How to Start an LLC in Texas in 7 Steps

12/11/2023 08:56 AM

Go big or go home when you start your small business in Texas.

Choosing a legal structure for a new business is only the first step to learning how to start an LLC in Texas. If you’ve determined that your company will benefit from being structured as a Texas LLC, you’ll need to take several steps to formally register your business before opening its doors. You’ll also want to take a few steps that aren’t required by the state government but will benefit your new company.

Follow the instructions below to formally register your new LLC. Texas consistently ranks as one of the best states for business, so there’s no time like the present to realize your dream of launching a new company in the Lone Star State.

Step-by-Step: LLC Formation

Forming an LLC comes down to following a few easy steps, outlined below.

1. Choose a Business Structure

If you’ve already weighed the pros and cons of forming an LLC instead of an alternative business structure, you can move on to the second step of how to start an LLC in Texas. But, if you’re not yet sure that forming a Texas LLC is the right structure for your company vision, understand your options before moving forward.

Selecting the right legal structure for your business will affect taxes, management structure, reporting requirements, personal liability, ownership interests and a host of other critical company concerns. There are four primary business structures to choose from when launching a company. Here are some of the big differences you should be aware of:

Sole proprietorship. Owned by a single individual, taxed on the owner’s personal return, no personal liability shield, no state formation filing requirement and no annual reporting requirement
Partnership. Owned by at least two individuals, taxed on the owners’ personal returns, no personal liability shield, flexible management structure, no state formation filing requirement and no annual reporting requirement
Limited Liability Company. Owned by one or more individuals, can be taxed personally or as a corporation, limited personal liability for members, relatively flexible management structure, straightforward state formation filing requirements and limited annual reporting requirements
Corporation. Owned by shareholders, taxed at the corporate level, limited personal liability for shareholders, rigid management structure, complex state formation process and significant annual reporting requirements

Choosing the best business structure for your company is a consequential undertaking. If you have questions about any of your options or you want to know more about LLC/partnership hybrid options, consider speaking with an attorney.

2. Choose a Company Name

To protect the brands of businesses already operating in Texas, the state won’t let you choose just any name for your company. Before committing to a name, you’ll need to conduct a search of Texas company names that are already in use or have been reserved. If the name you like is available and is distinguishable from similar names, you can file a name reservation application and a filing fee with the Texas Secretary of State’s office to place ownership of that name on hold.

Although you don’t have to use it when promoting your brand, Texas requires LLCs to include specific lettering in their formal business names filed with the state. You’ll need to include one of the following eight options when formally naming your Texas LLC:

LC, L.C., LLC, L.L.C.
Ltd. Company, Ltd. Co.
Limited Company, Limited Liability Company

If you opt to use a less formal version of your company name for branding purposes, you’ll need to file an assumed name application and pay a filing fee with the state before you can do business as (DBA) a company under that trade name.

The Texas name search database will inform you whether a company name is available in Texas specifically. You may want to speak with a lawyer about conducting a nationwide trademark name search for your company’s chosen formal and trade names before committing to them, though. Failure to take this step now could lead to complex, costly and potentially consequential intellectual property litigation later.

3. Appoint a Registered Agent in Texas

One part of learning how to start an LLC in Texas that can seem extraneous is appointing a registered agent. This is especially true if you’re launching a single-member LLC. Texas requires a registered agent (also known as an agent for service of process) to receive all government and legal documentation on behalf of a company.

You can act as your LLC’s registered agent, as can any other LLC member, as long as the agent of your choice resides in Texas. Alternatively, you can appoint another Texan, a Texas company, or a company licensed to do business in Texas to act as the registered agent on your LLC’s behalf. Your new Texas LLC itself can’t serve as its own registered agent.

Once you choose a registered agent for your LLC, have them fill out this consent form. Note that the physical address (not a P.O. box) of the registered agent will serve as the registered office for your LLC.

