How to Start an LLC in Texas
To form an LLC in Texas, you must file the formation document called the Texas LLC Certificate of Formation. You file the Certificate of Formation with the Texas Secretary of State. To complete the filing, you must pay a $300 filing fee required by the state. You can file the document online on the Texas Secretary of State’s website (look for the SOSDirect logo). Filing the Texas LLC Certificate of Formation, however, is only the first step to actually forming a Texas LLC. The complete steps to forming a Texas LLC are as follows:
- File a document called Texas LLC Certificate of Formation
- Pay the $300 filing fee to the Texas Secretary of State
- Wait 1 to 2 days and you’ll receive a zip file from the Texas Secretary of State confirming your LLC has been created
- Get a Texas LLC EIN tax ID
- Create a Texas LLC Operating Agreement
- Take these documents to the bank and open a bank account for your Texas LLC
- If selling taxable goods or services, you’ll need to get a Texas Sales Tax Permit from the Texas Comptroller’s office
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Texas LLC Certificate of Formation free download. When you're done filling out the form, submit it to your state.
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How to File Texas LLC Certificate of FormationTo form a Texas LLC, you file the LLC Certificate of Formation in the following steps:
What is the Cost of a Texas LLC?
The Texas Secretary of State charges a $300 filing fee for Texas LLCs. If you hire Northwest to form your LLC, the total out-the-door cost is $535 (includes state fees and a year of registered agent service).Get Started
What is the Texas LLC Franchise Tax?
The Texas Franchise Tax is a business tax, which according to the Texas Comptroller of Public Accounts (state tax office), is assessed for the “privilege of doing business in Texas.” The tax is based on a business’ total gross revenue. The tax rates are as follows:
• 0.375% for wholesalers and retailers
• 0.75% for all other types of businesses
You may not owe any tax if your gross revenue is less than $1,130,000. However, you must still complete the filing for informational purposes. Unlike other states, the franchise tax in Texas is not a simple affair. You will likely need the help of a CPA or financial specialist to complete the form and pay the tax. This is a tax return, and you’ll need to complete your federal taxes before filing the Texas LLC Franchise Tax. The Franchise Tax is due every year by May 15. Late fees include a flat $50 fee plus either 5% (if less than 30 days late) or 10% (if more than 30 days late).
Is a Texas LLC Registered Agent Required?
Yes, a registered agent is required in Texas, but you can act as your own registered agent. You need to list your registered agent on your Certificate of Formation and maintain one at all times. You must publicly list the physical address of your registered agent’s office (this will be part of your LLC’s permanent public record). Your registered agent must also be available during business hours to accept legal notices. Many people forming an LLC in Texas hire us to be their registered agent and use our registered office address for the principal, mailing, registered agent, registered office, members, managers, and correspondence address to show stability as their LLC grows or changes—and not have to update addresses or worry about unwanted visitors at home or their office.Get Started
Texas LLC Versus Texas Corporation:
Essentially, there is no upfront cost savings with either entity type. Both Texas LLCs and Texas corporations cost $300 to form and both entities are subject to the Texas Franchise Tax. Texas does not have a corporate tax nor an income tax. Both entities also have extremely similar asset protection statutes. Because the Texas LLC and corporation are so similar, that likely tips the hand in favor of the Texas LLC. LLCs are inherently easier to maintain, more flexible in deciding how to deal with federal taxes, and have fewer corporate formalities (no board of directors and officers or corporate resolutions). There are, of course, reasons to start a corporation in Texas; however, these pertain mostly to large company structures. For almost all other situations, a Texas LLC should be more than adequate.
Do I Need a Tax ID Number (EIN) for a Texas LLC?
You will need a federal tax ID if you want to hire employees or be taxed as an S corporation with the IRS. Just about every bank will require you to have an EIN for your new Texas LLC. They are free and easy to get online, or you can hire Northwest Registered Agent to get an EIN for you. Generally speaking, it is best to get an IRS EIN even if you don’t think you need it right now. If you run into a situation where a vendor asks for it, then you have it. A Texas LLC EIN will help establish credit with many of the vendors you’ll do business with and give you the option to not provide them your personal social security number.
Does an LLC in Texas Need a Business License?
