The Ultimate Guide to Starting a Texas LLC:  Costs, Steps, & Benefits

A Texas LLC is an innovative business structure that offers the liability protection of a corporation combined with the tax advantages and operational flexibility of a partnership. While your personal assets, like your house or car, are protected from business liabilities, you also enjoy simplified tax reporting and management structures. Additionally, profits from your LLC “pass through” to your personal tax return, avoiding the double taxation that corporations face. This blend makes a limited liability company an attractive option for many business owners in the Lone Star State.

Step 1: Craft a Distinctive Name

Your LLC’s name is its identity, so choose one that is unique. Texas law mandates that your chosen name be distinguishable from existing business entities registered in the state. Conduct a comprehensive name availability search using the Texas Secretary of State’s Business Entity Search tool. Your LLC name must include a designated identifier like “Limited Liability Company,” “Ltd. Liability Co.,” or “LLC.”

Step 2: Appoint a Reliable Registered Agent

Every Texas limited liability company must have a registered agent. This critical role ensures you have a designated representative for receiving legal service of process on behalf of your business. The agent must maintain a physical street address within Texas and be available during regular business hours to receive important legal documents.

The key is to ensure reliability and compliance with state regulations. Professional registered agent service fees typically range from $100 to $300 annually, depending on the provider.

Step 3:  File the Certificate of Formation (Form 205)

This official document formally establishes your Texas LLC with the Texas Secretary of State. Form 205 includes essential information about your LLC, such as:

The filing fee is $300 and can be submitted electronically, by mail, or in person.

Step 4: Develop a Comprehensive Operating Agreement

While not legally mandated by Texas law, an operating agreement is strongly recommended for your Texas LLC. This internal document outlines the management structure and operational procedures of your LLC. It serves as a roadmap to prevent future conflicts and misunderstandings by clearly defining:

Consulting with an attorney can ensure the tailoring of your operating agreement to your specific LLC structure and needs.

Step 5: Obtain an Employer Identification Number (EIN)

An EIN, also known as a Federal Tax Identification Number, is crucial for tax purposes. It serves as a business’s social security number, allowing tasks such as filing tax returns and opening a business bank account. Obtaining an EIN from the IRS is a free and straightforward process, completed online or by mail.

Step 6: Secure Necessary Permits and Licenses

You may need additional state or local permits and licenses to operate legally, depending on your industry and business activities. Research the specific requirements for your business type by contacting the Texas Department of Licensing and Regulation (TDLR) and your local county or city offices. Failing to obtain required permits and licenses can result in fines or business closure.

Cost of a Texas LLC

Understanding the financial commitment to forming and maintaining your Texas LLC is crucial for informed decision-making. Here’s a clear breakdown of the costs you can expect.

Initial Costs

These expenses cover the price of hiring a professional registered agent, filing Form 205, and acquiring the necessary licenses and permissions. If you decide to hire a business attorney or consult a CPA or other professionals, the costs may increase.

Ongoing Costs

Texas LLC requirements include ongoing expenses and fees associated with the business in addition to the initial start-up costs.

Annual Reports

The Texas Secretary of State requires all LLCs to file an annual report by May 15th of each year. This report provides basic information about your LLC and keeps your business entity in good standing. The filing fee for the annual report is a minimal $1.75.

Franchise Tax

Texas imposes a franchise tax on most business entities, including limited liability companies. This tax is calculated based on a formula considering your LLC’s taxable net income or earned surplus. The minimum franchise tax is $1.25, due by May 15th of each year. However, the actual amount you’ll pay will depend on your LLC’s profitability.

Permits and Licenses 

Depending on your industry, location, and business activities, you might need to acquire additional state or local permits and licenses. The cost for these can vary significantly, so it’s crucial to research the specific requirements for your business type. Consulting with your local government or a business attorney can help you obtain all necessary permits and licenses to operate legally.

Is a Texas LLC Worth It?

For many entrepreneurs, forming an LLC in Texas is worth it due to its liability protection, tax advantages, and operational flexibility. However, assessing and comparing your business needs with other structures is essential to ensure you make the right choice.

Texas LLC vs. Other Business Structures

While an LLC offers numerous advantages, consider your specific needs. Here’s a quick comparison:

Before deciding to form an LLC, evaluate your specific business needs. Compare Texas LLC benefits with other business structures like sole proprietorships or corporations. An LLC might be beneficial if you need liability protection and tax advantages, but you should also consider the costs and administrative requirements.

Cheapest Way to Get a Texas LLC

Professional Services

While handling everything yourself is the cheapest option, it can be time-consuming. Professional services can help streamline the process but come with additional fees. These services offer convenience and expertise, saving you time and reducing errors.

DIY Method

One of the most cost-effective ways to form a Texas LLC is to handle the process yourself.

However, this method requires significant time investment and understanding of legal intricacies.

Take the Next Steps with Your Texas LLC Formation

Forming a Texas LLC can be smart for entrepreneurs looking for liability protection and tax benefits. If you have questions or need additional guidance, Bizee can provide professional advice to ensure you meet all legal and regulatory requirements.