Forming an LLC in Texas
Texas is a pro-business state that provides robust infrastructure, foreign trade zones, and business incentive programs for startups. If you are thinking of filing a Texas LLC application, what is the process and what Texas LLC filing requirements do you need to fulfill? There are several steps involved towards helping a startup become completely operational in the state. Let’s take a walk through the important aspects of the Texas LLC formation process.
1. Choose Texas LLC name
Choosing a business name is one of the first steps towards new business formation. The business name is a mandatory requirement of a Texas LLC application and is governed by Texas Administrative Code, Title 1 – Administration, Part 4 – Office of the Secretary Of State, Chapter 79 – Business Entity Filings, Subchapter C – Entity Names. There are certain guidelines; you are required to follow when choosing a business name like:
- The chosen name should include the phrase “limited liability company” or any abbreviations like LLC or L.L.C and is an important part of Texas LLC filing requirements.
- The chosen name should be distinguishable from any other name in the records of the Texas Secretary of State pursuant to 1 TX Admin Code § 79.38.
- The chosen name should not falsely imply any governmental affiliation pursuant to 1 TX Admin Code § 79.33
- Certain words are prohibited or restricted and cannot be used pursuant to 1 TX Admin Code § 79.34.
Once you have identified a business name, you need to conduct a Texas LLC search or name availability search. If your chosen name is available then you will be required to submit a form – Application for Reservation or Renewal of Reservation of an Entity Name. It can be reserved for a period of 120 days.
2. Choose Texas LLC registered agent
If you are planning to form a Texas LLC then one of the important requirements is that of a registered agent. In fact, it is mandatory for domestic and foreign LLCs or any business entity to hire and maintain a Texas LLC registered agent in the state pursuant to TX Bus Orgs § 5.201 (2019). A registered agent in Texas is someone who will accept any notice, process, or demand that has to be served to the business entity. IncParadise is one of the most reputable registered agents in the state offering a wide range of business services. We can also be your Texas LLC registered agent.
3. File certificate of formation with Texas SOS
In order to conduct business in the state of Texas, you will need to file a Texas LLC application with the office of the Secretary of state. This application is known as the Certificate of Formation for a Limited Liability Company pursuant to TX Bus Orgs § 101.0515 (2019). You have to file LLC in Texas along with a filing fee of $300. You can mail the certificate of formation form or have it delivered to James Earl Rudder Office Building, 1019 Brazos, Austin, Texas 78701. We at IncParadise can assist you with the process of filing for a Texas LLC.
4. Prepare Texas LLC operating agreement
Texas LLC filing online makes the process of new business formation easier but sometimes, it is necessary to have an operating agreement as well. It is not a mandatory Texas LLC filing requirement but it can help your business in the long run. An operating agreement helps in structuring your financial and working relationships with other owners or members in such a way that it is best suited for the business. It is important to note that if you have an operating agreement then it will help in protecting your limited liability status.
If you form a Texas LLC then the operating agreement should contain the following elements:
- All formation details of your Texas LLC
- The name and address of your chosen Texas LLC registered agent
- The terms of the limited liability company
- The purpose of your business
- The names of all members and managers
- The location of your business
- The process by which you admit or nominate new owners or members
- The percentage of membership interests allotted to each of the members and proposed method of valuation
- The process by which any member of the said LLC can exit
5. Obtain EIN for Texas LLC
An Employer Identification Number or EIN is also known as a Federal Employer Identification Number (FEIN). It is a unique 9 digit tax ID number that is assigned by the Internal Revenue Service (IRS) to businesses. It is primarily used for reporting employment taxes and most forms of businesses including a Texas LLC would require this number. If you form a Texas LLC with multiple members then you will be required to apply for and obtain the Employer Identification Number. You can apply for an EIN after you file for LLC in Texas or before applying for a certificate of formation.
6. File Franchise tax report and Public information report (PIR) every year
You can form different types of businesses in Texas but if you plan to form a Texas LLC then you will have to comply with annual state filings. Every entity that has a franchise tax responsibility will be required to file the Public Information Report (PIR) including a limited-liability company. The due date of the PIR coincides with the due date of the franchise tax report and they are both key to Texas LLC filing requirements. It is important to note that even if you file your franchise tax report and ensure payment of all applicable taxes, you may still lose the right to transact business in Texas if you fail to file the Public Information Report.
7. Check local licenses and permits
Once you have filed your Texas LLC application for formation, you will need to apply for business licenses or permits in the state. The type of license required is dependent on the type of business activity and a Texas LLC may require a single or multiple licenses or permits or both. Although, it is not a part of the initial Texas LLC filing requirements; without a business license, you will not be able to conduct business within the state. Business licenses or permits can be classified as under:
Hence, it is important to check for license requirements at the state and city or local county level. You can also avail of the IncParadise Business License Research Report service as it provides detailed information on licenses and permits in Texas.
8. Open Texas LLC bank account
One of the first things to consider before or after you form a Texas LLC is opening a bank account. Yes, even if you have a personal banking account, you will need a business account so that your business and personal transactions don’t get mixed. It will not only be easier to track purchases or gains but also help you to manage your business finances efficiently.
- Help maintain accurate bookkeeping
- Increases business credibility and professionalism
- Creates a clear auditing path for the IRS
9. Comply with taxes and other regulations
Texas, as compared to some of the other states, has low taxes including the fact that there is no personal income tax. Yet, when a Texas LLC application has been filed, and a business formed; you will be required to ensure compliance with taxes and other state regulations. The most distinctive tax in the state is the franchise tax and it is applicable for all businesses transacting in the state.
A limited liability company is a pass-through entity and hence the taxes will be passed on to the owners, hence you will have to file personal income tax instead of business income tax on the gains. If you file an LLC in Texas then there are several other forms of taxes that may or may not be applicable to your business like the Texas’s Unemployment tax, employment taxes, and sales and use tax among others.
Are you ready to form an LLC in Texas?