Starting a Limited Liability Company (LLC) in Texas is a savvy move for small business owners looking to shield their personal assets and enjoy some flexibility in how they run their business. Texas is a hot spot for businesses, and setting up an LLC is pretty straightforward. Here’s a step-by-step guide to help you get started.
Step 1: Pick a Name for Your LLC
First things first, you gotta choose a name for your business. It’s gotta be unique and stand out from other businesses registered in Texas. Plus, it needs to have “Limited Liability Company” or a short form like “LLC” or “L.L.C.”
Tips for picking your LLC’s name:
- Make sure your name is one-of-a-kind by checking it against the Texas Secretary of State’s online database.
- Stay away from restricted words like “bank” or “insurance” unless you’re in a regulated industry.
- If you’re not ready to file right away, consider reserving your LLC name. You can hold a name for 120 days by filing Form 501, which costs $40.
Step 2: Name a Registered Agent
Texas law says every LLC needs a registered agent, which is a person or business entity authorized to receive legal documents on behalf of the LLC. The registered agent must have a physical street address in Texas (P.O. boxes are a no-go).
You can be your own registered agent, appoint someone else, or hire a professional registered agent service to handle this role.
Step 3: File the Certificate of Formation (Form 205)
To officially set up your LLC in Texas, you need to file a Certificate of Formation (Form 205) with the Texas Secretary of State. This form includes all the important info about your LLC, like its name, registered agent, and management structure.
You can file the form online via the Texas Secretary of State’s website or by mail.
Filing fee: The current filing fee is $300. This fee is non-refundable, and you can pay it with a credit card if filing online or via check or money order when filing by mail.
Info required in the Certificate of Formation:
- LLC name and address
- Registered agent’s name and address
- Whether the LLC will be member-managed or manager-managed
- Names and addresses of the LLC’s organizers
Step 4: Whip Up an Operating Agreement
Even though Texas law doesn’t require LLCs to have an operating agreement, it’s a good idea to create one. This document outlines how your LLC will be run, including ownership percentages, management structure, voting rights, and profit distribution. An operating agreement can help prevent future disputes among members and clearly define each person’s role.
Key elements to include in your operating agreement:
- Member roles and responsibilities
- Voting procedures
- Distribution of profits and losses
- Procedures for adding or removing members
- What happens if the LLC dissolves
Step 5: Snag an EIN from the IRS
Think of an Employer Identification Number (EIN) as your business’s Social Security number. It’s what you’ll use to open business bank accounts, hire employees, and file taxes. You can get an EIN from the IRS for free by applying online or by mail.
Even if your LLC doesn’t have any employees, you’ll probably still need an EIN to file federal taxes or open a business bank account.
Step 6: Apply for the Right Licenses and Permits
Depending on what your business does and where it’s located, you might need to get local or state licenses or permits. Check with the Texas Department of Licensing and Regulation and your local city or county office to see if your LLC needs any specific permits.
Step 7: File a Texas Franchise Tax Report
In Texas, LLCs have to file an annual Franchise Tax Report with the Texas Comptroller of Public Accounts. The Franchise Tax is basically a state business tax, but many small businesses don’t make enough to owe any taxes.
But, even if you don’t owe taxes, you still have to file the report to keep your LLC in good standing with the state. The report is due every year on May 15.
Step 8: Stay Compliant
After you’ve set up your LLC, there are ongoing compliance requirements to make sure your business stays in good standing with the state of Texas. These include:
- Franchise tax report: This needs to be filed annually with the Texas Comptroller.
- Annual report: While Texas doesn’t require an official annual report, you must file your Franchise Tax Report each year to stay compliant.
- Registered agent: Make sure you always have a current registered agent. If the registered agent changes, file an updated form with the Texas Secretary of State.
Setting up an LLC in Texas gives your business legal protections and operational flexibility. By following these steps, you can easily navigate the process and start building your business with peace of mind. Make sure to stay compliant with state requirements, and don’t hesitate to seek legal or financial advice if needed.
With your LLC set up, you’re one step closer to building a successful and legally protected business in the Lone Star State!
