How To Start an LLC In Texas in 2023

Item: How To Start an LLC In Texas in 2023
Author: Muhammed Fasil K

What does LLC stand for ?

LLC stands for "Limited Liability Company”.

What is an LLC ?

A limited liability company (LLC) is a business entity in USA, in which the liability of its members is limited and members are not personally liable for the debts or liabilities of Limited liability companies. LLC is hybrid entities that have the characteristics of a corporation as well as of a partnership/ sole proprietorship.

LLC offers personal liability protection to protect your personal assets in the event your business is sued with the pass-through taxation of a sole proprietorship or partnership.

An LLC can be formed with one or more people, who are known as “members” of LLC. An LLC having one owner is known as a single-member LLC whereas an LLC having more than one owner is known as a multi-member LLC.

LLCs are very popular and preferred over a corporation because they have the same characteristic of limited liability as a corporation, but at the same time is much easier and cheaper to set up and operate.

How To Start an LLC In Texas in 2023 ?

If you want to start an LLC in Texas you have two options, first you can form one yourself or you may hire the service registered agents to do it for you.

If you want to form an LLC in Texas on your own you have to follow the stepwise procedure described below.

1. Reservation of Name for your LLC

Every state has its own rules about what kind of names are allowed for LLCs. In general, you will need to observe these naming guidelines. Your name must include the phrase Limited Liability Company or one of its abbreviations, LLC or L.L.C. with a period following each letter. Restricted words such as bank, attorney, law office, etc., may require additional paperwork and may also need a licensed professional to be part of the LLC. Your name cannot include words that could confuse your LLC with a government agency such as FBI, Treasury, state department, etc. You cannot use a name that has already been registered. To see if your name is available in your state, you will need to do a name search. This service is available on your state Secretary of State website.

For the Reservation or Renewal of Reservation of a Name an application in Form 501 is to be filed with the Texas Secretary of State. The application may be filed online through the website of Texas Secretary of State SOS Direct or by mail. The filing fee is $40 and you may reserve a name for a maximum period of 120 days.

2. Selection of a registered agent

Texas requires that you nominate a registered agent who then must consent to appointment in written or electronic form. You can get a consent form 401-A at the Texas Secretary of State website, but it does not need to be filed. The registered agent can be an individual within the company including yourself, or you can hire a professional service authorized to do business in Texas. They will send and receive legal papers on your behalf. These documents included official correspondence like legal summons and document filings which your registered agent will receive and forward to you. Your registered agent will help remind you to file the necessary reports. Failure to properly maintain your Lucan result in fines and dissolution. So this assistance is valuable.

3. Filing of Certificate of Formation

The Certificate of Formation is required to be filed with the Secretary of State for registering your Texas LLC, this can be done online or by mail. This will cost you $300. You will need to mention that whether your LLC will be member managed or manager managed. In Member managed LLC all members of the LLC manage the company. This is good for small organizations where everyone is involved in day-to-day operations. The 2^nd option is manager managed, where LLC is managed by individuals appointed for this purpose. This is appropriate for larger organizations, where not everyone is involved in the day-to-day affairs of the business. The certificate must include:

the LLC's name, including the chosen LLC designation
name & address of the registered agent
will LLC be member managed or manager managed
in the case of member managed LLC, the name and address of each initial member
in the case of manager managed LLC, the name and address of each initial manager
the general-purpose clause
the name and address of the organizer
an effective date of the certificate
the signature of the organizer.

4. Create an operating agreement

Although not every state requires it, you should always create an operating agreement to establish ownership terms and member roles for your LLC. These foundational documents the core of your Land will help you maintain your organizations well as further establish your Lilacs a separate legal entity. There are 6 main sections of an operating agreement. The organization outlines when and where the company was created, who the members are, and how the ownership is structured. Management & voting addresses how the company is managed as well as how the members vote. Capital contributions covers which members financially support the LLC and how more funds will be raised in the future. Distributions outline how the company’s profits and losses are shared among members. Membership changes describe the process for adding or removing members as well as if and when members can transfer their ownership shares. And dissolution, which explains the circumstances in which the LLC may be dissolved. An operating agreement an internal document. It does not need to be filed with the state. However, it should be updated every time there’s a change in membership or management at the company. The operating agreement should include the following:

the members' percentage interests in the LLC
the members' rights and responsibilities
the members' voting powers
how profits and losses will be allocated
rules for holding meetings and taking votes, and
buyout, or buy-sell, provisions, which determine what happens when a member wants to sell his or her interest, dies, or becomes disabled.