4. File a Texas LLC Certificate of Formation

Before you open your Texas LLC, you have to file an LLC certificate of formation. Before you can complete this form and submit it with a filing fee, you’ll need to gather the following information:

Your company’s formal LLC name
The name of your registered agent
The physical address of your registered office
If your LLC has already named its initial managers, you’ll need the name and address of each to serve as the LLC’s governing authority
If your LLC has not named its initial managers yet, you’ll need the name and address of each LLC member to serve as the LLC’s governing authority
A description of the purpose for which the LLC is being founded
An initial address for your LLC, which may or may not be the same address as your registered office
The dates for your LLC’s duration (if it will intentionally only exist for a limited time)
An organizer, who can be any natural person over the age of 17 and is tasked with signing the LLC (Texas) certificate of formation

Finally, you can choose to alter the effective date of your LLC’s formation. Ordinarily, a Texas LLC becomes effective on the date its certificate of formation is filed with the Texas Secretary of State’s office. However, if you want to delay this effective date for some reason, you may do so for up to 90 days.

5. Apply for Identification Numbers

Next, you’ll need to apply for federal and state identification numbers for your business. You won’t be able to secure business licenses, some permits, a federal employer identification number, a Texas identification number or even a business bank account before you’ve received official notification from the Secretary of State that your LLC is active. You generally can’t skip ahead in the process — knowing how to start an LLC in Texas means completing these steps in order.

Federal EIN

Your LLC’s federal EIN works much like a Social Security number does for an individual. This nine-digit number will allow the government to identify your Texas LLC for tax purposes. It will also allow you to set up a payroll system if you’re going to be hiring employees for your LLC. Many banks won’t allow business owners to open bank accounts unless they provide this number.

Texas ID Number

Your LLC’s 11-digit Texas Identification Number acts much like a federal EIN but on the state level. You’ll need to both properly pay taxes and comply with reporting requirements in Texas.

6. Create Your Texas LLC Operating Agreement

Some strategic steps for how to start an LLC in Texas are required by the state. Other steps are optional but still important to consider. Creating an LLC operating agreement is a step that isn’t required in Texas, but you shouldn’t bypass it if your LLC has more than one member.

An operating agreement acts as a contract between you and your fellow LLC members. Have you made verbal agreements with your fellow members? Do you have some back-of-the-napkin ideas sketched out for how your LLC will be run? These understandings can be difficult to enforce if you ever disagree with each other and need to file a dispute in court. By crafting an operating agreement, you can legally formalize the following:

The duties, powers and any restrictions associated with members, investors and LLC managers
Whether the LLC will be taxed as a corporation or on members’ personal returns
The breakdown of what percentage of the LLC is owned by each member
Each member’s responsibilities and voting rights
How meetings will be run and when they’ll take place
How profits and losses will be distributed
When and how membership modification, buyouts, buy-sell opportunities and dissolution of your Texas LLC may take place
Indemnification and liability clauses

LLC operating agreements set expectations for each member as you collectively navigate the ins and outs of figuring out how to start an LLC in Texas. While that may not seem important when getting your company off the ground, it’s important to formalize expectations that detail how your company will run. If conflicts arise later, you’ll have a record of the terms and processes to which you’ve agreed.

7. Prepare for the Future

While the legal steps involved in learning how to start an LLC in Texas are relatively straightforward, the process of building up your new LLC in Texas can be more complicated. Depending on the type of company you’re launching, you may need to hire staff, secure premises, obtain permits, craft a branding strategy, negotiate with vendors and complete many other tasks before you can open your doors.

Draft a Business Plan

An operating agreement is a legally-enforceable membership agreement. A business plan describes how the day-to-day operations of a company will lead to success. You can use the process of drafting a business plan to outline how you’ll:

Fund your startup until you become solvent
Market your goods or services to attract customers and earn their loyalty
Structure your management and employee hierarchy
Maintain value within your specific market

When creating your business plan, make sure to describe your business model clearly for the benefit of potential lenders and investors.

