With a thriving community of more than 3 million small businesses, it comes as no surprise that Texas boasts the second largest economy in the U.S. and while famous for its mouthwatering BBQ and vibrant live music scene, the Lone Star State offers a plethora of opportunities catered towards small business owners, as well.
Celebrated for its vibrant entrepreneurial scene and business-friendly environment, Texas is the perfect location for an emerging LLC to establish itself. LLCs are easy to start and maintain, offer liability protection, and come with major benefits like increased credibility, flexible management, and tax breaks.
In this ultimate guide, you’ll learn everything there is to know about forming an LLC in Texas. Saddle up and let's dive in!
1. Choose a name for your LLC
First and foremost, you’ll need a catchy name for your LLC. Some may argue that rules were meant to be broken, but when it comes to naming your Texas LLC, you’ll want to abide by all of the regulations.
Texas LLC Naming Rules
When choosing a name for your business, you’ll need to make sure it fits within the following guidelines:
- It must contain the words limited liability company, limited company, or one of its abbreviations (LLC, LC, L.L.C, or L.C.).
- It must be original. To check availability of your preferred name, you can perform a name search on the Texas Secretary of State SOS Direct website. It costs $1.
- It should not be offensive.
- It cannot falsely imply that it has any affiliation with the government .
- It must take into consideration the following rules surrounding specific words:
- The words “insurance” or “surety” must be accompanied by other words, such as agent or agency, that remove the implication that the entity's purpose is to be an insurer.
- The words "bail bond" imply an unlawful purpose and cannot be used when naming your LLC. Entities with these powers must be organized under the Texas Insurance Code.
- An entity name cannot include the words, "Olympic," "Olympiad," or "Citius Altius Fortius” in their name without the authorization or permission of the United States Olympic Committee.
- An entity name cannot include the words "bank," "bank and trust," "trust," "trust company" or a similar term, phrase, or foreign language word unless accompanied by a no objection letter from the Banking Commissioner.
- Your LLC cannot use the words "College," "University," "School of Medicine," "Medical School," "Health Science Center," "School of Law," "Law Center," or "Law School," whether in English or in another language, unless accompanied by a no objection letter from the Texas Higher Education Coordinating Board.
- An entity name cannot include the words "Veteran," "Legion," "Foreign," "Spanish," "Disabled," "War," or "World War" if the name implies the entity is created for the benefit of war veterans and their families, without written approval issued from a veterans organization pursuant to §5.062 of the Texas Business Organizations Code.
Not sure where to start? Use a name generator for ideas and inspiration. Be creative, but play by the rules. Choose wisely to avoid a Texas-sized headache down the road!
Other Name Considerations
If you’ve come up with the perfect name for your LLC and want to avoid it being taken, you can reserve it for up to 120 days by filing an Application for Reservation or Renewal of Reservation of an Entity Name with the Texas Secretary of State. It costs $40 to file and can be renewed as many times as needed.
Tip: If you’re planning on building an online presence for your brand, you’ll want to make sure your desired domain name, for example, www.yourLLCnamehere.com, is available ahead of time.
2. Get a Texas business address
When you fill out your LLC formation documents, you’ll be asked to list your principal place of business (i.e. your business address). Here’s the kicker: your Texas LLC Certificate of Formation becomes public information once it is filed.
That means that if you use your home address, anyone with a little time and motivation can log onto their computer and figure out exactly where you live. If you want to protect your privacy and keep your home address concealed, you’ll need to get a separate Texas-based business address.
How to Get a Texas-based Address
So, how does one go about getting a physical address for their business in Texas? Well, short of leasing an office space (which is costly and inconvenient), you don’t have a ton of options. Using a PO box is not permitted for LLC formation purposes.
However, VPM offers a Texas business address package that allows you to form your LLC without compromising your privacy. Additionally, it’s bundled with free registered agent services and mailbox features so you can manage your mail anytime, from anywhere.
3. Designate a registered agent
Next, you’ll want to assign a registered agent for your LLC.
A registered agent is a person or party who is delegated to receive legal documents (you know, the not-so-fun stuff) on behalf of a business. All Texas LLCs are required to have one.
You can either ask someone you know to serve as your registered agent, or hire a third-party service. Using a registered agent service can save time, reduce stress, and mitigate the risk of you missing an important delivery in legal matters.
Texas Registered Agent Requirements
Your registered agent must meet the following criteria:
- They need to have a business address in the state of Texas (not a PO box).
- They must be on-site and available to accept documents during normal business hours.
Tip: As mentioned earlier, you can get FREE registered agent services with all VPM virtual mailbox plans. Save $100 (or more) a year and leave the stress of compliance maintenance behind!
4. Prepare and file a Certificate of Formation
Now that you have a business address and registered agent, you are ready to prepare your Texas Certificate of Formation. Once your Certificate of Formation is filed, your Texas LLC is officially registered.
Considering you can file this document from just about anywhere with an internet connection, this step should be rather painless. Wrangle up all of the important details needed (see below), and you’ll be riding off into the sunset with your newly formed LLC.
