Texas is a great place to start your business. It’s the second most populous state and has one of the fastest-growing economies in the country, so it offers plenty of opportunities for entrepreneurs looking to get their businesses off the ground. 2
How to start an LLC in Texas?
However, before you can open up shop here, there are some things that need to be taken care of first.
One thing that needs to happen is forming an LLC in Texas or a limited liability company. This will protect both yourself as well as any other people involved with the business from being sued if something goes wrong. If you want to form an LLC in the state of Texas, then this guide should help you out.
An LLC is a type of corporation where only shareholders have personal liabilities. The main reason why they were created was that corporations could not pay taxes on profits made by them.
So instead of having to pay corporate income tax, owners would just pass those costs onto customers through higher prices. That way, they don’t have to worry about paying taxes at all.
However, since LLCs are not corporations, they have the option to choose whether or not they want to pay taxes. LLCs are also more flexible than corporations since they allow you to keep profits within the LLC in Texas and decide how to use them instead of paying them out in dividends as a C-corporation would.
The benefits of setting up an LLC include
- Limited Liability – You won’t personally be liable for anything that happens within the organization. Instead, everything will go towards covering its debts and obligations.
- Taxation – Corporations must file annual report of returns with the IRS. But individuals do not have to report earnings unless required by law. As such, many choose LLC formation rather than a sole proprietorship.
- Protection From Personal Bankruptcy – Since bankruptcy laws apply differently to companies versus individual debtors, filing for Chapter 7 protection may cause problems when dealing with creditors.
Why Should You Form an LLC in Texas?
There are several reasons why you might want to consider doing this. First, it protects you against lawsuits. When someone sues you, they’re suing your LLC, which means that you’ll still be held responsible even though you weren’t directly involved in what happened.
Second, it allows you to deduct certain expenses like rent, utilities, insurance premiums, etc., while also allowing you to write off these items as “business” expenses. These deductions can save you money over time.
Finally, it gives you more flexibility regarding how much equity you own in the LLC. For example, if you wanted to sell half ownership to another person, you’d have to buy back his/her shares using cash. With an LLC, however, you can simply transfer ownership without needing to use cash.
Texas certificate of formation – why do I need it?
A Texas certificate of formation is a document that allows you to form an LLC in the state. You’ll need it for several reasons. First, it’s required for registering your Texas business with the State of Texas as well as the federal government. Second, it protects you from lawsuits if anything happens to your LLC or any individuals involved in it by limiting their liability.
Lastly, if anything were to happen and someone were to take legal action against your LLC, then they would only be able to do so with regards to the LLC and not yourself personally.
LLC Formation in Texas is easy, just follow these simple steps
STEP 1. Name Your Texas LLC
You’ll need to name your LLC before you decide on how to start an LLC in Texas. To get started, visit www.llcfortexas.net and click on “Get Started”. On the next page, enter your information including the following details:
- Name – Enter whatever you’d like the business name to form your LLC in Texas to be
- Business Type – Select either Sole Proprietor or General Partner State to Incorporate – To set up an LLC, you need to file with the office of Secretary of State in Texas. The business address for the office of Secretary of State P.O. in Houston, Texas is: P.O. Box 13528, Houston, TX 77219-3528
STEP 2. Choose a Registered Agent in Texas
Once you’ve named your LLC in Texas, you’ll need to find somebody who represents it legally. This registered agent serves two purposes; firstly, he/she receives official documents sent to your LLC so that you know there haven’t been any issues with your registration.
Secondly, a registered agent must make sure that anyone sending mail to your LLC gets redirected properly. In order to register your LLC, you’ll need to pay $100 annually plus state fees. If you don’t already have one, you should probably pick a local lawyer or accountant to serve as your registered agent instead.
STEP 3. File The Texas LLC Certificate of Formation
After registering your LLC, you file a certificate of formation at the Texas Secretary of State office. It will cost around $50 dollars to complete this process. Once completed, you’ll receive a copy of the document from the secretary of state. You’ll need to keep a copy of this document for yourself as well.
STEP 4. Create a Texas LLC Operating Agreement
The final step involves creating an operating agreement for your newly formed LLC. It defines the rights and responsibilities of each member within the organization.
As mentioned earlier, you’ll need to create an operating agreement because all members must agree on things such as whether or not to dissolve the corporation or continue operations. Your agreement should also include the following details:
- How profits will be allocated
- The company’s registered agent if it’s changed from the one on file with the Texas Secretary of State
- The number of members, their names, and percentage of ownership owned by each person
- The management structure if there is more than one owner within the LLC. For example, you might want to decide that decisions are made together or in a majority vote.
