How to Form an LLC in Texas and Take Advantage of Big Tax Benefits, Step By Step

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Texas is one of the most cost-effective states in the nation for forming an LLC, but there are some state-specific requirements you should keep in mind.
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Registering a Limited Liability Company (LLC) in the state of Texas can save you money and help you take your entrepreneurial aspirations to the next level.

“When you take steps to form a legal business entity, such as a Limited Liability Company, you’re letting your customers and clients know that your business is credible,” says Deneen Warmington, a trademark attorney who helps entrepreneurs protect themselves and their intellectual property. “Anyone can operate a business as a sole proprietor, but filing paperwork and an operating agreement with your state to register your business lets the market know you value your business and your customers.”

Texas LLC formation is unique in that companies are not taxed on their corporate or individual income. The franchise tax burden for a Texas LLC is low compared to other states, and Texas does not charge state property taxes. The ability to conduct business with a lower tax burden is why many corporations, such as Tesla, Oracle, and Charles Schwab, have relocated their headquarters and updated their operating agreements to reside in the Lone Star state. You’ll be able to glean similar tax advantages, even if your side hustle or business is currently just you, by submitting a certificate of formation and starting an LLC in Texas, and a tool like LegalZoom can help you get started quickly.

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LegalZoom helps you set up an LLC in your state quickly, easily, and entirely online. An LLC is needed for important business functions, such as opening a business bank account. Different states have different business formation requirements; LegalZoom customizes the process for you based on what state you live in, and the company helped consumers form 447,000 businesses in 2021, according to a press release.

Mistakes can be made when trying to form an LLC by yourself, and business formation professionals can be expensive. If you want a cost-effective and convenient way to create your LLC (and keep more of the money you make from your side hustle or business when tax time rolls around), LegalZoom is a great option.

We asked Texas-based legal experts and Texas-based business owners what to keep in mind when registering for an LLC in the Lone Star state. Here’s how to start an LLC in Texas – and what to keep in mind along the way.

Step 1: See if Your Company Name Is Available

First, you’ll want to ensure your business name is available in Texas. Your LLC name must be unique and distinguishable from other existing businesses registered in Texas. You can visit the Texas Secretary of State’s website and search their database to ensure your desired business name is available.

Your LLC name doesn’t have to be the final name of your business. When you register your LLC with the Texas Secretary of State, you can also choose to register one or more DBAs (“Doing Business As”), which allow you to operate under a different business name than the name of your LLC. For example, “Sally’s Hospitality LLC” might be Sally’s official business name, but she could also register “Sally’s Coffee Shop” as a DBA, and it would be fine to operate her business under either business name. Your DBA name cannot already be registered with someone else in Texas. 

“When I started my company over a decade ago, we ensured we had registered all our information,” says Neha Gupta, founder of College Shortcuts, a Texas-based college admissions consulting company for families. “That way, later down the line when you grow, no one can take your name without legal ramifications. It’s important to have your legal aspects in order when starting a company, and this is the first step.”

Step 2: Designate a Registered Agent, Member(s), and Manager(s)

As with many other states, the Certificate of Formation you file in Texas will require two important pieces of information about your business structure: your registered agent and the number of managers your LLC will have.

“A registered agent is a person or company who agrees to receive legal documents if your LLC gets sued,” says Warmington. Texans can elect to act as their own registered agent or use an outside registered agent service instead. Additionally:

  •  Your registered agent must have a physical street address in Texas. 
  • Your registered agent address cannot be a PO Box address or a mailbox rental service. 
  •  As long as it’s a physical street address, you may use your home or business address or a friend or family member’s address as the registered agent address. However, this address will be public information. 
  • In order to protect your privacy, you may hire a registered agent company. There are various companies that offer registered agent services at reasonable prices.

Pro Tip

If you don’t want to monitor your physical mail, consider outsourcing registered agent services to ensure nothing important slips through the cracks.

You’ll also want to determine what you want the member and manager structures to be for your LLC. Your LLC can have as many members as you like. Think of members as owners. Managers, in contrast, are running the company; a manager can open most bank accounts and obtain workers’ compensation exemption.

