How to Start an LLC in Texas: A Step-by-step Guide

Posted on
Map of Texas to help form llc in texas

Estimated reading time: 16 minutes

It’s not just the hair and the boots that are bigger in Texas–small businesses are bigger in Texas too! This is due to a number of factors including Texas’s business-friendly tax environment, low-cost of living, world-class infrastructure, and more. 

Because of these things, the economy is growing faster than any other, and attracting new residents. Texas also has reasonable college completion rates and high venture capital. That means a skilled workforce.

All these factors combined make starting an LLC in Texas a smart idea, but the question is how to start an LLC in Texas.

Well, in this blog post we’ll walk you through the steps to form an LLC in Texas, removing the guesswork, so you can make your dream a reality. 

Choose a Business Entity

To understand how to start your LLC or corporation in Texas you need to understand entity formation. Limited Liability Companies (LLCs) are the most popular entity structures. We’ll quickly explain corporations, but this blog post will focus on LLCs.

Corporation

A corporation is a legal entity created separately from those who own and operate it. A corporation’s debts and taxes are separate from its owners, thereby offering the greatest personal liability protection of all business structures. The two most common types of corporations are S and C corporations.

Limited Liability Company

LLCs are the most popular business structure, blending the aspects of corporations, partnerships, and sole proprietorships into a simple and flexible business entity. Like corporations, LLC formations protects the owners and operators from personal liability similar to a corporation, and they possess the “pass-through” tax benefits of a partnership. You can form your Texas LLC as a single-member LLC or multi-member LLC.

Creating an LLC in Texas can be difficult and confusing, especially as a first time business owner. But with a company like Inc Authority in your corner, you’ll not only have your LLC formed for you, you’ll get expert guidance beyond business formation, so you never have to wonder or worry about what to do next!

Our entity-setup service is 100% free.
We’ll waive our service charges, labor costs, and overhead. You only pay the state fees and postage, which are mandatory regardless of who incorporates for you. Start now for free!

What About DBAs?

DBAs (which stands for “doing business as”) grants business owners the ability to conduct business under an assumed name. A DBA is also referred to as a fictitious business name and is an authorization by the state for your business to operate under an assumed name. 

For sole proprietors and owners of LLCs, DBAs offer a cheap way to gain legal recognition for the secondary name of your choice.

  • Sole proprietors: For sole proprietors starting a new business, DBAs are a budget-conscious way to gain legal status and work under a creative company name.
  • LLC owners: If the name on your LLC paperwork and your business name differ, DBAs offer the opportunity to operate as an LLC under a different legal name.

DBAs come with benefits like the ability to open a bank account, create enforceable contracts, and establish federal employer tax status (getting an EIN). It’s possible to file multiple DBAs, allowing a single LLC to operate different businesses under the same legal umbrella. If you’re starting a business or expanding your LLC in Texas, get the proper legal recognition early on to start off on the right legal footing. 

Texas Business State Filing Fees

One of the biggest expenses of forming an LLC or corporation in Texas (or any state) is the filing fee. This one-time fee can be upwards of $500. You pay this fee to file a document called the Certificate of Formation with the Texas Secretary of State. The filing fee in Texas is $300.

You also might want to file what most states call a Certificate of Good Standing, but in the State of Texas, is called a Certificate of Fact.

A Certificate of Good Standing is used to say that a company is authorized and incorporated to conduct business in a certain state. The Certificate of Good Standing is used to demonstrate two important things:

  1. The company has been in existence from the time of incorporation; and
  2. that no action is currently being undertaken in order to remove the company from the register.

You can order by fax, mail, email, phone, in person, or online, but we recommend online.

Texas State Filing Fee:$300
Texas State Filing Time:3 – 4 business days
Certificate of Good Standing$15 (online)

Mailing address:

Texas Secretary of State
Corporations Section
PO Box 13697
Austin, TX 78711

Our entity-setup service is 100% free.
We’ll waive our service charges, labor costs, and overhead. You only pay the state fees and postage, which are mandatory regardless of who incorporates for you. Start now for free!