Be aware that all of these points cannot be changed once the series LLC is established. That means that your agreement can’t be amended later on. It also cannot be used to determine any future business practices.
STEP 5. Obtain an EIN for your Texas LLCs
An Employer Identification Number is required by most employers when they hire employees. You’ll need to apply for an EIN through the IRS website. After applying, wait about 30 days until you’re notified that your application has been approved. Then, go ahead and download your EIN card which you’ll need to show whenever you open up a bank account or make other financial transactions.
Why do I need Employer Identification Number EIN?
Your EIN is a number that helps to identify your business and makes it easier for you to do business with the government. When you file your taxes, your social security number will be tied to that specific EIN. If there are any changes in ownership within the LLC, it’s required that you update this information as well.
Separate Your Personal and Business Assets
When you form your Texas LLC, you may wonder if you should keep personal assets separate from those belonging to your LLC. While many people do choose to combine their personal finances with their companies’ funds, others prefer keeping them completely separate. Whichever route you decide to take, make sure you understand how doing so affects both parties involved.
How to Keep Your Assets Separate When Going Into Business
- Open a separate bank account for your LLC.
- Don’t mix personal assets with those of the company.
- Create a written agreement that ensures both parties will be held accountable in case you’re ever sued by a creditor or other business partner. This can be an LLC operating agreement or any other type of document that makes it clear what’s expected of both parties.
- Investigate your state’s laws on which assets you can keep separate and which ones must be part of the company. In addition, make sure you use a professional to help you draft any pertinent documents because not all of them will be in compliance with state and federal regulations. Why You Need to Understand Special Financial Rules When Starting a Business You might be interested in forming an LLC or other type of business entity because you want to start a new business that allows for more financial freedom than traditional jobs provide.
1. Opening a business bank account
If you intend to start a business, your first step should be to open a checking account if the business name and address are available.
Every Texas LLC can be set up as either sole proprietorships or limited liability companies (LLCs). Depending on which structure your business takes, you will need to file paperwork with the State Comptroller or Texas Secretary of State.
2. Hiring Employees:
If you plan to hire someone to work for your new company, be aware that some states require you to withhold income taxes from employee wages. For example, California requires its residents who earn less than $4,000 per year to withhold 8% while Washington D.C. mandates 9%.
If you don’t have enough cash available to cover withholding costs, consider setting aside additional funds into a special payroll account.
3. Getting a business credit card
Many entrepreneurs find themselves needing to purchase items online or by mail but aren’t able to access their personal credit cards due to lack of availability. In this case, getting a business credit card could prove beneficial.
Some major retailers offer discounts to customers who sign up for rewards programs. These reward points can then be redeemed at checkout for future purchases. The key here is to ensure you only spend what you’ve earned. Otherwise, you risk incurring fees and interest payments.
4. Hiring a business accountant
It can be tempting for new business owners to perform their own math, especially when they’re just starting out. However, as a small business owner, you have enough to do. You don’t need the added responsibility of dealing with franchise tax compliance and making sure your business is filing all state and federal government forms on time.
A professional accountant will help you establish a solid foundation for calculating your taxes, tracking cash flow and deductions, and reporting any incidents that require further explanation from the IRS.
Get Business Insurance for Your LLC or S Corporation
Business insurance protects your business by covering losses caused by accidents, lawsuits, natural disasters, theft, fire, etc. It may seem unnecessary if you’re not planning on starting a large corporation, but even an individual entrepreneur should get coverage. Here are three reasons why:
- Liability protection: A lawsuit isn’t always filed because you did something wrong; sometimes they happen just because things go awry. Having liability insurance provides financial security in the event that a claim arises. You’ll receive compensation for damages or injuries sustained by third parties, regardless of fault.
- Property damage: Thefts do occur, especially among businesses located near high traffic areas such as shopping centers. Even if no one gets hurt, property loss still needs to be covered.
- Workers’ comp: Most employers carry workers’ compensation insurance which covers medical care and lost wages incurred after workplace accidents.
How much does it cost to start a Texas LLC?
For a Limited Liability Company, you’ll pay:
- $90 to $140 to incorporate. The amount depends on the type of LLC you choose. For example, choosing a professional or non-profit company costs more than creating a general or single-member LLC. The fees below are based on information from Texas Secretary of State website.
