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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
Are you starting your own Texas business? You’re about to begin a thrilling journey. If Texas were its own country, its GDP would rank in the global top ten.[1] But while plenty of Fortune 500 companies make their home in the Lone Star State, over 3 million small businesses are based there, too.[2]
This article will show you how to file a Texas LLC to get your small business off the ground. We’ll also review the main differences between an S corp, C corp, and LLC to help you decide which business structure is right for you.
Benefit from unique tax advantages and safeguard your assets when you establish an LLC.
Key Takeaways
An LLC is a hybrid business structure that combines the liability protections of a corporation with the pass-through taxation of a sole proprietorship.
You must file a certificate of formation with your business, registered agent, and member or manager information to file for a Texas LLC.
A written LLC operating agreement is crucial to help plan management and liability procedures.
What Is LLC Formation?
A limited liability company, or LLC, is a formal business structure. It defines how your small business will be legally classified by the Texas Secretary of State and taxed by the IRS.
Ultimately, the business structure you choose will depend on the type of business you’re building, among other factors. Let’s review your business structure options as a Texas entrepreneur to help you decide.
Overview of Business Structures
The business structure you choose determines your tax status and governing statutes under Federal and state law, which can make a huge difference in your company’s future. We’ll provide a brief overview of the top business structures in Texas so you can feel confident in your decision.
Sole Proprietorship
If you’ve never done any paperwork to make your business official and you’re the only member, then you’re the owner of a sole proprietorship. Sole proprietorships pay taxes through the owner’s personal tax returns, and there is no legal separation between their personal and business income.
Sole proprietorships are easy to run but leave entrepreneurs vulnerable to legal and financial catastrophe. Here are some pros and cons to consider.
Pros | Cons |
Liability Protection As a shareholder in the company, you won’t be personally liable for the business’s debts. This protection is critical for risky ventures or entrepreneurs with assets to protect. | Paperwork You must maintain a board of directors and coordinate your shareholders as a C corp. In Texas, however, you can manage your corporation as a group of shareholders.[3] |
Scale Opportunities C corps can take on shareholders of all kinds, issue stock of multiple classes, and even go public. | Expenses Extensive filing fees, other state fees, and general upkeep for a C corp can be a significant burden. |
Legitimacy With a board of directors, annual shareholder’s meetings, and other regulations on your operation as a C corp, you appear as a legitimate company to investors and partners. | Double Taxation Your C corp is subject to corporate income taxes on its profits, and then shareholders are taxed again on their personal income when they receive dividends. LLCs and other business structures can avoid this. |
S Corp
An S corp is a tax classification available to C corps and LLCs that meet specific IRS requirements.
S corps can enjoy pass-through taxation, which allows C corps to avoid double taxation. The tax designation also allows LLC and C corp members to draw reasonable salaries and claim dividends without paying self-employment taxes.
While the tax advantages of an S corp are advantageous, there are some cons to consider. An LLC also already has access to most of the benefits of an S corp, so it’s wise to talk to an attorney, accountant, or business expert before electing the status.
Pros | Cons |
Pass-Through Taxation Rather than experiencing the double taxation that C corps are subject to, S corps benefit from pass-through taxation. | Paperwork and Expenses Electing S corp status requires an extra filing fee and adherence to specific guidelines, complicated tax forms, and annual maintenance. |
Self-Employment Tax If your small business is making a substantial profit, you might slim down your self-employment tax expenses as the owner of an S corp. | C Corps Limits C corps wishing to elect S corp status can only issue one class of stock and are limited in shareholders numbers, among other requirements.[4] |
LLC
A limited liability company (LLC) combines the liability protections of a corporation with the pass-through taxation of a sole proprietorship. The combination of these two advantages explains an LLC’s power and popularity.
The owners of an LLC are called members, and an LLC can have as many members as it wants.[5] Little regulation or oversight dictates how members can run an LLC. This flexibility is another big draw for entrepreneurs who fear being hemmed in by the regulations of a C corp.
LLCs are limited in their ability to raise money, and it can be tricky to change ownership as individual members. However, alongside the unique advantages of this hybrid structure, this isn’t always such a big deal.