Create a Business Name

Forming an LLC in Texas also requires you to figure out your business name. It’s actually one of the biggest decisions you’ll make. It may not seem as important as choosing the type business entity, but it is. As a matter of fact, many legal issues can arise from choosing the wrong LLC name for your business startup. So, let’s look at how to register a business name in Texas:

  • First off, come up with a unique business name that captures what your business will do, is easy to pronounce, and isn’t era specific or too niche. This is easier said than done, so take your time.
  • Once you’ve decided on a name, do a name search to make sure no one is using it. This may force you to go back to the drawing board. You might also want to check if your desired website URL name is already taken, then plan for an alternative,
  • After doing a basic search, you’ll need to do a more thorough trademark search. This is an important step that can lead to a lawsuit if done incorrectly. A good rule of thumb to follow when doing a trademark search is to search for misspellings, plurals, abbreviation, variations of spelling, sound-alike and more…
  • To register your  business name in Texas, you’ll need to run your chosen name through the Texas Secretary of State’s name reservation portal called SOSDirect.

Register Your Business

Now that you’ve decided on an entity structure and created an original business name, here’s how to register an LLC in Texas.

Articles of Organization

You only need to file your Articles of Organization with the State of Texas once, but you will need to file a biennial report for your LLC, which has its own fees.

There are three ways to do this. You can download and mail in your Texas Articles of Organization, create an account and file online, or have Inc Authority file do it on your behalf. If you decide to take a crack at on your own, you can either file it online at the Texas state SOSDirect website or it can be mailed with your $300 filing fee.

Below is the information that must be included in the articles of incorporation to ensure the state approves them:

  1. Entity Name
  2. Location of LLC Office
  3. Service of Process Address
  4. Registered Agent
  5. Management Structure
  6. Effective and Dissolution Dates

You only need to file your Articles of Organization with the State of Texas once, but you will need to file a biennial report for your LLC, which has its own fees.

Operating Agreement

Once you complete the state filing of your articles of organization, and after they’ve been approved, you’ll need to properly organize your LLC with an Operating Agreement.

Texas law requires every LLC business owner to file an Operating Agreement, regardless of whether the company has one or multiple members. Your Operating Agreement will outline the structure and purpose of your company as determined by your LLC members and will bind all the members of your LLC.

Issues that should be defined by your LLC Operating Agreement include:

  • Member powers
  • Rules for meetings
  • Members’ voting rights
  • How your LLC will be managed
  • Guidelines for losses and profits
  • Buyout provisions

Once the Operating Agreement has been adopted, it will provide protection for the members of your LLC. When the members of your LLC have agreed to the terms of your Operating Agreement and have signed the document, you should keep the agreement in a secure location.

Inc Authority can remind you to do or do for you if you choose to have us handle the paperwork. 

Get Your Employer Identification Number or EIN

The next step in starting an LLC in Texas is getting your EIN or Tax ID Number (TIN). This federal number is like your business’s social security number, separating you from your business. This protects you from fraud and identity theft.

Additionally, an EIN is required by your bank to open a Business Checking Account, file tax returns, obtain payroll services, and credit cards.

Attain Your Business Licenses and Permits

There’s no statewide Texas business license, but Texas does require certain business types to apply for specific licenses and permits. So, depending on the type of work you perform, you may need to complete a number of different business license applications.

Texas requires most businesses to obtain a Sales Use and Tax Permit. This Tax Permit is typically required if your business is based in Texas and:

  • You sell property within the state of Texas;
  • You lease or rent property in Texas; and/or
  • You sell taxable services within the state.

Fortunately, Texas makes it fairly easy to locate your business type and determine which websites you need to visit to get licensed. You can either visit the Texas Comptroller of Public Accounts website or download the 2020 Texas Business Licenses and Permits guide and scroll through the PDF to find your industry. From there, you should see a link to the Texas website where you can apply for any relevant licenses and permits.

