How to Start an LLC in Texas - UPDATED 2023

If you're starting a limited liability company (LLC) in Texas, you've chosen a great state for business. Texas has a strong and diverse economy and a large workforce and has become home to large companies, including Amazon and Tesla.

Choosing an LLC for your business is also wise, as an LLC offers personal liability protection, pass-through taxation, and other benefits. Starting an LLC in Texas involves several steps, which are detailed in this convenient guide. 

Check LLC Naming Rules and Availability

If you've already chosen a name for your LLC, you'll need to make sure it follows the Texas LLC name regulations. Texas has quite a few rules when it comes to business entity names, including:

• Your LLC name must include "limited liability company" or "LLC" or another abbreviation
• Your name cannot imply any government affiliation, or imply that your business is engaged in an unlawful activity
• Your name cannot include words restricted by the law including Olympic, bank, trust, college, or university
• Your name cannot be "grossly offensive"
• Your name must be distinguishable from all other business names in the state

You can read the full list of regulations here.

Once you know that your LLC name follows the Texas rules, you'll need to do a business name search to make sure the name is available. You'll also want to make sure the name is not trademarked by checking the United States Patent and Trademark Office's website.

If you're not quite ready to officially form your Texas LLC, you can reserve the name on the Secretary of State's website. You'll need to create an account on the site in order to do so. 

Choose a Registered Agent

In Texas, you're required to have a registered agent for your LLC and name that registered agent on your LLC formation documents. Your registered agent is a person or company that will accept official correspondence and documents for your LLC. You, as an individual, can be your own registered agent but the LLC cannot be its own registered agent.

However, if you elect to be your own registered agent, you're required to be personally available at your registered office during normal business hours. This can be restrictive for a new business owner, so many choose to elect a registered agent service. Such services will receive your correspondence and documents, notify you, and make documents available to you online on a private dashboard.

These services generally cost between $100 and $300 annually. 

Forming a Limited Liability Company (LLC) offers several benefits to business owners.

• Limited Liability: The primary benefit of an LLC is that it provides limited liability protection to its owners (referred to as members). This means that the members' personal assets are typically protected from the company's debts and liabilities. In the event of legal action or financial obligations, the members' personal assets are generally not at risk beyond their investment in the LLC.
• Flexibility in Management and Ownership: LLCs offer flexibility in terms of management and ownership structures. They can be managed by the members themselves, or they can appoint managers to handle day-to-day operations. Additionally, ownership in an LLC can be easily transferred or divided among multiple individuals or entities.
• Pass-Through Taxation: By default, LLCs are treated as pass-through entities for tax purposes. This means that the LLC itself does not pay federal income taxes. Instead, the profits and losses "pass through" the company to the members, who report them on their individual tax returns. This can potentially result in tax savings, as the LLC's income is only taxed once at the individual member level.
• Business Credibility and Perpetuity: Forming an LLC can enhance the credibility of your business, as it demonstrates a level of professionalism and legal structure. Additionally, an LLC can continue to exist even if the original members leave or pass away, providing continuity and stability to the business.

Regarding what expenses you can claim back in an LLC, it is important to note that tax laws vary by jurisdiction, and it is recommended to consult with a tax professional or accountant to understand the specific rules applicable to your situation. However, generally speaking, some common deductible expenses for an LLC may include:

• Business-related expenses: This includes costs such as rent, utilities, office supplies, equipment, advertising, marketing, professional fees (legal or accounting), business insurance premiums, and travel expenses directly related to business purposes.
• Salaries and Wages: If you have employees, their salaries and wages, along with any associated payroll taxes, are typically deductible.
• Startup and Organizational Costs: Certain costs incurred during the formation of the LLC, such as legal fees, filing fees, and expenses related to setting up the business structure, may be deductible.
• Depreciation and Amortization: If the LLC owns assets with a useful life longer than a year, such as machinery or vehicles, you may be able to claim deductions for their depreciation or amortization over time.

Again, it is essential to consult with a tax professional or accountant who can provide specific guidance based on your individual circumstances and the tax regulations in your jurisdiction. 

Determine Your Management Structure

One of the benefits of an LLC is the management flexibility it offers, but you do have to decide whether your LLC will be member-managed or manager-managed. 

In a member-managed LLC, all members are involved in the management of the business – the key word being all. In a manager-managed LLC, some members may be appointed as managers while others are not involved in management. 

Non-members also may or may not be hired as managers.

In Texas, you must specify your management structure and the names and addresses of managers or members on your LLC formation documents. 

File a Certificate of Formation with the State

To officially form your Texas LLC, you'll file a certificate of formation with the Secretary of State, which you can do online by creating an account. The form will require the following information.

• LLC name
• Name and address of registered agent
• Management structure and names and addresses of managers or members
• A mailing address
• The name and address of the organizer (the person filing the document)
• Effective date of the LLC

The fee to file is $300 in Texas.

Alternatively, you can print the form and mail it to:

Secretary of State

P.O. Box 13697

Austin, TX 78711-3697

One last option is to hire a business formation service to handle the filing for you. Most business formation services also offer registered agent services, as well as other services that can help you to launch and maintain your business. 

Draft an Operating Agreement

The state of Texas does not require LLCs to have an operating agreement, but having one is crucial. An operating agreement defines the ownership of members, profit distributions, voting rights of members, how disputes are resolved, and more.

Without an operating agreement, if issues or member disputes arise, Texas laws will apply; however, these laws often do not have the clarity to resolve certain situations, which forces the parties to go to court if they can't reach an agreement.

An operating agreement is a legal document that is binding on members, so having one can help you to avoid court action.

Many of the business formation service companies that we've mentioned offer an operating agreement template that you can customize for your business. However, you may want to consider having an attorney draft your operating agreement, particularly if your LLC has multiple members. It can be worth the cost of legal fees to ensure that the rights and interests of all members are protected.

If you choose to use a template, you should at least have your customized version reviewed by an attorney.

In any case, it's wise not to skip this step to protect the future of your business. 

Apply for an EIN

An employer identification number (EIN) is a tax identification number for your business. 

You're required to have an EIN if your LLC has multiple members or if it will have employees. Banks also sometimes require one when you open a business account or apply for a business loan.

You can apply for free on the IRS website. 

Get Business Licenses and Permits

Depending on your industry and location, you may need various business licenses and permits. 

For example, if you sell goods or services that are subject to sales tax, you'll need a sales tax permit, which you can apply for on the Texas Comptroller's website.

Texas offers a comprehensive guide to industry-specific license and permit requirements.

You'll need to check with your local governments as well to see what may be required in your county and municipality. 

Wrapping up

Starting an LLC in Texas is a multi-step process, and doing it correctly is important so that your business gets off to a good start. 

If it seems overwhelming, you might want to consider a business formation service that can help you with most or all of the steps. 

It will cost a few hundred dollars, but it will save you the time and hassle of handling it all yourself.

When choosing a service, be sure to check their customer reviews to make sure that you'll get what you pay for and receive excellent support.