Pass-Through Taxation | Liability Protection | Management Flexibility |
Members of an LLC avoid corporate taxes. Instead, they claim the company’s profit and loss on personal income taxes. | LLC members gain a legal separation between their personal and business assets. This protection reduces vulnerability for business owners. | Unlike C corps, LLCs can operate however they please. An LLC operating agreement also helps dictate how much compensation each member receives. |
Step-By-Step Guide to Start a Texas LLC
The LLC business structure presents some key advantages to entrepreneurs in Texas. In the following section, we’ll take you step-by-step through the filing requirements for your LLC, from filing fees to how to choose the best name for your small business.
If you’re ready to begin the LLC formation process, dive in to find out how to get your LLC official with the Texas Secretary of State.
Step 1: Choose a Business Name for Your Texas LLC
A business name must stand out from the rest to succeed. Finding a business name that is unique and distinguishable from the other millions of Texas businesses is your first task on the way to forming your LLC.
Naming Conventions
State law outlines naming conventions you must follow when selecting an LLC name that the Texas Secretary of State will accept.[6] Here are some guidelines to keep in mind.
Your LLC name must include an “organizational identifier” for your business type.[7] This means you must use one of these words or abbreviations in your LLC name:
Limited Liability Company
Limited Company
L.L.C
L.C.
Ltd. Co.
There are also some words you can’t include in your LLC name. Avoid any terms that:
Suggest your business is associated with the government
Suggest your business is breaking the law
Suggest you are an insurance company, bank, or university, unless you clearly are one
Include “bail bond,” unless you’re legally registered and organized to manage bail bonds
Relate to the Olympics without the consent of the United States Olympic Committee
Suggest you serve veterans, if not relevant
Name Search
While following Texas naming conventions is essential, there’s more to it. The trickiest aspect of choosing your company name is ensuring another Texas business is not already using it.
The first step is to conduct a name search to check name availability. You can complete this step in minutes with our free business name search tool or use the Texas Comptroller of Public Accounts taxable entity search.
Once you’ve double-checked that your name is available, you should refer to these rules to ensure it will be distinguishable from other business entities in Texas.[6] Here are the guidelines:
Prepositions
Keywords in your LLC name have to be different from those in another LLC name. This means you can’t include prepositions like “the” or “a” unless the preposition changes the meaning of the name.
“Light Sky Productions” and “Light the Sky Productions” are different
“Light Sky Productions” and “The Light Sky Productions” are the same
Language
Keywords in your LLC name can be the same as those in an LLC name of another language if they have different meanings or are in a different order. If the names sound the same or are derived from the same root word in both languages, they can’t be the same word with the same meaning.
“Sky and Sea Tours” and “Ciel y Mar Tours” are different
“Sea and Sky Tours” and “Sky and Sea Tours” are different
“For Mothers Pies” and “Four Mothers Pies” are different
“Four Mothers Pies” and “4 Mothers Pies” are the same
Grammar
Capitalization and punctuation differences are not sufficient to make names distinguishable.
“DOG Spa,” “Dog Spa!” and “Dog Spa” are all the same
You want to get your LLC name right the first time by following all the naming conventions. You don’t want to wait nearly two weeks after filing your forms to be rejected.[8] If you have any doubts, verify your business name’s availability by calling (512) 463-5555 ext. 711 or emailing [email protected].
Unavailable Name
Don’t panic if your perfect business name is unavailable and you can’t find a suitable alternative. You have a few options to work around this obstacle:
1. File a Letter of Consent
If you think the entity with the business name you want might be willing to sign a letter of consent stating that they’re okay with you using the name, the Texas Secretary of State will consider it. Once you secure the letter, attach it with your certificate of formation.
2. DBA
A DBA or “doing business as” allows you to use a name different from your legal business name. It also does not have to be distinguishable from another Texas business. This way, you can incorporate a unique name and still use the name you want by following DBA laws.
To secure a DBA, you must file a certificate of the assumed name with the Texas Secretary of State. We can help you get a DBA in minutes if you are interested in this route.
