will be responsible for receiving official mail from the State of Texas and legal documents on behalf of your business.
The Registered Agent must be located in Texas (P.O. Box, PMB, or virtual addresses are not allowed). It must be a building or street address. The Registered Agent must be available during normal business hours Monday through Friday from 9am to 5pm to collect mail or service of process in person.
It's worth noting that thisinformation is considered a public recordand may be accessed by anyone. This means that anyone can view the names and addresses of themanagers or membersof your LLC by requesting a copy of your Certificate of Formation from the Texas Secretary of State. If you are concerned about privacy, you may want to consider using a third party to act as a registered agent for your LLC rather than using your own personal information. This step helps protect youroperator's and owner'sprivacy and shield your personal information from public view.
There are countless options for Registered Agent Service, but we believe BetterLegal provides the best value.Click here to sign up.
Some additional guidelines in Texas for Registered Agents:
- The organization filing the document may not be designated to serve as its own registered agent.
Example: if you want to form a business with the name, ABC LLC, you may not designate ABC LLC as its own registered agent. It may be an individual (listed managers or members) with a street address in TX, another individual that is not a manager or member but is located in TX, or another entity/organization registered in TX.
The person named as the registered agent must have consented, in a written or electronic form, to serve as the registered agent for the entity. Failure to obtain that consent may result in civil and/or criminal penalties.
Titles, such as Mr., Mrs. or Dr., are NOT to be included when typing in an individual's name. Neither should professional designations, such as M.D., D.D.S. or Esq., be added to the name.
2. Prepare and File the Texas Certificate of Formation
Once you have chosen a name and registered agent for your LLC, you'll need to file the Certificate of Formation with the Texas Secretary of State for a fee of $300 which is refundable. and provide a digital, scanned, or wet signature of the organizer.
Online - To file, go to the state website athttps://www.sos.state.tx.us/corp/sosda/index.shtmlnand complete the steps for the submission.
By Fax Submission - You need to submit a copy of the completed Certificate of Formation and Payment Form to 512 463-5709.
By Mail - You need to mail a copy of the completed Certificate of Formation to:
Corporations Section P. O. Box 13697 Austin, Texas 78711-3697
- In-person or by delivery - Submit or deliver the completed Certificate of Formation to:
James Earl Rudder Office Building 1019 Brazos Austin, Texas 78701
- Credit Card (American Express, Discover, MasterCard, or Visa. Credit card payments are subject to an additional statutory convenience fee of 2.7% of amount charged)
- Check (personal or business) All checks should be made payable to the Secretary of State.
- Money order
- Cash This is only for in-person filing. Cash should not be sent in the mail.
- LegalEase® (A deposit account system administered by Frost Bank)
Note that checks are returned, cash is refunded, credit cards and LegalEase® are not charged when used to pay a filing fee for documents that cannot be filed. You may access the payment form using this link:https://webservices.sos.state.tx.us/forms/payment.pdf
The turnaround time for LLC formation in Texas is advertised by the Secretary of State as one (1) to three (3) business days from the date of submission. Keep in mind that this can take longer based on state examiner’s workload at the time of filing. BetterLegal's internal experience with Texas is two (2) to four (4) business days from the date of payment receipt, as long as the filing request was received during BetterLegal's operating hours (Monday to Friday from 9 a.m. to 7 p.m. EST).
Texas also provides an expedited review of the LLC application for a minimal fee of $25 in addition to the prescribed filing fee. If the document was submitted by mail, fax, or delivery, a cover letter indicating the preferred expedited processing must be attached to the application.
Please note that the Secretary of State's office in Texas is closed on weekends and state holidays. The office is open from 8:00am to 5:00pm, Monday through Friday.
Also note, that you should not apply for an EIN (Step 3) until Texas has approved and delivered your Certificate of Formation in case your LLC's name is rejected.
Setting a Future Effective Date
If you want to set a future "start date" for your LLC, this the date when you submitted your LLC application or a future effective date that may not be more than ninety (90) days from the date of filing. in the State of Texas.
In Texas, you're required to provide mailing address, Principal Office Address (i.e., business address), and Registered Agent address (for Service of Process purposes). If you want your address information to be private rather than public record, make sure your Registered Agent allows for all addresses. BetterLegal's $90/year service provides full privacy.
State's Mailing Address:Mailing address is the address that will be used by the Comptroller of Public Accounts for sending tax information and correspondence to the entity. The initial mailing address may be a post office box or street address.
The Manager's Information section of your LLC's Certificate of Formation may include the names and addresses of the managers or members of your LLC. Here is extra information Texas will want to know about your Managers:
Management Type - Is your LLC manager-managed or member-managed?
Manager's Name - It may be an individual or non-individual manager. Members and managers may be individuals, partnerships, corporations, and any other type of legal entity. However, for non-individual managers, there must be an authorized representative to sign the LLC's articles of organization.
Manager's Address - This may be a business or post office box address, especially if privacy concerns are an issue. Note that a document on file with the secretary of state is a public record that is subject to public access and disclosure.
After the Certificate of Formation has been filed and accepted by the Texas Secretary of State, the LLC is officially formed. Here's what Texas will provide back to you based on your method of submission: an email. Make sure to provide an updated email address on the Filer's information field, regardless of the mode of submission. Otherwise, indicate on the application that you want your documents to be returned through snail mail.
The state will send you an email that from[email protected]with the subject line SOSDirect Filing/Order Acknowledgment.
To download the zip folder, copy and paste the link on your browser. Open the zip file. If your filing has been accepted, there should be three documents with file names: Original_Filing, Acknowledgment, and Certificate. If the filing was rejected, there should be two documents with file names: Rejection Letter and Original Filing.
You may use the link to monitor the status of your filing.