Fund Your Launch

It can take a few years before a small business becomes profitable. Therefore, you’ll need to secure sufficient funding to launch your business until it’s self-sustaining. There are many ways to finance a small business, so don’t get discouraged if a traditional business loan won’t cover all of your startup expenses. Explore the following opportunities to secure the financing and funding you need:

Apply for grants
Start a crowdfunding campaign
Secure a microloan
Apply for a federal small business loan
Explore investment programs

Keep in mind that you may qualify for unique funding opportunities if your business will operate in a rural or underserved area and/or your LLC members belong to members of an underrepresented or underserved community. When researching your options, seek out “small business grants for women” or whatever other circumstances apply to your unique membership situation.

Get Ready to Hire Employees

If you’ll be hiring workers for your Texas LLC, you’ll need to take the following steps to become compliant with state and federal employment laws:

Review state requirements concerning the hiring of workers
Obtain Texas workers’ compensation insurance
Register for the Texas Unemployment Insurance Tax
Verify the employment status of each new hire
Report each new hire to the state

Purchase Business Insurance

Your company’s LLC structure will protect your personal assets from business liability. But, this structure won’t protect your business interests from natural disasters, lawsuits and other costly challenges. Secure business insurance coverage before you open your doors to protect all that you’re working so hard to build.

Start Marketing Your Brand

It has long been observed that “all business is local.” While that reality is changing in the digital age, grounding your marketing strategy in cultivating local customer loyalty and brand awareness is a good way to begin. Start by researching marketing resources in your city and resources provided by your local Chamber of Commerce.

You’ll also need to build a strong website and cultivate a social media presence. Gone are the days when customers researched their options by opening up a phone book. If you want potential and existing customers to know how to contact you, you’ll need to develop a memorable online presence.

Tie Up Loose Ends

Finally, here are some additional steps that will take your efforts to launch your business to the next level:

Apply for a Texas Business Tax Registration Permit if your LLC will sell or lease personal property or personal property
Open a business bank account
Open a business credit card
Apply for the trademark protections you’ll need to protect your company name, URL, logo and other essential branding tools
Seek out local small business resources
Get paired with a business mentor
Invest in accounting software or hire an accountant to keep your company’s finances on track and streamline reporting compliance efforts

How to Start an LLC in Texas FAQ

Is the domain for my new company’s name available?

Before committing to a name for your Texas LLC, it’s a good idea to make sure the URL associated with that name is available. Make sure to search for domain names with different popular endings (.com, .org, .net) and for variations of your company name.

If a competitor owns a domain that is too similar to the one you’re hoping to secure, your clients or customers may unintentionally end up on another site because the URL is too similar to easily distinguish.

When do I need to send reports about my LLC to the state?

You’re required to send an annual report to the Texas Comptroller’s Office each year that your LLC remains operational. This report is due annually by May 15.

Your LLC’s first Franchise Tax and Public Information Report doesn’t need to be filed until the calendar year after your LLC is legally formed. Similarly, your business won’t owe franchise taxes until the year after your business is formed.

Do I need a business license for my new LLC?

Unlike some other states, Texas doesn’t require LLCs to secure any kind of general business license before your company can open for business. But, before you cut the red ribbon on your new business, check the Texas Business Licenses and Permits Guide to see if you might need a specialized license.

You can also direct any questions about a statewide license to the Texas Department of Licensing and Regulation and questions about local business licenses to the city or county in which your Texas LLC will operate.

Can an LLC be dissolved?

If you choose to dissolve your Texas LLC at some point down the road, you’ll need to follow any procedures that you and your fellow members have agreed upon in your operating agreement. You’ll then need to wind down operations, obtain a certificate of account status from the Texas Comptroller of Public Accounts and complete a certificate of termination.

Want to Learn More About How to Start an LLC in Texas?

Did you know that you can complete most of the steps outlined above online? Check out our best LLC service recommendations to help you streamline the process of how to start an LLC in Texas.

Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.