Texas LLC: how to start an LLC in Texas

Introduction

Texas has earned its reputation as one of the most business-friendly states in America, making it an exceptional choice for entrepreneurs looking to form a Limited Liability Company (LLC). The Lone Star State’s pro-business environment, combined with no state income tax and minimal bureaucratic hurdles, creates an ideal landscape for business formation and growth.

Why Form a Texas LLC?

Texas offers compelling advantages that attract entrepreneurs from across the nation. The state’s robust economy, diverse industries, and strategic location make it a hub for business activity. From tech startups in Austin to energy companies in Houston and manufacturing operations throughout the state, Texas provides opportunities across virtually every sector.

Key Advantages of a Texas LLC:

No State Income Tax: Texas imposes no state income tax on individuals or pass-through entities like LLCs
Low Formation Costs: Competitive filing fees compared to other major business states
Business-Friendly Regulations: Streamlined processes and minimal ongoing compliance requirements
Strong Legal Framework: Well-established business laws that protect LLC owners
Strategic Location: Central location with excellent transportation infrastructure
Diverse Economy: Access to multiple thriving industries and markets

What Makes Texas Unique:

Texas stands out with its combination of low taxes, minimal regulations, and strong economic fundamentals. The state’s franchise tax system is more favorable than corporate income taxes found in other states, and the absence of personal income tax means LLC owners keep more of their profits. Additionally, Texas courts have a long history of respecting business entities and protecting owner interests.

State Requirements

Understanding Texas-specific requirements is crucial for successfully forming your LLC. The Texas Secretary of State oversees business formations and has established clear guidelines for LLC creation.

Naming Requirements

Your Texas LLC name must comply with specific state requirements:

Must contain “Limited Liability Company,” “LLC,” or “L.L.C.”
Cannot be identical to existing business entities registered in Texas
Cannot contain restricted words without proper authorization (such as “bank,” “insurance,” or “university”)
Must be distinguishable from other registered business names
Cannot imply governmental affiliation without authorization

Before settling on a name, conduct a thorough search through the Texas Secretary of State’s business database. Consider reserving your chosen name for 120 days if you’re not ready to file immediately.

registered agent Requirements

Texas law mandates that every LLC maintain a registered agent within the state:

Must be a Texas resident individual (18 years or older) or a business entity authorized to conduct business in Texas
Must maintain a physical Texas address (not a P.O. Box)
Must be available during regular business hours to accept legal documents
Can be a member of the LLC, but professional registered agent services are recommended

Filing Requirements

The primary formation document for a Texas LLC is the Certificate of Formation, which must include:

LLC name and any assumed names
Registered agent name and address
Management structure (member-managed or manager-managed)
Purpose statement (can be general or specific)
Duration (perpetual unless otherwise stated)
Organizer information

Formation Process

Forming a Texas LLC involves a straightforward process through the Texas Secretary of State. Here’s your step-by-step guide:

Step 1: Choose and Reserve Your LLC Name
Search the Texas Secretary of State’s database to ensure your desired name is available. If available, consider filing a Name Reservation to secure it for 120 days.

Step 2: Select a Registered Agent
Identify your registered agent before filing. This can be yourself (if you’re a Texas resident), another qualified individual, or a professional service.

Step 3: Prepare Your Certificate of Formation
Complete Form 205, the Certificate of Formation for a Limited Liability Company. Ensure all required information is accurate and complete.

Step 4: File with the Secretary of State
Submit your Certificate of Formation along with the required filing fee. You can file:

Online through SOSDirect (fastest option)
By mail to the Secretary of State
In person at the Secretary of State’s office

Step 5: Obtain an EIN
Apply for an Employer Identification Number (EIN) from the IRS, even if you don’t plan to have employees. This is required for banking and tax purposes.

Step 6: Create an Operating Agreement
While not required by Texas law, drafting an Operating Agreement is strongly recommended to establish management structure, member rights, and operational procedures.

Step 7: Comply with Other Requirements
Depending on your business type, you may need additional licenses, permits, or registrations at the state or local level.

Where to File

All formations must be filed with the Texas Secretary of State. The online filing system (SOSDirect) is the most efficient method, offering 24/7 access and faster processing times.

Processing Times

Online filing: 1-3 business days
Mail filing: 7-10 business days
Expedited processing: Available for additional fees (24-48 hours)

Costs Overview

Understanding the full cost structure helps you budget appropriately for your Texas LLC formation.

State Filing Fees

Please check current state fees, as they may change periodically. As of recent updates, the Texas Certificate of Formation filing fee is competitive with other major business states.

Additional Costs to Consider

Registered Agent Service: $100-$300 annually if using a professional service
Operating Agreement: $500-$2,000 if professionally drafted
EIN Application: Free when filed directly with the IRS
business licenses: Varies by industry and location
Initial Franchise Tax: May be due in your first year depending on formation timing

Annual Requirements

Texas has minimal ongoing costs compared to many other states:

Franchise Tax: Annual tax based on revenue (many small LLCs qualify for exemptions)
Registered Agent: Ongoing annual fee if using a service
Business License Renewals: Varies by industry

State-Specific Benefits

Texas offers unique advantages that make LLC formation particularly attractive in the Lone Star State.