The official deliverables will include: the following documents:
- Acknowledgment Letter
- Certificate of Filing
- Plain copy of the approved Certificate of Formation you filed with the state
You should keep a copy of the Certificate of Formation for your records and use it to open a bank account, apply for business licenses, and conduct other business.
What if my filing is rejected?
If your filing is rejected, you'll receive information from the Texas Secretary of State explaining the reason for the rejection. You can then make the necessary corrections and resubmit your documents. **You need to file anew since TX SOS does not apply the payment unless your LLC has been approved.
In the State of Texas, the fastest option to file without the required expedited fee is through thehttps://direct.sos.state.tx.us/website.
3. Apply for an EIN from the IRS
Obtaining an Employer Identification Number (EIN) is a crucial step in starting an LLC in Texas because banks require it to open a business bank account and the IRS requires it to pay taxes. So if you plan on making money, you'll need one. You don't need to employ anyone to need an EIN, it's simply a poor name choice by the IRS for what is essentially your LLC's Social Security Number or Tax ID.
An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS)to identify a business for tax purposes and formatted as 12-3456789. EINs are free to get from the Internal Revenue Service's website, but can be tricky if you're not careful when answering their questions.
An EIN is a Tax ID for the federal government, it is not your Tax ID for the State of Texas.
Here are some key points to keep in mind when obtaining an EIN for your LLC:
- A Sole Proprietorship'sEIN cannot be transferredto your Texas LLC.
- A Manager or Member must provide their personal information to link the EIN to your Texas LLC.
- You cannot use an existing business' information for an EIN since a business doesn't have a Social Security Number.
- If you're not a US citizen that is in possession of an SSN, you will need to first obtain an ITIN before applying for an EIN through a paper filing.
- Once the EIN is obtained, it must be included on all federal tax returns and other documents that require the business's tax identification number.
- Keep a copy of the EIN confirmation letter for your records.
It's important to note that the EIN is for tax purposes only and does not give any rights or privileges to the holder.
The turnaround time for an EIN is instant and the fee is $0. However, the IRS’ website that generates EINs only works normal business hours EST, so it’s a good idea to plan ahead if getting this item is time sensitive. Also note,that you should not apply for an EIN until Texas has approved and delivered your Certificate of Formation in case your desired business name is rejected.
4. Obtain an Operating Agreement
An operating agreement is an important document for any LLC, as it lays out the rights and responsibilities of the members (owners), as well as the management structure of the LLC. It's not a mandatory document filed with the State of Texas, but it's highly recommended to have notarized as it can help prevent disputes and misunderstandings among members later on.
While it's your preference to decide whether the Texas LLC is manager-managed or member-managed, BetterLegal prefers to set up LLCs as manager-managed since an individual can be both a manager and a member. If a manager/member wants to become passive at a later stage of the company and the Operating Agreement is set up as member-managed, then it opens up a can of worms that could have been avoided by retaining the separation of duties from the beginning.
Here are some key points to keep in mind when creating an Operating Agreement for your LLC:
- Identify the members of the LLC and their respective ownership percentages.
- Outline the decision-making procedures, such as how many members must be present for a meeting to be considered quorate and how many votes are required to pass a resolution.
- Specify the process for admitting new members or removing existing members.
- Include information about how profits and losses will be distributed among members.
- Set out the procedures for amending the Operating Agreement and dissolving the Texas LLC.
This is an important document for a Texas Limited Liability Company and is too often overlooked or skimped on. If setting up a single-member LLC, be wary of professionals that charge hundreds or thousands of dollars for a single-page document. We have seen attorneys charge $3500 for a simple document providing zero ability for supporting multiple owners in the future. While you may start as a sole owner, that may not always be the case. It's best to plan ahead during these early phases before the grind of entrepreneurship sets in.
We've also seen instances where an individual helping with the business early on later claims ownership upon the business' later success.Never refer to someone paid or unpaid as a "partner" in public, especially if you don't have a signed and notarized Operating Agreement in place.
If you're setting up your Texas LLC on your own and need an Operating Agreement, BetterLegal can provide one for a reasonable fee.
The Operating Agreement should be reviewed periodically and updated to ensure that it accurately reflects the current state of the Texas LLC.
Can I file an LLC in Texas myself?
You can file an LLC in Texas yourself by visiting the Texas Secretary of State's website and submitting the necessary paperwork and fees. The process involves filling out the Certificate of Formation and paying a filing fee. Additionally, you will need to choose a unique name for your LLC and appoint a registered agent for your business. Once you have completed the necessary steps and paid the filing fee, you can submit your application to the state for review and approval.
How much does it cost to file an LLC in Texas?
The cost to file an LLC in Texas is $300. This fee is for filing the Certificate of Formation with the state and is refundable.. You may also need to pay additional fees for obtaining a registered agent or for expediting the processing of your application.
Can you file an LLC in Texas for free?
No, there is a fee to file an LLC in Texas. The fee for filing an LLC is $300 and is refundable.. You may also need to pay additional fees for obtaining a registered agent or for expediting the processing of your application.
How fast can you get an LLC in Texas?
The turnaround time for LLC formation in Texas is advertised by the Secretary of State as one (1) to three (3) business days from the date of submission.. This turnaround can take longer based on state examiner’s workload at the time of filing.
Can I file for an LLC in Texas Online?
Yes, you can file for an LLC in Texas online through the Texas Secretary of State's website. The process involves filling out the Certificate of Formation, choosing a unique name for your LLC, and appointing a registered agent. Once you have completed the necessary steps and paid the filing fee, you can submit your application to the state for review and approval.
What is the minimum number of members in a Texas LLC?
The minimum number of members in an LLC is one. An LLC can have any number of members, and the members can be individuals or other entities such as corporations or other LLCs.