Starting a business is an exciting venture, and forming a Limited Liability Company (LLC) in Texas can provide both asset protection and legal credibility. You don’t need expensive legal help to set up an LLC; you can do it yourself. This guide will walk you through the top 10 steps for forming an LLC in Texas, while also covering key concerns like taxation, the role of professional services, and whether non-US citizens can form an LLC.
1. Pick a Unique Name for Your LLC
Your LLC’s name must comply with Texas law. It must include “Limited Liability Company” or abbreviations like “LLC” or “L.L.C.” and it must be unique. To ensure your name is available, you can check the Texas Secretary of State’s online database.
2. Reserve Your LLC Name (If Necessary)
If you’re not quite ready to file your formation documents, you can reserve your LLC’s name for 120 days by filing a name reservation application. This prevents anyone else from registering the same name while you prepare other parts of the formation process.
3. Appoint a Registered Agent
Texas requires all LLCs to have a registered agent. This individual or service receives legal documents on behalf of your LLC. You can act as your own agent or hire a professional service. Using a service ensures availability during business hours and can provide privacy, but acting as your own agent can save you the fee.
4. File the Certificate of Formation
The Certificate of Formation is the official document that registers your LLC with the state. You can file it online or by mail for a fee of around $300. Include essential information such as your LLC’s name, registered agent, and business address. Once filed, your LLC is legally established.
5. Create an LLC Operating Agreement
Though not required by Texas, an operating agreement is highly recommended. It outlines how your LLC will be managed, the roles of members, and other key operational details. This helps prevent disputes and serves as an internal rulebook. Keep it for your records, as it doesn’t need to be submitted to the state.
6. Apply for an EIN (Employer Identification Number)
An Employer Identification Number (EIN) is a federal tax ID for your LLC. You need it to open a business bank account, hire employees, and file taxes. Applying for an EIN is free and can be done quickly through the IRS website.
7. Understand LLC Taxation
LLCs in Texas benefit from “pass-through taxation,” which means that the business itself doesn’t pay federal income taxes. Instead, profits or losses are passed through to the LLC owners, who
report them on their personal tax returns. In Texas, LLCs don’t pay state income tax, but they may be subject to the state’s franchise tax if annual revenue exceeds $1.23 million. Even if your LLC earns less, you must still file an annual franchise tax report.
8. Register for State Taxes
Depending on your business activities, you may need to register for state-specific taxes. For example, if you sell goods, you’ll need to register for a Texas Sales Tax Permit. Be sure to understand the tax obligations for your business type to avoid fines or penalties.
9. Get the Necessary Licenses and Permits
Texas does not issue a general business license, but certain industries require specific permits or licenses. For instance, you may need local permits for construction, retail, or food service businesses. Research local city or county requirements to ensure you’re fully compliant.
10. Maintain Your LLC’s Compliance
After forming your LLC, there are ongoing requirements to stay compliant. Texas requires LLCs to file an annual franchise tax report. Even if your business doesn’t owe taxes, you must submit this report. Mark your calendar for deadlines to avoid penalties.
DIY vs. Professional Services: Which Should You Choose
If you’re wondering whether to hire a professional or go the DIY route, here’s a brief comparison to help you decide:
- DIY Approach: Doing it yourself can save you money upfront. With guides like this one and resources available online, many people find it relatively straightforward to form an LLC in Texas. You’ll have full control of the process, but you’ll need to handle administrative tasks like filing paperwork and meeting legal requirements.
- Professional Services: If you prefer convenience or are worried about making mistakes, using a service can be helpful. Registered agent services, for example, ensure someone is always available to receive legal documents, and some companies offer full LLC formation packages that handle all paperwork. These services can cost anywhere from $100 to several hundred dollars, depending on what’s included.
Choosing between DIY and hiring professionals comes down to your budget, the complexity of your business, and your comfort level with legal documents.
Can Non-US Citizens Form an LLC in Texas?
Yes, non-US citizens can form an LLC in Texas. There are no restrictions on ownership based on citizenship or residency, meaning foreign individuals or companies can own all or part of a Texas LLC. However, non-US citizens will still need an EIN from the IRS, and they may have to meet additional tax requirements depending on their country of residence.
Frequently Asked Questions
Yes, you can file the necessary paperwork yourself without hiring a lawyer or service. This guide provides the key steps to follow.
The primary cost is the $300 filing fee for the Certificate of Formation. Additional costs may include registered agent services, permits, or licenses.
LLCs benefit from pass-through taxation at the federal level, meaning the owners report profits or losses on their personal taxes. In Texas, LLCs may owe franchise tax if annual revenue exceeds $1.23 million.
Texas does not require a general business license, but certain industries may need specific permits or licenses. Check with your local government for any industry-specific requirements.
Yes, non-US citizens can form and own LLCs in Texas. They will need to obtain an EIN from the IRS and follow any relevant tax requirements.
Conclusion
Forming an LLC in Texas on your own can be a straightforward process if you follow the steps outlined in this guide. Whether you decide to handle the paperwork yourself or hire a professional service, the key is staying organized and meeting all legal requirements. You now have the knowledge to confidently move forward with starting your business in 2024.
San Antonio Small Business Attorney Nathaniel Gilbert helps clients look for the right entity strategy to fit their goals and needs, using an efficient and structured approach. To learn more about Texas Business Law, Click Here. To get in touch with Nate directly, Click Here.