Texas does not have a generic, state level business license. Of course, professional and occupational businesses like dentists, architects and similar kinds of businesses will need to get a occupational licenses with the state.
If you are selling tangible goods (shoes, gum, jewelry, any real personal property) or services, you will need to apply for a Texas Sales Tax Permit.
Texas LLC Versus Texas S Corp:
Tons of people are confused by the S corporation. They think that if you want an S corporation, you have to form a corporation. This is completely wrong. An S corporation is merely a tax election with the IRS, and LLCs can be taxed as an S Corp. The S Corp election, however, does put restrictions on your company and may end up actually costing you money, but if your company is actually earning a decent net profit each (somewhere around $50k or more), it could pay dividends—literally. The reason lots of people like the idea of the S Corp is because you can issue dividends at a lower tax rate than personal income. The catch, though, is this: if you’re an S Corp, you have to pay yourself a salary, and if your company isn’t making any money, you’re going to lose on paying yourself what the IRS calls “reasonable compensation.” That means, you can’t just pay yourself a $1 salary and take the rest of the income as a reduced tax dividend. You’ve really got to be making decent money in order for the S Corp to be financially viable.
With an LLC, the profits just pass to you as personal income. The LLC is really the simplest of business entities equipped with asset protection. If you’re just starting out and don’t really know how much money you’ll be making, you can save yourself some headaches by just forming an LLC and then electing to be taxed as an S Corp once your business is truly viable. That’s our two cents anyway.
What are Texas LLC tax rates?
Most Texas LLCs will not have to pay anything in Texas taxes on the company level or personally, as Texas has no personal income tax.
The state has a 6.25% sales tax, but cities, municipalities, and even transit authorities can add in their own sales tax (many do, usually to the tune of 2%), so you’ll often see sales tax rates of around 8.25% throughout Texas.
Does my LLC Need to Obtain a Texas Sales and Use Tax Permit?
If you’ll be selling any goods or services, you’ll need to apply for a Texas Sales Tax Permit. To do so, you must file a Texas Sales Tax Permit Application with the Texas Comptroller’s office. You can file online or by paper. The Comptroller’s office recommends you allow two to three weeks before you receive your permit in the mail. There is no filing fee.
Texas LLC Certificate of Formation Requirements:
The name must contain the words “Limited Liability Company,” “Limited Company,” or an abbreviation of one of these phrases.
Registered Agent and Registered Office
The registered agent can either be a business (but not your own) or an individual Texas resident. The registered office must be a physical address and will be a permanent public record for your LLC. Tip:Hire us as your registered agent and you can use our Texas address as your principal address. (Wouldn’t it be annoying if we told you to hire someone other than Northwest at this point?)
This is a fancy way of asking how the LLC will structure its management. You have to choose member-managed or manager-managed. Members are LLC owners. Managers are not LLC owners (although they could be…..ahaha just when you thought it could be simple). If you want to own your LLC but have an operational manager running it day to day, you can list your manager as the manager and have your LLC be manager-managed so they have authority to run the LLC and make decisions for it. To be clear: if you do manager-managed, you have no right as the member to make decisions for the LLC; your only right is to remove the manager and vote on who the next manager should be. You must also list the address of the person in charge. Tip: Most single owner LLCs just do member-managed for their LLC because it’s simpler.
You can form an LLC in Texas for any lawful purpose. This statement is already included on the Certificate of Formation. You can alter it if you really want to, but it’s not necessary.
If you have conditions you’d like to put on the LLC like duration of existence (how long the LLC will exist) or some other special restriction, you can put that information in this section. Otherwise, you can leave it blank.
Texas LLC Organizer
This is just the person filing the LLC and has no real significance. Tip: If you don’t want your personal name listed you can hire us to form the Texas LLC and we will be the organizer.
Effectiveness of Filing
Typically an LLC in Texas will be brought into existence when the Certificate of Formation is filed by the Texas Secretary of State. However, if you want your LLC to be formed at a later date, you can indicate so here in this section. Otherwise, you can simply list the date when you’ve completed the Certificate of Formation.
This is where the organizer signs and dates the Certificate of Formation. It is the last and final part of the Texas LLC Certificate of Formation. Once you sign and date, either submit it online or mail it in. You’ve just formed a Texas LLC. Good luck!