Starting a limited liability company (LLC) in Texas for your business is one of the fastest and easiest ways to get your operations off the ground. An LLC is a cost-effective structure for small to medium-sized companies. And it works well for growing operations too.
It provides the advantages and protections of corporations with less hassle.
LLCs are a type of business entity that provides limited personal liability for its owner. As a result, safeguarding your personal assets is out of reach if your business should land in legal or financial trouble. And LLCs avoid double taxation through a concept called pass-through taxation.
Whether you’re starting a new business or already running a hustle, opening a Texas LLC is simple.
We’ll walk you through the process from start to finish and answer the most common questions about LLC formation in Texas.
Table of contents
- Step 1: Decide a name for your LLC
- Step 2: Hire a registered agent company
- Step 3: File the Texas LLC certificate of formation
- Step 4: Obtain an EIN (Employer Identification Number) from the IRS
- Step 5: Prepare an LLC operating agreement
- Step 6: Open a Texas business bank account
- Costs to Start an LLC in Texas
Step 1: Decide a name for your LLC
Choosing a name for your LLC is the first step of registering a business. You will need to file a name registration application with the Secretary of State (SOS) as part of your company formation.
The name you choose should be recognizable by your clients, distinguishable from other businesses, and compatible with Texas’s state laws for business naming.
When choosing your LLC’s name, keep the following official requirements in mind:
- Must contain the phrase “limited liability company” or “limited company” or any abbreviation of these phrases like LLC, L.L.C., LC, Limited, Ltd.
- Avoid choosing a name that can be confused with a governmental entity (e.g., Secret Service, IRS, Homeland Security, etc.)
- Obtain permission to use certain restricted words (e.g., Olympic requires approval from the U.S. Olympic Committee and using college or university requires approval from the Texas Higher Education Coordinating Board)
- Foreign words won’t be translated (e.g., Casa Blanca Productions won’t be translated to White House Productions)
- Avoid words that can be deemed grossly offensive.
Next, check if the selected name is available. You can do so by running a name search with the Texas Comptroller.
If your business name is available, you can reserve it for up to 120 days while you finish the other steps to form your LLC. You’ll need to file an application and pay a $40 fee.
Finally, check if the domain name is available. Be sure to verify that your business name is also available as a domain name. Even if you don’t plan to create a website right away, you may want to snatch it anyway to prevent others from squatting it.
If you want to use an alternate name, file Texas Form 503, Assumed Name Certificate, with both the Secretary of State and the county clerk where your LLC is located.
Step 2: Hire a registered agent company
Texas requires you to have a registered agent for your LLC.
In Texas, a registered agent can be:
- A Texas resident, or
- A business licensed to transact business in Texas with a physical street address. P.O. box addresses aren’t allowed.
You can act as a registered agent yourself, appoint an employee, or someone else in your company. Or you can use a professional service.
Regardless of who you appoint as your agent, you must get written authorization to show they consent to the decision. You can draft your own form or use Texas Form 401-A, Acceptance of Appointment and Consent to Serve as Registered Agent.
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The annual cost of a registered agent depends on the level of service they provide. Some will include the state LLC filing fees in their fee, while others will charge you a la carte for these things. You can expect to spend between $100 and $150 per year to hire a Texas-registered agent.
Step 3: File the Texas LLC certificate of formation
Filing the Certificate of Formation is what makes your LLC official. This application tells the Texas SOS necessary details about your company, including entity name, physical address, registered agent, members/owners and addresses, and general-purpose.
To start the LLC filing process, download and fill in Form 205, Certificate of Formation Limited Liability Company. Then mail it to the Secretary of State in Austin and pay a $300 state fee. You also have the option to file the Certificate online via the SOSDirect website.
Once the Secretary of State receives your Certificate of Formation, it can take as little as four or five business days to process it if you file electronically. But if you send the documents by mail, the LLC registration process can take up to four to five weeks.
After your certificate has been approved, you’ll receive a stamped copy, which means you’re officially allowed to do business in Texas. Congratulations!
But this isn’t the end of the road. There are a few more steps to take to get your LLC up and running.
Step 4: Obtain an EIN (Employer Identification Number) from the IRS
An EIN is the identification number the IRS uses for your business. Think of it as your business’s Social Security Number.
You need an EIN to report federal taxes. Also, it’s used on company tax returns and for paying employment taxes if you have employees. However, you will not need an EIN if you're the only member of your new Texas LLC. That’s because the IRS disregards the business and sees you and the business as the same taxpayer. Therefore, you’ll use your Social Security Number on your LLC’s federal tax documents.
Still, getting an EIN for your single-member LLC is a good idea. You’ll need it to open a business bank account, and it can help prevent identity theft by keeping your Social Security Number off your business documents.
You can apply for your number online using the IRS’s Internet EIN application, and it’s free. You’ll answer a few questions about your business and instantly receive your EIN.
If you’d rather do things old school, you can use Form SS-4, Application for Employer Identification Number, and mail or fax it to the Internal Revenue Service. It’s still free, but it can take up to four weeks to get your EIN.