- $90 to $120 for an authority to do business in Texas (for corporations and LLCs).
- $100 for a Registered Agent (a licensed business that accepts legal papers on your behalf).
- $92 for an assumed name certificate of formation (if the business name of your LLC is different from your own). This is needed if you plan to do business under a name other than your own. For example, if you’re running a consulting firm, you can use the business name as an LLC in Texas instead of operating under your personal name. If the business name is available.
- $89 for an Employer Identification Number (EIN). This number is needed for federal tax purposes. You also need it to apply for business licenses and contracts.
Texas has been ranked 1 for doing business since 2011. So when you want to open a new LLC, consider moving to Texas!
How do I open a bank account for my Texas LLC?
Professional service of process providers and attorneys often recommend setting up an LLC bank account to manage business finances. Having an account allows both parties to have access to the funds, with a more convenient location for the company’s accounting records.
Depending on your business structure, some banks will require you to get a Federal Tax Identification Number (EIN) or Federal Reserve Bank account number before opening an account. Some banks may allow you to open an account without either by choosing the appropriate form for the specific type of LLC that you’re creating.
Does a Texas LLC need business licenses?
Yes, all companies must obtain a business license. The amount depends on what type of entity you choose. For example, sole proprietorships can only charge sales tax up to 7%. On the other hand, corporations pay 15% plus any applicable local taxes. In addition, some states impose additional licensing costs.
If you want to register an LLC, you’ll need to have a Registered Agent service. A business address is required and ZenBusiness offers this service with our Managed office addresses. Sounds great, right? Does it cost extra? Not at all! ZenBusiness makes it simple, and all you have to do is pay a monthly filing fee, set up an email address and we will send you reminders for your company’s elections. Easy right?
- ZenBusiness is cost-efficient, has great customer service, and has locations EVERYWHERE!
- We have access to 855 different office spaces; all of which are ready to use.
- You can’t choose the type of office space.
- You cannot select your own location.
How to set up a Registered Agent Service in Texas with ZenBusiness
- Step 1. Sign up for automated documents through ZenBusiness at no additional cost and choose an address today! We charge $25 per month for this service.
- Step 2. Provide the completed and signed articles of formation (such as Articles of Formation for LLCs) and a copy of the certificate of good standing you received from the state in which you formed your LLC to your selected office’s customer service representative. (Our staff will help you with this if you need assistance.)
- Step 3. Your selected registered office will then file the documents and an executed copy of your articles of formation will be sent to the Texas Secretary of State on your behalf.
Do I need an operating agreement for a Texas LLC?
An Operating Agreement serves two main purposes. First, it establishes how members of the corporation will be divided into classes, and second, it sets out rules regarding ownership rights and responsibilities.
An Operating Agreement should always accompany a Certificate of Incorporation because these forms together create a full set of governing documents for the new LLC. However, there are times when forming a limited liability company does not require an Operating Agreement.
The Member Listing Agreement simply lists the names of the people involved in the business while the Operating Agreement contains detailed provisions related to management, voting, etc.
How long does it take to start a Texas LLC?
- It usually takes a few days to apply for the required documents to start an LLC in Texas. In many cases, the entire process of starting a new business is faster than getting a home mortgage, car loan, or even opening a bank account.
- After your company is formed, you must pay fees based on the number of authorized shareholders. These include $25 per year for each member; $100 for foreign corporations; $200 for domestic partnerships; and $500 for other entities such as non-profit organizations.
- Each shareholder also pays annual franchise tax at a rate of 0.8% of their total net worth. Net Worth means the combined value of assets minus liabilities. You cannot deduct any losses against this amount. This includes personal property, cash, stocks, bonds, retirement accounts, life insurance policies, annuities, trusts, and so forth.
Can my existing business incorporate under Texas law?
Yes, but only if you already own 100 percent of its stock. A sole proprietorship can incorporate without paying additional fees. But, if you wish to form another legal entity with that business, you’ll have to file Articles of Organization with the office of the Texas Secretary of State.
Is incorporation expensive?
Yes, incorporating costs money. Depending on the size of your organization, the cost could range anywhere between $1,000-$3,000. There are several ways to finance incorporation expenses. One option is to charge monthly service fees to clients. Another way is to offer discounts or free services to small businesses.
Do I Need To File With D&B Or SIC Codes?
No, unless you plan to sell products or services directly to consumers. Most sales transactions occur among businesses. Therefore, filing with either code may cause confusion. It is best to avoid using both codes since they overlap significantly. Instead, consider choosing one code over the other.