What You’ll Need For Your Texas Certificate of Formation
Before you file, you'll want to gather the following:
- Entity name and type
- Your LLC’s business address
- Your LLC’s mailing address
- Registered agent name and address
- Governing authority (whether your LLC will be member-managed or manager-managed)
- Your LLC’s purpose
How to File Your Texas Certificate of Formation
You can file your Texas Certificate of Formation one of three ways: online, by mail, or in person. Regardless of how you decide to file, you’ll be responsible for paying a $300 filing fee.
Filing online is the quickest and recommended way to file your Texas Certificate of Formation. Here’s what you’ll need to do:
- Create an account on the Texas SOSDirect website.
- Select “Business Organizations” from the toolbar.
- Choose "Domestic Limited Liability Company (LLC)” under the dropdown menu, and fill out the form.
You also have the option to file by snail mail. All you need to do is download and complete Form 205 and mail it to:
Secretary of State P.O. Box 13697 Austin, TX 78711
5. Prepare an Operating Agreement
Although Texas doesn't legally require you to have an operating agreement, it's recommended that you create one. Here’s why: An operating agreement outlines how your LLC will be managed, establishing clear guidelines regarding the roles, responsibilities, and rights of each member.
This document will serve as the foundation of your company’s operations, offering protection and clarity for all LLC members. It provides stability and helps avoid unnecessary conflicts when it comes to things like finances, ownership, and other common disputes.
What to Include in Your Texas Operating Agreement
An operating agreement for an LLC often covers the following:
- Membership details
- Ownership percentages
- Capital contributions
- Profit and loss allocation
- Decision-making and voting rights
- Management structure
- Meetings and voting procedures
- Transfer of membership interests
- Dissolution and exit strategy
- Dispute resolution
Your operating agreement is likely to continue changing as the needs and circumstances of your LLC evolve, so be sure to update it as you grow.
Tip: In need of some inspiration to help you get started? You can find a sample operating agreement here.
6. Obtain an EIN
Once you’ve filled out and filed your LLC paperwork, your next step is to get an Employer Identification Number (EIN). What is that, exactly? It's a unique identification number issued by the IRS for your LLC. Think of it as a social security number for your business.
You'll need an EIN for a variety of purposes, including opening a business bank account, obtaining business loans, and filing taxes.
How to Get an EIN
Acquiring an EIN is both easy and free. There are several ways you can apply to get an EIN for your business.
Filling out the online application is the fastest and easiest way to get an EIN. Once your application is completed and validated, you should receive your EIN immediately.
If you’re an international applicant, you can obtain an EIN by calling 267-941-1099 (not a toll-free number) between 6AM and 11PM Monday through Friday.
7. Open a business bank account
There are no federal or state laws that require you to have a separate business bank account for your LLC. However, you’ll quickly find that by opening one, you can make life, and running your business, infinitely easier.
Here are 3 reasons why you shouldn’t skip this step:
- Separating your assets provides greater legal protection
- Having a business bank account can simplify accounting & taxes
- You’ll appear more credible to investors, customers, and vendors
You’ll also be able to open doors to bigger and better opportunities, like larger lines of credit and more substantial business loans.
Not sure what you’ll need to get started? Below, you’ll find a brief overview of what is expected from most financial institutions.
Business Bank Account Checklist
- Personal Identification
- Business Address
- Mailing Address
- Registered Agent Name & Address
- Business License or Permits
- Articles of Organization
- Operating Agreement
The good news is, if you’ve followed all of these steps in the order they were written, you should have everything already prepped and ready to go.
Some banks may require additional proof of address. If you run into this situation, you can obtain a valid lease agreement and utility bill through VPM’s TruLease plan.
8. Acquire business licenses (if needed)
Texas does not require a general business license in order to do business in the state. However, you may need to apply for a Sales Tax Permit if your business fits the following criteria:
- It sells or leases tangible personal property in the state
- It sells a taxable service
You can obtain this sales permit free of charge via the Texas Comptroller of Public Accounts website.
Depending on the nature of your business, you may need additional licenses or permits to comply with local (city, county, township, etc.), occupational, or federal regulations.
9. File your Annual Franchise Tax Report and Public Information Reports
All Texas LLCs are required to file an Annual Franchise Tax Report as well as a Public Information Report with the Comptroller of Public Accounts.
The contents of your Annual Franchise Tax Report will depend on your annual revenue. If your LLC has an annual revenue of less than $1,230,000, you will file a No Tax Due Report (form 05-163). This must be filed electronically. If your LLC’s annual revenue totals over 1.2 million but less than 20 million, you will file the EZ Computation Report.
Your Public Information Report is similar to a traditional ‘Annual Report’. It contains important information about your business, and it is due by May 15 each year along with your Annual Franchise Tax Report.
During your LLC’s first year of business, you aren’t required to file your Public Information Report until the following year. So, if you formed your LLC in March of 2023, your initial report would be due on May 15, 2024.
Be sure to file on time, or you’ll be charged a $50 late fee plus a 5% penalty on the tax that is due. After 30 days, an additional 5% penalty will be added.
Tip: Inputting this due date on your Google Calendar is a great way to ensure that both your Annual Franchise Tax Report and Public Information Report are filed in a timely manner each year.
Get your Texas LLC up and running today
Now that you know the ins and outs of incorporating in Texas, you’re officially ready to kickstart your LLC. Don’t miss out on the chance to secure your Texas address. Get yours today!