Step 5: Prepare an LLC operating agreement (optional)
Although Texas doesn’t require your LLC to have an operating agreement, it’s a best practice to put one in place to prevent any misunderstandings among the LLC members.
LLCs use an operating agreement to outline the rules, regulations, and procedures for how the business will operate and be managed. The agreement includes details on financial and operational decision-making. Think of it as a roadmap for preventing and resolving operational issues.
A standard operating agreement will address issues such as:
- Who has decision-making power? What happens if there’s a disagreement?
- What happens if one member wants to leave the business? What happens to his stake? How can the member leave?
- What if the LLC wants to bring on another member? How will the new member’s powers differ from the original members?
- What happens when the members want to end the LLC?
If you don’t create an operating agreement for your LLC, your business will be governed by the default Texas laws, which might produce unintended consequences.
Step 6: Open a Texas business bank account
Once you have your EIN, you can open a business bank account. Keeping your business finances separate from your personal is critical for an LLC.
Here’s why a business bank account is essential:
- Simplifies business record keeping
- Eases tax preparation
- Prevents commingling of funds (that’s a big no-no in the eyes of the IRS)
- Preserves personal liability protection
Since banks have different requirements for opening and maintaining accounts, it’s wise to call around to see who has the best propositions.
As you shop around, compare the following:
- Monthly service fees
- Miscellaneous fees (e.g., wire transfer fees, overdraft fees)
- Minimum required balances
- Minimum initial deposits
- Interest rates
Be sure to confirm with your bank what documents you’ll need to open your business bank account.
Breakdown of fees to file an LLC in Texas
Below is a detailed overview of all costs (mandatory and optional) you’ll face when starting a company in Texas.
1. Texas LLC formation cost: $300
The Texas Secretary of State charges the following fees to form LLCs in Texas.
- $300 for Certificate of Formation (Form 205) for a domestic LLC.
- $750 for registration of a foreign LLC (Form 304).
In Texas, you can file the Certificate of Formation in-person, mail, fax, or using an online portal. For online filings, however, be ready to pay an extra $5.00 per document.
If you’ve selected another option, the state provides expedited services for $25 per document. It may be handy given that the Secretary of State in Austin can take ten to fifteen days to review your application.
The Certificate of Formation is the main document required to form an LLC in Texas. But there are several more steps (and fees) involved to start doing business in Texas.
You’ll also need to appoint a registered agent, create an LLC operating agreement, and register to pay state taxes.
2. Registered agent fees: $80-$125
You’ll need a registered agent to receive the service of process documents and important notices on behalf of your company.
When it comes to a registered agent, business owners have a few options. You, or someone at your company, can be the registered agent for your company.
Or you can hire a professional registered agent service. This option is recommended for foreign LLCs and companies without a physical address in the state.
Being your own registered agent doesn’t cost you anything. But contracting a professional service costs $80-$120 per year on average.
There are no extra state fees involved for adding a registered agent to your Texas LLC. The $300 LLC registration fee already covers that.
But if you wish to change your registered agent, you’ll have to file a separate form with the state and pay a $15 fee.
3. Trade name registration: $25
Registering an assumed name in Texas costs $25.
If you want to use a trade name or an assumed name (e.g., DBA “doing business as”), instead of your LLC’s legal business name, you’ll need to let the Secretary of State and the County Clerk know by filing Form 503 and paying the state filing fee.
This filing will signify to the authorities that you’re also doing business under a different name.
Using a trade name might make sense if your LLC’s legal name is too formal or not descriptive enough for customers.
For example, if your LLC’s legal name is “John Smith Enterprises LLC” and you’re a plumber, you might want to use the trade name “John’s Complete Plumbing.”
4. LLC name reservation fee: $40
Reserving a name holds it for your use for up to 120 days. If you need it held longer, you can do another filing and pay a fee to claim 120 more days.
Putting down a name reservation makes sense if you’re still getting your LLC paperwork together or plan to travel in person from another state at a later date.
5. Certified document copies: price varies
If you need or want to get certified copies of your Texas business formation documents, you’ll need to order them online or in person.
The standard certified copy rate is $1 per page plus $15 per certificate. However, some legal documents may cost more. For example, the Long Form Certificate of Existence costs $25.
Plain (uncertified) copies are just 10 cents per page.
6. Business permits and licenses: price varies
Some types of businesses in Texas require specific permits or licenses to operate. Some examples of regulated business structures include:
- Accounting services
- Legal services
- Water well drillers
- Wineries
The costs for business permits vary depending on the type of permit you need and the size of your operations.
To determine if your business needs one, you can check out the Texas Business Licenses & Permits Guide.
If you’re required to collect and remit sales tax in Texas, you’ll have to apply for a Sales Tax Permit with a local comptroller. The permit is free.
Note: You’ll also want to make sure you apply for an employer identification number (EIN) from the IRS. It’s like a Social Security Number for your business — a unique identification number for your company. You’ll need this EIN to file your federal taxes.
Does Texas have an annual LLC fee?
No, LLCs are excluded from filing an annual report with the Secretary of State if there were no changes in structure. Instead, LLCs need to file an annual public information report to the Texas Comptroller of Public Accounts.
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