How to Start an LLC in Texas, And What To do After

If you're starting a small business, one of the first decisions you'll need to make is how to structure it. A popular option is a limited liability company, or LLC. Here's how to set one up in Texas.  

Step-by-step guide to forming an LLC in Texas

Forming an LLC in Texas is a straightforward process. Here are the steps you'll need to take.

Choose a name for your Texas LLC

The name must be distinguishable from existing business entities in Texas (visit the Texas Secretary of State's website to check name availability). It also has to end with "limited liability company" or "limited company," or the abbreviation LLC, L.L.C., LC, or L.C. Additionally, the name can't be offensive or include words suggesting a false government affiliation or illegal purpose.

Designate a Texas registered agent

Texas requires LLCs to maintain a registered agent and office in Texas to accept official legal correspondence on the LLC's behalf. Texas residents and entities authorized to do business in Texas can serve as registered agents. While an LLC can't serve as its own registered agent, LLC members, officers, and employees can.  

File a Texas certificate of formation

A Texas LLC is created by filing a certificate of formation with the Texas Secretary of State. The document includes information about your business and registered agent, among other details. The filing fee is $300, and you can file through SOS Direct, mail, or fax.

Get an Employer Identification Number (EIN)

An EIN is like a Social Security number for your business. You'll need an EIN in Texas if your LLC has employees or you elect corporation tax status. You'll also need an EIN to open a business bank account (such as Found) or apply for credit for your LLC. You can get an EIN for free from the IRS.

Now that you've opened a business in Texas, now what?

Once you've registered your LLC in Texas, there are a few more tasks to complete.

Register with the tax authorities

The Texas Comptroller of Public Accounts manages business taxes. You'll need to set up an online account to file the required annual Texas franchise tax and any other required taxes.

Obtain the required business licenses and permits

LLCs don't need a general business license to operate in Texas. Still, you may need state-specific licenses and permits, depending on what your business does. Check out the Texas Business Licenses & Permits Guide for more information.

File a Beneficial Ownership Information Report

As of Jan. 1, 2024, all LLCs must file a Beneficial Ownership Information (BOI) Report with the U.S. Financial Crimes Enforcement Network (FinCEN). If you created your LLC before Jan. 1, 2024, you have until Jan. 1, 2025, to file an initial BOI report. LLCs created in 2024 have 90 calendar days to file, while those formed in 2025 and beyond have 30 days.

Pros and cons of forming an LLC in Texas

Pros

• Texas doesn't impose corporate or individual income taxes, so LLCs only pay federal income tax.
• Unlike most states, Texas doesn't require LLCs to file annual reports.
• LLCs shield members from personal liability for business debts and lawsuits.
• LLCs have fewer record-keeping and compliance requirements than corporations.

Cons

• The LLC filing fee in Texas is $300, well above the $129 national average.
• Texas LLCs pay an annual franchise tax, which averages 0.75% for most businesses.
• LLC members pay 15.3% of their income in self-employment taxes.

What does it cost to create an LLC in Texas?

You'll pay $300 to form an LLC in Texas, a higher fee than many states impose. It will cost more if you hire a professional registered agent or use an LLC filing service like LegalZoom, which helps form your LLC, prepares your documents, and offers guidance from attorneys. While there's no fee to file your annual report, most LLCs pay an annual franchise tax (visit the Texas Comptroller's website for details). 

Texas LLC state and federal tax requirements

Texas doesn't impose corporate or state income taxes, so LLCs are subject only to federal income taxes. Most LLCs are pass-through entities, so members report income on their personal income tax returns. LLC members are also subject to the federal self-employment tax, including 12.4% for Social Security and 2.9% for Medicare taxes.

Texas imposes a franchise tax, though most LLCs don't pay it. The franchise tax applies to Texas LLCs making over $2.47 million in 2024. Businesses under this threshold are no longer required to file the No Tax Due Report, though they still must file Form 05-102, Public Information Report or Form 05-167, Ownership Information Report.

Alternative business structures in Texas

If you're unsure whether an LLC is the proper structure for your business, here are a few options to consider:

Sole proprietorships

A sole proprietorship is a non-registered, unincorporated business with a single owner who pays personal income tax on their business profits. It's the most common and simplest type of business to set up, but it doesn't provide liability protection for the owner.

Partnerships

Partnerships are formed by two or more individuals (called partners) who agree to operate and/or invest in a business. The three types of partnerships in Texas include general, limited, and limited liability partnerships.

Corporations

A corporation limits liability like an LLC does, but it's owned by one or more shareholders instead of members. While corporations have more record-keeping and reporting requirements than LLCs, they tend to be more attractive to investors.

Resources for Texas LLCs

The Small Business Administration (SBA) and Service Corps of Retired Executives (SCORE) offer many tools and resources for LLCs in any state. Here are a few Texas-specific resources:

• The Governor's Small Business Resource Portal.
• The Governor's Small Business Handbook.
• Texas.gov's Starting a Business in Texas portal.

Time Stamp: Consider drafting an LLC operating agreement

Texas doesn't require LLCs to have operating agreements, though drafting one can be good practice because it serves as a rulebook for how your business will be run and how major decisions will be made. Without an operating agreement, default Texas LLC laws will govern your LLC, which may not align with your LLC's goals and intentions.

Frequently asked questions (FAQs)

How do I set up my own LLC in Texas?

To form an LLC in Texas, you must select a unique name for your business, appoint a registered agent, file a certificate of formation, obtain an employer identification number (EIN), and create an LLC operating agreement.

How long does it take to get an LLC approved in Texas?

If you file online through SOS Direct, the Texas Secretary of State will rule on your certificate of formation in three or four days. If you submit the form by fax or mail, the approval process takes about 30 business days, though you can pay $25 for expedited service.

Is an LLC worth it in Texas?

Texas offers a few noteworthy benefits for LLCs. In addition to the standard advantages of forming an LLC, Texas doesn't impose a state income tax, nor does it have age or residency requirements for LLC members. Still, the best state to form an LLC is where you live and conduct business.