Tax Advantages

No State Income Tax: Texas doesn’t impose state income tax on individuals or pass-through entities
Franchise Tax Structure: More favorable than traditional corporate income taxes
Revenue-Based Taxation: Tax based on revenue rather than profits
Small Business Exemptions: Many small LLCs qualify for franchise tax exemptions
No Inventory Tax: Unlike some states, Texas doesn’t tax business inventory

Privacy Protections

Texas provides reasonable privacy protections for LLC owners:

Member names aren’t required in the Certificate of Formation
Operating Agreements aren’t filed with the state
Annual reports don’t require detailed member information
Court records maintain standard confidentiality protections

Business-Friendly Laws

Flexible Operating Agreements: Broad freedom to structure your LLC
Strong Legal Precedents: Well-established case law protecting business interests
Limited Personal Liability: Robust protection of personal assets
Efficient Court System: Business-friendly judicial approach
Minimal Ongoing Compliance: Few mandatory annual requirements

Ongoing Compliance

Maintaining good standing for your Texas LLC requires attention to several ongoing obligations.

Annual Report Requirements

Texas doesn’t require traditional annual reports for LLCs, simplifying ongoing compliance compared to many other states.

Franchise Tax

Texas impuses an annual franchise tax on LLCs:

Threshold: Generally applies to entities with revenues exceeding $1.18 million
Rate: 0.375% to 0.75% of taxable margin
Exemptions: Many small businesses qualify for exemptions
Filing Deadline: May 15th annually
No Tax Due Report: Must file even if no tax is owed

Other State Obligations

Maintain Registered Agent: Keep current registered agent and address on file
Update Business Information: Notify the Secretary of State of significant changes
Comply with Name Requirements: Maintain proper LLC designation in business dealings
Industry-Specific Requirements: Meet any sector-specific compliance obligations

Registered Agent

The registered agent requirement is one of the most important aspects of Texas LLC formation and maintenance.

State Requirements

Texas law specifies that registered agents must:

Maintain a physical Texas address during regular business hours
Be available to receive legal documents, tax notices, and official correspondence
Forward important documents to the LLC promptly
Maintain current address information with the Secretary of State

Using a Registered Agent Service

While you can serve as your own registered agent, professional services offer several advantages:

Privacy Protection: Keep your personal address off public records
Reliability: Ensure someone is always available during business hours
Document Handling: Professional processing of legal documents
Compliance Alerts: Notifications about important deadlines and requirements
Mail Forwarding: Systematic handling of official correspondence

Address Requirements

The registered agent address must be:

A physical address in Texas (not a P.O. Box)
Available during regular business hours
Properly maintained in state records
Updated promptly when changes occur

Tips for Success

Maximize your chances of success with these Texas-specific best practices and insights.

State-Specific Best Practices

Leverage Tax Advantages: Structure your business to maximize Texas’s no-income-tax benefit
Understand Franchise Tax: Learn the exemptions and thresholds to minimize tax obligations
Use Professional Services: Consider registered agent and legal services for complex situations
Maintain Good Records: Keep detailed records for franchise tax reporting
Stay Informed: Monitor changes to Texas business laws and regulations

Common Mistakes to Avoid

Ignoring Franchise Tax: Even exempt entities must file reports
Inadequate Operating Agreements: Don’t skip this crucial document
Poor Name Selection: Ensure your name meets all state requirements
Registered Agent Issues: Maintain current, reliable registered agent service
Mixing Personal and Business Affairs: Keep LLC and personal matters completely separate

Resources Available

Take advantage of Texas resources for business success:

Texas Secretary of State: Official forms, guidance, and filing services
Texas Economic Development: Programs and incentives for businesses
SCORE: Free business mentoring and educational resources
Small Business Development Centers: Counseling and training programs
Industry Associations: Sector-specific resources and networking opportunities

FAQ

1. How long does it take to form an LLC in Texas?
Online filings through SOSDirect typically process within 1-3 business days, while mail filings take 7-10 business days. Expedited processing is available for additional fees if you need faster turnaround times.

2. Do I need an Operating Agreement for my Texas LLC?
While Texas doesn’t legally require an Operating Agreement, it’s strongly recommended. This document establishes management structure, member rights, profit distribution, and operational procedures. Without one, your LLC will be governed by default state statutes.

3. What is the Texas franchise tax and do I have to pay it?
The Texas franchise tax is an annual tax based on revenue, not profits. Many small LLCs are exempt if their total revenue is $1.18 million or less. Even if exempt, you must still file an annual report with the state.

4. Can I be my own registered agent in Texas?
Yes, if you’re a Texas resident and can maintain a physical Texas address during business hours. However, many business owners prefer professional registered agent services for privacy, reliability, and professional document handling.

5. How much does it cost to start an LLC in Texas?
The state filing fee is competitive with other major business states (check current state fees for exact amounts). Additional costs may include registered agent services ($100-$300 annually), operating agreement preparation ($500-$2,000), and any required business licenses.

Conclusion

Texas offers an exceptional environment for LLC formation, combining low costs, minimal regulations, and significant tax advantages. The state’s business-friendly approach, robust economy, and strategic location make it an ideal choice for entrepreneurs across all industries.

The formation process is straightforward, with online filing options that provide quick turnaround times. Ongoing compliance requirements are minimal compared to other states, allowing you to focus on growing your business rather than managing bureaucratic obligations.

Success in Texas requires understanding the state’s unique requirements, particularly the franchise tax system and registered agent obligations. By following best practices and avoiding common mistakes, your LLC can take full advantage of everything the Lone Star State offers.

Ready to start your business journey? TrustedLegal.com has helped thousands of entrepreneurs form LLCs, corporations, and nonprofits across Texas and the nation. We offer affordable pricing, fast turnaround times, and expert support throughout the formation process. Our experienced team understands Texas requirements and can help you navigate every step of LLC formation, from name selection through ongoing compliance. We also provide comprehensive services to help protect your trademark and secure your business’s intellectual property. Let us handle the paperwork while you focus on building your business—contact TrustedLegal.com today to get started with confidence and professional support every step of the way.

Texas LLC: How to Start an LLC in Texas