Why Should I Use An Attorney For Formation Services?
An attorney has experience drafting documents required by the IRS and state taxing authorities. They know how to properly structure ownership interests and ensure compliance with all applicable laws.
Also, attorneys have access to resources that save time and money. Finally, many lawyers offer discounted rates for new customers.
What should I know about Texas LLC taxes?
Texas imposes an income tax on individuals who earn more than $6,600 annually or $13,200. The maximum individual exemption is $5,950 in 2017. Corporations are taxed according to whether they’re classified as C corporation, S corporation, partnership, limited liability company, or unincorporated association.
All types of companies except unincorporated associations are subject to the corporate franchise tax. Unincorporated associations are not subject to taxation.
A federal Employer Identification Number must be obtained before forming a Texas Limited Liability Company. If you don’t have one yet, contact the Internal Revenue Service.
Once it’s issued, use it when registering your company with the secretary of state.
What is a foreign Texas LLC?
- Foreign LLC does not pay U.S. federal income tax. However, they still face certain requirements regarding their operations within the United States.
- Foreign entities also must comply with various rules set out by the Securities Exchange Commission. These include registration with the SEC; maintaining records; reporting financial information; complying with anti-fraud provisions; and providing notice of changes in directors and officers.
- In addition, foreign corporations must obtain licenses from the Department of Insurance, Division of Workers’ Compensation.
What should be in an operating agreement?
The operating agreement serves two purposes. First, it establishes the rights and responsibilities of members. Second, it defines what happens if someone leaves the business. Operating agreements can vary widely depending upon the type of entity being formed.
A general rule of thumb is to draft them so that each member receives equal shares regardless of contribution. This ensures that no single person owns too much control over the operation.
How do I write an operating agreement?
- Start by determining which kind of organization will be created. Then decide whether any equity interest exists among its owners. Next, determine whether there will be employees.
- After this, outline the duties of managers and board members. Lastly, specify how disputes between partners or shareholders will be resolved.
How much is the Texas Franchise Tax?
The franchise tax is a one-time tax that allows a new business to operate within the state. Every corporation, LLC, limited partnership, and limited liability association must pay it upon formation.
The purpose of the franchise tax is to fund public projects such as local schools and roads.
When is the Texas Franchise Tax due?
In Texas, the franchise tax is due on the first day of the month following formation. In other words, it’s due on the formation date plus one month.
How can you get a Texas phone number to form your LLC?
You can’t. The Texas Secretary of State needs both a physical street address and phone number for an entity to receive and identify with its tax number. However, you can still list your address as the company’s mailing address.
Can I register a Texas LLC with my home state?
A corporation or partnership authorized to do business in another state is exempt from state registration requirements if it has less than a 50 percent ownership interest in the business that created it.
Can I register a Texas LLC with another state?
The office of Secretary of State has jurisdiction over the registration of all Texas business entities. Therefore, you cannot form a Texas LLC in another state and register it in Texas. However, you can create an entity in that state and register it with your home state.
How to Open a Business Bank Account
When it comes to opening a business account, there are several options to choose from. You can have your company’s account opened by the bank adviser who advises you during the formation of your company or you can open it yourself.
Oftentimes, banks will perform both functions, however. If this is the case, they’ll have a separate account for each entity that needs access to the business checking account.
How to Open a Business Checking Account
Comptroller of public accounts is ideal for small and midsize businesses. Many banks offer these accounts as part of their standard services. Texas comptroller of public accounts is a way of a basic checking account and has no monthly fees or minimum balance requirements.
You must have the business’s Taxpayer Identification Number (TIN) in order to open the account. Once opened, the business can write checks against it.
However, you can only write checks from the account if there is sufficient money in it to cover them.
What are the advantages of opening a business checking account?
The most appealing aspect of a business checking account is its lack of monthly fees or minimum balance requirements. This is also the primary reason that banks provide these types of accounts for small businesses and midsize businesses.
Certain banks do charge a transaction filing fee for carrying out certain business functions such as writing checks or transferring money from one account to another. This is an example of the type of fees that can arise during the use of a business checking account.
How do I get an EIN for my LLC?
Subscribers can view and request a free EIN online or by mail at the IRS website. The Business Entity Tax Identification Number (EIN) is what most people refer to as an entity number.
It’s also known as an SSN in some cases. This number is used when filing your annual tax return to file a franchise tax report of your business operations for federal income taxes.
However, you’ll need a special EIN in order to register with the IRS and obtain a TIN for your company.