In some cases, the LLC’s members are the managers; this is known as a member-managed LLC. If the members (owners) are separate from the managers who actually run the company, it’s called a manager-managed LLC. If you are the only member, you can file to be a single-member LLC, which lets you do your business taxes as an extension of your personal taxes each year all in one tax return. In this election, your LLC is taxed like a sole proprietorship, but for legal purposes it is still a separate business entity.

Step 3: Complete Your Filing Information

When you’re ready, navigate over to the SOSDirect website and create a username and login. You’ll be guided through the different steps to submit your certificate of formation, articles of incorporation, and any other important documents the Secretary of State will need to register your new LLC in Texas.

The Secretary of State filing fee is $300, plus an additional 2.7% convenience fee to start an LLC in Texas and make things official.

Step 4: Get Your Employer Identification Number (EIN)

Once you receive back correspondence that your Texas LLC has been filed and approved, you’ll be able to register for an EIN with the Internal Revenue Service. Your EIN is like the social security number of your business, and you’ll need it to file your taxes for your Texas LLC. You also need an EIN to open a business bank account and get a business credit card, which is strongly recommended from day one so you can keep your personal and business expenses separate and ensure personal asset protection outside of your business structure.

Related: The Best Business Credit Cards

Step 5: File a Texas Franchise Tax Report and a Public Information Report Each Year

“Unlike most states, where an LLC annual report is filed with the Secretary of State, the Texas LLC Franchise Tax Report and a Public Information Report are filed with the Texas Comptroller Office,” says Warmington. Working with a CPA or business compliance service can help you stay on top of what reports need to be submitted so that your Texas LLC remains active. Some registered agent services will also monitor reporting deadlines on your behalf.

How Much Does It Cost to Start an LLC in Texas?

The filing fee to start an LLC in Texas is $300, along with a 2.7% convenience fee. There’s also the option to hold an LLC name if you know what name you want, but aren’t ready to file just yet; the fee for this hold is $40. This is in addition to what you would pay if you use an online filing service like LegalZoom.

You’ll also want to factor in any additional costs that might come with running your Texas LLC. If you plan to outsource registered agent services, be sure to add that to your annual budgeting. Also budget for any business licenses or operations expenses you might need, such as a business website, certain business assets, and what you’ll need to hire employees.

Is It Worth Starting an LLC?

As soon as your side hustle or business is making money, you should register an LLC in Texas. Warmington refers to these LLC perks as the “three P’s”: protection, professionalism, and Peace of mind.

“One of the main reasons that a business owner forms an LLC early on is to limit their personal liability,” she says. “When you operate a business as an LLC, your personal assets can be protected from business-related debts and lawsuits. This means that the business’s assets, such as inventory, intellectual property (IP), real property, or business accounts are liable in the event of business-related debts or lawsuits. Simply put, an LLC protects what you own in your personal life. It’s called limited liability protection because you are not protected from all liability. When you begin to check off your legal to-dos, it gives you peace of mind and legal confidence that your business is protected and you’re doing it the right way.”

How Long Does It Take to Form an LLC in Texas?

If you file online, your Texas LLC will be ready in 4-5 business days.

If you file by mail, your LLC will take anywhere from 4-7 weeks to process. You can opt to expedite your by-mail filing for an additional $25 fee, which will being the turnaround time down to around five business days.

Can a Single Person Start a Texas LLC?

Yes. An LLC can have only one member who is also the only manager. In this setup, one person owns 100% of the company, and the member can opt to file their taxes as a single-member LLC if they so choose. Single-member LLCs are common, and in most cases the tax perks that come with having an LLC make incorporation worthwhile, even if you’re a small operation.

You can also decide to have your LLC taxed as a corporation if you so choose. Many LLC owners elect to have their LLC taxed as an S corporation. Consult with a CPA or tax professional to determine which election makes the most sense for you.

Do You Need an EIN to Start an LLC?

You don’t need an EIN to start an LLC in Texas, but you’ll want to get one as soon as your LLC is approved so you can start getting financial accounts set up and in place. Registering an EIN with the internal revenue service is free.

Starting an LLC in Texas may feel intimidating, but doing so now will make your side hustle or business aspirations both official and more profitable. Take the time to get official documentation squared away and you’ll be positioned well to take your entrepreneurial efforts to the next level.