5. Obtaining an Employer Identification Number (EIN)

After completing all the above process you will need to get an Employer Identification Number or EIN, from the IRS. Also known as a Federal Tax Identification Number, your EIN is like a social security number for your Land is how the IRS tracks your business for tax purposes. An EIN is also necessary to open a business banking account and legally hire employees. EIN’s are free of charge and can be obtained from theirsonline or through the mail. And with that, you have formed Texas LLC on your own.

6. Filing of Annual Report

Keep in mind Texas LLCs are required to file an annual report and franchise tax together. LLCs with annual revenue below $1.1 million do not pay any franchise tax, but must file a no tax due report. LLCs with annual revenue of greater than $1.1 million pay a graduated tax that is calculated based on a complex formula. This is due by May 15th each year.

The second way to create a Texas LLC is to hire a professional service to create LLC for you. Hiring a professional service for filing your forms and act as your registered agent for the LLC will cost you some additional amount. However, there are several benefits to working with a hired registered agent it helps in getting your reports filed on time, helps you stay organized by keeping your business mail separate, and is available at all regular business hours to accept official mail and legal papers on your LLC's behalf. A final and important additional benefit of using a service is privacy. A professional service will provide a level of privacy by withholding your personal name and home address from the LLC's contact information. There are many reasons you might not want your personal information easily accessible and associated with your business. Hiring a professional formation service an easy way to accomplish this.

I hope after reading this article now you have got a very good idea of what steps are required and procedure to be followed to set up an LLC in Texas.

How much it cost to set up LLC in Texas ?

Filing fee of $300 is to be paid to The Texas Secretary of State, in addition to this an additional state-mandated 2.7% convenience fee is also required to be paid for filing an LLC Certificate of Formation.
If you want to reserve your LLC name before filing the Certificate of Formation, fees of $40 is to be paid to file a name reservation application.

Frequently Asked Questions – FAQs

1. What is an LLC and why should you start one in Texas?

An LLC or Limited Liability Company is a popular business structure that offers personal liability protection to its owners or members while providing flexibility in management and taxation. Starting an LLC in Texas is an excellent way to protect your personal assets while minimizing your tax liabilities.

2. What are the key benefits of starting an LLC in Texas?

Starting an LLC in Texas has several benefits, including personal liability protection, pass-through taxation, minimal compliance requirements, and a business-friendly regulatory environment. Additionally, Texas has a low-tax environment, making it an attractive state for entrepreneurs and small business owners.

3. What are the pre requirements for starting an LLC in Texas?

For starting an LLC in Texas, you need to file a certificate of formation with the Texas Secretary of State with a requisite filing fee. You have to appoint a registered agent with a physical address in Texas and create an operating agreement outlining your LLC's management and ownership structure.

5. How long does it take to start an LLC in Texas?

It generally takes two to three weeks for processing the application for starting an LLC in Texas is. However, depending on the workload of the Texas Secretary of State's office and any errors or omissions in your filing, this timeline may vary.

6. Can a non-US resident form an LLC in Texas?

Yes, anyone can form an LLC in Texas provided if you have a physical address in Texas and appoint a registered agent with a physical address in the state.

7. What is Texas LLC Annual Filing Requirements?

An annual report & Franchise Tax are to be filed with the Texas Comptroller of Public Accounts by LLCs in Texas and this can only be done online at the website of Texas Comptroller. For this purpose you have to create an online account.

8. Can I form an LLC on my own or do I need to hire a lawyer?

You can form an LLC on your own in Texas, but it's recommended that you hire a lawyer or use an online formation service to ensure that everything is done correctly. Forming an LLC involves many legal requirements and it's important to make sure that all documents are properly drafted and filed.

9. Do I need to have a registered agent for my LLC in Texas?

Yes, you need to have a registered agent for your LLC in Texas. A registered agent is a person or company that receives legal documents and other official correspondence on behalf of your LLC. You can be your own registered agent or hire a professional service to act as your registered agent.

10. What is a Texas franchise tax and do I need to pay it?

A Texas franchise tax is a tax on businesses that is based on the amount of revenue they generate. Most LLCs in Texas are subject to the franchise tax, but there are some exemptions and deductions that may apply. You should take advise of a tax professional to determine your specific tax liabilities.

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