This PDF is updated every February, so keep an eye out for 2021 changes soon.

Keep in mind that licensing requirements may vary from city to city. So, if you’re planning on starting a business in Austin, Texas be sure to look up the license and permit requirements for Austin.

Check with local small business offices, often part of the County Clerk or branch of the city government, to learn more. The Small Business Association (SBA) also offers expertise in finding local forms and permits or you can use an online business license service provider to obtain the proper licenses and permits for you.

Lastly, remember that licenses and permits will need to be renewed annually or in some cases, biennially. You can note these renewal dates on your own, or let Inc Authority send you reminders as it gets closer to the date.

Get a Registered Agent

There are an estimated 38 million home-based businesses in the U.S., so if you’re thinking about starting a business in your home, you’re definitely not alone.

But, did you know that all businesses are required by law to have an address where they can accept service of legal documents (like a service of process) from the state or government agencies during normal business days and business hours? Without a Registered Agent, that address is your home address or P.O. box.

As you can imagine, that’s not always possible (or advisable) with a home-based or foreign-filed business. That’s where a registered agent comes in.

A registered agent is a responsible third-party in the same state as your business who receives official government notifications (usually tax forms and notice of lawsuits) on behalf of your LLC .

Even if you aren’t planning on starting a home-based business or foreign LLC, having a registered agent is still advisable because it will:

  • Limit third party access to your personal information
  • Ensure that you never miss important documents
  • Protect the privacy of owners
  • Eliminate junk mail
  • Ensure you’re never served with legal papers in front of your clients
  • And more!

How to Set up Registered Agent Service in Texas

While it is possible to act as your own registered agent, lawyers do not advise that. That’s why most companies hire a third-party (a professional service) to act as their registered agent.

Why not let Inc Authority act as your registered agent. We’ll be the buffer between your business’ legal matters and your physical place of business. That way, anyone trying to locate you, or the LLC must first come through us.

Learn more about our registered agent services here.

Open a Business Bank Account

To keep your personal and business expenses separate and to stay in good standing with the IRS, you need to open a business bank account for your LLC or corporation.

Setting up a separate bank account for your company makes it easier to for you do business, manage a cash balance, complete and file your income tax returns with the state of Texas, deduct business expenses for taxes, conduct proper accounting, and execute employee payroll. It also provides better protection if someone takes legal action against your company.

Additionally, business bank accounts create historical relevance through the relationship established with the bank, and can create unrestricted access to long-term funding options, business credit cards, and other financial solutions.

Types of Business Bank Accounts

Not all business bank accounts are created equal. That’s why it’s important to distinguish between the good, the bad, and the best business bank accounts.

Checking Accounts

A business checking is the most common type of business bank account and the first one you’ll want to open for your business. This because business check accounts allow you to: 

  • Accept deposits (over-the-counter cash, checks, credit card, and electronic deposits). 
  • Pay for business-related expenditures (payroll, taxes, business insurance, vendors, lenders, and everything imaginable that you’ll need to operate your business). 
  • Keep detailed records of all expenses and income.
  • Protect your money. This account is Federal Deposit Insurance Corporation (FDIC) insured, meaning you’re covered up to $250,000 by the federal government should anything happen to the bank or your money.
  • Support dual signatures. If you have a partnership or employees, you may wish to make it required that two signatures be present whenever a withdrawal or deposit is made.

Savings Accounts

This one should come as no surprise. A business savings account (like a personal savings accounts) lets you safely save money in a bank.  You don’t need this right away though, only when you have an abundance of capital sitting in your business checking account, will you need to open a savings account. It allows you to: 

  • Make saving money a habit. The most successful companies (think blue chips like Wal-Mart, Amazon, General Mills, Hershey’s, and General Electric) all have solid reserves of capital.
  • Protect your business during a cash-crunch. Incidentally, 80% of businesses fail because of cash flow problems.
  • Save money so that you don’t have to take out expensive business loans.
  • Maintain liquidity. With a business savings account, you can liquidate assets to buy equipment, purchase real estate, and make other big purchases for your business. 
  • Build business credit. Yes, having a business savings account can actually help you establish and build business credit.

