Forming an LLC in Texas can protect your personal assets from your company’s liabilities and obligations. However, state taxes are required, depending on your business industry, and you may be responsible for local sales taxes.
You must also decide whether your LLC will be member-managed or manager-managed. You must then prepare an operating agreement. Finally, you must obtain an EIN (also known as an FEIN or federal tax ID number).
Your Texas LLC’s legal name must include a designator that tells the state what kind of business entity you are. Common designs are “LLC,” “Limited Liability Company” and “limited company.” You also have the choice to include abbreviations such as LC, L.C., Ltd. Co., LP and LC Ltd Co.
The state will also ask you to specify whether your LLC will be member-managed or manager-managed. This isn’t a requirement but helps determine which owners will be responsible for running the company and making decisions.
Even if you search the state’s Taxable Entity Name Search page and your LLC name seems available, it’s always a good idea to call the Secretary of State and confirm. It costs nothing and there’s almost never a wait time. Matt Horwitz is the founder of LLC University, a website that provides simple instructions anyone can follow to form their own Texas LLC. He performs extensive research and analysis to translate state law into easy-to-follow lessons.
The Texas Secretary of State requires an LLC to have a registered agent in the state. This person will receive legal documents and tax paperwork on behalf of the company. The agent must be a resident of Texas and available in person during normal business hours.
When choosing a registered agent, it’s important to choose one that has experience handling corporate filings and will be available during normal business hours. You can find a list of approved agents on the Texas Secretary of State website.
Although the state of Texas doesn’t require an LLC to draft an operating agreement, it is a good idea to do so. This document will set out the management structure and policies of your company, which can help settle disputes or avoid litigation. Additionally, your operating agreement will allow you to apply for an EIN (also known as an FEIN or Federal Employer Identification Number) from the IRS. The nine-digit EIN will identify your LLC for tax purposes.
Filing with the Secretary of State
Aside from the federal tax requirements we discussed earlier, you’ll also need to meet Texas’s state business registration and licensing requirements. The Secretary of State website has a searchable database that can help you find the right permits and licenses for your LLC, as well as the fees involved.
Your final step is to prepare and file your Certificate of Formation with the Secretary of State. You can do this online, but you’ll need to pay a one-time filing fee of $300.
In addition to laying out the details of your LLC, the Certificate of Formation will include information about whether it will be member-managed or manager-managed. You’ll also need to decide if you want your LLC to be taxed as an S corporation or a regular profit-seeking company. Then, if you plan to hire employees, you’ll need to apply for an Employer Identification Number (EIN). A professional service like Gusto can manage these complex federal and state payroll tax requirements on your behalf.
Besides separating your personal assets from those of your business, another important reason to form an LLC is to take advantage of certain state tax benefits. To do this, your LLC must have its own federal Employer Identification Number (EIN), which you’ll need to supply during the application process for a variety of Texas government agencies and as part of most online forms.
You’ll also need to choose whether your LLC will be member-managed or manager-managed and specify this in your certificate of formation. You may also want to include an operating agreement, which sets out management procedures and ownership details for your company.
You’ll also need to pay an annual franchise tax, which is based on your company’s revenue. This is separate from and in addition to the sales tax you’ll need to collect and remit for each sale. You can find detailed information about the state taxes associated with an LLC in our Texas LLC guide.