Starting an LLC can be intimidating, but preparing yourself ahead of time can help make the process easier. If you’re considering forming an LLC in Texas, this article is for you.
Whether you’re a first-time entrepreneur looking to learn the ropes or are simply curious about the formation process, here are 7 things you should know before forming a Texas LLC.
1. There is no annual fee for your LLC
While most states charge an annual fee for doing business within their jurisdiction, Texas is one of the few that does not. Instead, you’ll pay a one-time flat fee of $300 when you file your Certificate of Formation.
What is an annual fee?
An annual fee is a once-a-year payment, typically due with your annual report, that your LLC must pay the state in order to continue conducting business. Paying your annual fee on time each year ensures that your LLC will remain in good standing status with the state.
2. You can reserve your LLC name ahead of time
Picture this: you’ve come up with the perfect name for your Texas LLC. It’s catchy, it’s memorable, and it follows all of the state regulations regarding entity names (side note: there are a lot). Now, imagine the heartbreak of finding out someone has snagged the name from right beneath you. The horror!
Thankfully, there’s an easy way to prevent this from happening to you. The state of Texas allows you to reserve a name for up to 120 days. For a filing fee of $40, you can protect your chosen name and renew the reservation if needed.
Doing this ahead of time ensures that your ideal name remains safeguarded until you are ready to officially form your LLC, providing you with peace of mind and ample time to finalize your business plans.
3. Your business address will be public
In order to register your LLC with the state, you’ll need to provide your principal place of business. This is typically where your business communications are sent and can be a home address, office address, or virtual mailbox address (but not a PO box).
If you were planning to use your home address on formation documents, you may want to reconsider. In the state of Texas, all of the information provided in your LLC formation documents will become public records.
Unfortunately, this poses a major privacy risk for you and your business. Listing your home address means an angry customer or client could track down your address and send you hate mail, or worse, show up at your front door unwelcome and unannounced!
Now, before you start panicking and imagine the paparazzi showing up at your doorstep, let’s consider your alternatives.
Enter the trusty ‘virtual mailbox’ – the modern-day privacy solution to ensuring your home and business is protected. Not sure where to get one? VPM offers affordable virtual mailbox plans that include access to mail scanning, check depositing, and package forwarding services, ensuring all of your mail needs are fully taken care of. Get a virtual mailbox.
4. You’ll need to designate a registered agent
Texas requires all LLCs to have a registered agent on file that is willing and able to accept important legal documents on behalf of their business. However, whereas many states allow you to act as your own designated agent for your LLC, Texas is not one of them.
Per the Texas Secretary of State website: “Although an officer, owner, or employee may serve as an entity's registered agent, an entity may not serve as its own registered agent.”
The official explanation is a bit jargon-y, so here’s what that means for you:
- You can ask an individual Texas resident or organization that is authorized to do business in Texas to act as your go-to for official mail and legal documents. That being said, lack of expertise and time-restraints may prove this to be an inefficient choice.
- You can hire a third-party service, like VPM, to receive service of process, legal notices, and other important state correspondences on your behalf. With VPM’s registered agent services, you’ll get same-day access to served documents and real-time notifications to keep you in the loop.
Regardless of who assumes the role of your LLC’s registered agent, it is essential that they have a physical address in the state of Texas and remain available during regular business hours from Monday to Friday.
5. You can form a Series LLC
Texas is one of the few states that allows for the creation of a Series LLC. What is a Series LLC, you might ask? Well, a Series LLC functions as a parent entity, allowing you to establish an unlimited number of individual series that operate independently within the parent entity.
Imagine you own a real estate investment company, ABC Real Estate. You’ve been involved in the industry for several years and have racked up an impressive portfolio of both residential and commercial properties. Instead of creating new LLCs for each investment project you undertake, you can create a Series LLC that will encompass all of them under a parent entity.
Parent LLC - ABC Real Estate Series A - Sunset Pointe Apartments Series B - Glenwood Commercial Complex
Pros of a Series LLC
The biggest benefit of this setup is that the assets and liabilities of each series are legally isolated from one another. In other words, if one series were to encounter financial difficulties or legal issues, the assets of your other series would be protected.
With this structure, you’ll also enjoy streamlined operations, reduced formation costs, and minimal paperwork.
However, there are a couple of downsides to consider.
Cons of a Series LLC
Since Series LLCs are a relatively new concept, there is certainly some legal uncertainty surrounding them. Furthermore, they may not translate across state lines since many states do not permit them.
6. You can form a Professional LLC
Texas also allows you to form a Professional LLC (PLLC), which is an entity designed for professionals in certain licensed occupations. If you're operating in a field like medicine, law, architecture, accounting, or another regulated profession, this structure can offer you quite a few advantages.
A Professional LLC allows you and your fellow owners to operate under the umbrella of a limited liability company while safeguarding personal assets from the actions or malpractice of others within the organization.
For instance, you and your team recently decided to form a dermatology practice in Texas. A few months go by, and one of your team members is served with a medical malpractice lawsuit by a former patient. A Professional LLC would allow you to be shielded from personal liability related to the medical decisions or mistakes made by your teammate.
Pros of a Professional LLC
Having an added layer of protection can be invaluable, particularly in the event of a lawsuit or other legal challenge. Like regular LLCs, Professional LLCs also offer flexibility in management, taxation, and operational structure, making them suitable for various professional practices.
While a Professional LLC certainly has its perks, there are some disadvantages you should be aware of before making any decisions.
Cons of a Professional LLC
Not all states offer Professional LLCs, so availability will be limited if you relocate. PLLCs are often more complex to form than your typical LLC due to licensing and regulatory requirements. And finally, while personality liability for others’ malpractice is limited, PLLC members can still be personally liable for their own misconduct or negligence.
7. A business bank account is a must
Chances are you already have a personal bank account. Maybe you even have a couple. But if you have yet to open a business bank account, you’ll want to do so in conjunction with forming your Texas LLC.
There are several benefits of having a business bank account. For starters, it allows for the separation of business and personal assets. This adds an extra layer of security for you since you’ll be able to better protect your assets in the event of litigation. Worried about losing your newly renovated home in the event of a lawsuit? Not anymore!
Additionally, you’ll be able to simplify your accounting, better track your business cash flow, and streamline your taxes.
A business bank account can help you build credit for your business, and in turn, attract investors, open doors to obtain larger business loans, and increase your overall credibility.
Most banks will ask for standard business information, but depending on the bank and type of account, additional documentation for address verification may be required. You can obtain this verification through TruLease, which offers a U.S. based business address, valid lease agreement, and optional utility-bill to use for proof of address.
Get a Texas address for your LLC
You’ve got the business, now you just need the address to match. Securing a Texas-based address for your LLC can protect your privacy, bolster your brand’s credibility, and ultimately give your business a competitive edge. In addition to the ability to manage your mail digitally 24/7, you’ll gain access to convenient services like mail scanning, check depositing, and package forwarding.