Certificate of Deposits

A business certificate of deposit (CD) is a term account that offers maximum security and a guaranteed rate of return. You agree to lend your business’s money to the bank for a set period of time at an agreed-upon interest rate. The interest rates are usually higher than you’d receive from a business savings account or interest-bearing business checking account. 

Here are the main features of a business certificate of deposit:

  • It pays out 1% or more in interest. Some CDs pay over 2% in interest
  • You cannot liquidate the account until the term expires. This means you can’t spend the money. 
  • The longer the term, the higher the interest rate.
  • Different banks offer different term limits. Some CD terms are for a week, months, or even years.

Money Market Accounts

This is a lesser known type of business a bank account and isn’t for every business owner. You’ll want this type of account if you have a lot of money saved, want higher interest rates than a business savings account or interest-bearing business checking account, but still want some access to your money.

Here are the main features of a business money market account:

  • Six withdrawals per month. 
  • Deposit money anytime.
  • Deposit as much money as you like.
  • Higher interest rates (currently between .1% and 1.6% APY)
  • Require a minimum balance. 
  • Penalties if you withdraw more than six times in a month. Ask your banker what the penalty is if you withdraw more than six times.

How to Open a Business Bank Account

Opening a business bank account is as simple as gathering some information together and completing an application. Here are the steps to open a business checking account:

  1. Do your due diligence. Research different banks and discover what each one offers. Then decide which one will work best for your business type. An easy way to do this research is to check out some of our business bank reviews.
  2. Get a tax ID number. You can get one free EIN from the IRS. If you think you already have one, here’s how to look up an EIN.
  3. Gather your business formation documents (for LLCs and Corporations).
  4. Gather your business license or business name filing paperwork.
  5. Call the bank and find out what other items you’ll need to open a business bank account. Every bank has different requirements, so make sure you check with them first before attempting to open a business bank account. Sometimes you’ll find this information listed on the bank’s website.
  6. Go in person or online to complete all necessary paperwork and submit your business documents.

At Inc Authority, we make getting a business bank account easy. How so? Well, when you form your business with us, you gain access to a free Bank of America business checking account. So, don’t wait! Form your Texas LLC today!

Filing Business Taxes 

Filing business taxes is the least enjoyable part of running any business, but to stay in good standing with the Internal Revenue Service (IRS) and save thousands of dollars, you need to properly file your taxes.

LLCs in Texas (as in most states) are treated as corporations or limited liability partnerships. Because of this, they are subject to Texas’ Personal Income Tax and The Texas Franchise Tax (for corporations), which conforms to federal income tax classifications. Depending on the type of taxation you chose for your LLC, the tax responsibilities are as follows:

  • An LLC treated as a limited liability partnership. Your LLC is required to file the Form IT-204, or Partnership Return Form with the state of Texas.
  • An LLC treated as a C corporation for federal tax purposes, or an S corporation. These LLCs are required to file a Texas State Corporation Franchise Tax Return.
  • An LLC treated as a sole proprietorship. These LLCs must report all business income and expenses via the sole proprietor’s personal income tax returns.

By law, some LLCs are required to pay an LLC filing fee or an estimated income tax on behalf of certain partners or members.

Let’s get started

Starting a business in Texas is an exciting opportunity, but like starting most businesses it can be overwhelming. Why not let the business experts at Inc Authority do all the heavy lifting for you?

We’ll form your LLC or corporation, run a business name check, get your EIN, and make sure you have all the licenses and permits needed to run your business in Texas.

Not to mention our formation service includes a ton of free management tools to meet your business needs and help make running your business as simple as possible. Contact us today to get started!

Start now for free

Incorporating is the most powerful thing you can do to legitimize your business. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your free LLC today and enjoy the protection due to you and your business under the law.