What is a certificate of formation?
A certificate of formation is a document that states the type of business entity you have created. In some cases, a company or LLC may be formed without having a written certificate of formation. However, this is highly unusual and not recommended.
The primary purpose of filing your certificate of formation is to show the state that the company has been legally established and to serve as proof that the articles were filed with the proper authorities.
Limited liability company LLC in Texas. Is it worth it?
An LLC is a limited liability company — meaning it shares some of the same protections as a corporation. But there’s one big difference:
- You can be sued for negligence, so you should protect yourself by getting adequate insurance. Some trade groups call LLCs “the most flexible form of business entity,” because you can choose to file your taxes as a partnership (with everyone contributing and having a say), or on your own (you’re then considered self-employed).
Of course, you can also pay your taxes as a corporation (you’ll need to have shareholders). And if you run a small business, you may be able to deduct the cost of your LLC filing fee as start-up costs. “It’s like having a lot of different businesses in one,” says Harris. “The real benefit is that you can provide a lot of protection and financial privacy.”
It’s worth noting that not every state offers LLCs or corporations — and it makes sense from an accounting perspective.
Appoint a registered agent in Texas
The Texas office of Secretary of State asks that you appoint a registered agent every time you register a new business entity. A registered agent is an individual or corporation responsible for receiving legal and tax documents from the state on behalf of the company.
The Texas Secretary of State does not accept businesses without a registered agent on file, and it must be updated annually. Also, if your business fails to file its annual franchise tax report, your registered agent must pay a $100 penalty and can be held personally liable for up to $500 in the related filing fee.
How to Form an LLC in Texas
The process for forming an LLC varies depending on the type of entity you’re looking to create. When creating a limited liability company or LLC, you’ll need to follow a series of steps from filing your assumed name, state of incorporation, and the articles of organization (if none have yet been filed). You’ll also need to pay $75 for the minimum annual filing fee in order to register in Texas.
Can I have my LLC taxed as a corporation?
Yes. LLCs are typically taxed under the framework of a corporation. However, you can have your LLC taxed as a partnership or sole proprietorship if you so choose.
How to Form a Corporation in Texas
The process for forming and registering a corporation varies depending on the type of corporation you’re looking to create. When creating a limited liability company (LLC) or corporation, you’ll need to follow a series of steps from filing your assumed name and address, state of incorporation, and the articles of organization (if none have yet been filed).
How to File a Certificate of Good Standing in Texas
A certificate of good standing is an official document that confirms the good standing of a business entity (corporation, limited liability company, or LLC) and that it has been registered with the state. This document is filed with the secretary of state’s office in all 50 states and is frequently required before you can obtain a license or permit for your business.
In Texas, only corporations and LLCs can obtain one.
What is a foreign Texas LLC?
A foreign Texas LLC is very similar to a domestic Texas LLC in that it enjoys the same protection as a regular, domestically formed business.
How do I change an LLC’s name in Texas?
The process for changing an LLC’s name is relatively simple: You need to file an amendment form with the secretary of state, identifying how you want to change your company’s name and address. This process is very similar to how you’d change your LLC’s name and address in any other state.
Does Texas allow for a “single-member LLC”?
The term “single-member LLC” refers to an LLC that only has one owner — which is officially known as a single-member limited liability company. This type of business entity is beneficial for small-business owners who don’t want to deal with the administrative chores that typically accompany larger, multi-owner operations.
Can a Texas LLC help me live more privately?
While a Texas LLC is primarily intended to provide multi-member business owners with significant protections, the LLC has another useful function: It can help you live more privately. If you’re the only owner of your LLC, you can designate that your company has no employees and use this designation to file your annual report of federal and state taxes as a sole proprietorship (self-employment).
As with any business structure, this will require an independent accountant to ensure your finances are being managed correctly.
How much does it cost to start a Texas LLC?
The first step to forming an LLC in Texas is to fill out the appropriate documents. These include, but are not limited to:
- The articles of organization form
- The business entity formation and registration form
- The name change request form
- The annual report of filing fee (see below)
Additionally, in order for your entity type to be recognized by courts and other parties within the state, you will need a certificate of good standing that you can obtain from the state’s secretary of state. You should also consider obtaining a Texas registered agent license that allows you to serve legal papers on behalf of your company or act as a representative for another party.
The cost to obtain a certificate of good standing is $50. The cost for the registered agent license is $75. If you do not have an accountant, it can be argued that you should hire one.