Name Reservation
Want to make sure your LLC name stays available? You can reserve it for 120 days on the Texas Secretary of State SOSDirect by filing a reservation form. The filing fee is $40, and you can renew the reservation as many times as you’d like.[9]
Your LLC name is more than a legal technicality. You’ll want to ensure you can use this name to maintain an online presence and build a website using a domain search tool. You might also want to check social media for your account names, as your business will most likely utilize multiple platforms like LinkedIn and Instagram.
Many business owners also consider trademarking aspects of their business. Aside from your company name, are there words or phrases your business will use that you don’t want others to copy? A trademark might help protect your small business’s intellectual property, and services like Trademark Engine can get you started on this process. Step 2: Fill Out Your Texas Certificate of Formation
Commonly called the articles of organization in other states, your Texas certificate of formation is the document that makes your LLC official with the Texas government. Now that you’ve chosen a business name, you should have all the information required to file this form.
Expanding Your LLC into Texas From Another State?
If you are already an LLC owner in another state and looking to expand in Texas, you shouldn’t file a separate certificate of formation. Instead, you must complete Form 304, the Application for Registration of a Foreign Limited Liability Company. There is a $750 filing fee.
Texas law is ambiguous on when foreign businesses must register with the state, so it can be helpful to consult information from the Texas Secretary of State before filing.
When you’re ready to file your LLC, we’ll handle all the paperwork so you can sit back and focus on building your business. Alternatively, you can download the certificate of formation from the Texas Secretary of State website and complete the form with the following information on hand:
1. LLC name
Check that you put your chosen business name down correctly and that it has the proper organizational designation in it (e.g., “L.L.C.” or “Limited Company”).
2. Name and address of your registered agent
If you aren’t sure what a registered agent is or how to pick one, we provide advice in the next section. Your registered agent’s office address can not be a P.O. Box but must be a street address in Texas.
3. Member-managed or manager-managed designation
LLC owners can run the business themselves as members or hire managers to do it for them. You must specify whether managers or members will serve as the governing authority of your business. These are initial designations, so you can always change them later.
4. Names of members or managers
Keep in mind that these names and addresses will be publicly available. If this causes privacy concerns, P.O. Boxes are acceptable addresses.
5. Organization’s purpose
You can use the form language the Secretary of State provided for this step. Unless you plan to apply for tax-exempt status or some other special designation to the IRS or another entity, you won’t need to be more specific.
6. LLC’s initial mailing address
While legal correspondence will go to your registered agent, you will receive tax documents at this address. It can be a P.O. box.
7. Organizer signature
An organizer can be anyone that can act on behalf of the business, and they don’t have to live in Texas.
8. Formation date
You can delay the formation of your business to a specific date, but note that your formation articles must be effective within 90 days of signing the form. If you don’t want to specify a date, you can write in conditions that would trigger the start of the business.
When the form is complete, you can upload it online or mail it to the address below, along with a check or money order for $300 in state fees. Online credit card payments incur a 2.7% additional fee.
Information and Processing Times to File a Texas Certificate of Formation
By Mail or In Person | Expedited by Mail or In Person | SOSUpload | SOSDirect |
70-72 business days | 12-14 business days | 13-15 business days | 10-12 business days |
Mail: P.O. Box 13697, Austin, Texas 78711 In-person: James Earl Rudder Office Building, 1019 Brazos, Austin, Texas 78701. | Information is the same as non-expedited. Costs an additional $25 fee.[10, 11] | https://direct.sos.state.tx.us/lef/index.aspx
|
Step 3: Hire a Texas Registered Agent
Your Texas registered agent is the legal emergency contact person for your LLC. When a court sends you critical communications, such as a service of process, subpoena, or other legal documents, they’ll send them to your registered agent. This means you need one that’s reliable and experienced.
Who Can Be Your Texas Registered Agent?
Your registered agent can be a person or business entity that consents to the appointment. A member of your LLC can be your registered agent, but a business entity can’t be its own agent.[12]
The registered agent must maintain a physical business address in Texas and keep standard business hours. Note that this address can not be a P.O. box or mail forwarding service.
Why It’s Wise to Hire a Registered Agent Service
If you’re delivered a service of process with time-sensitive legal documents and don’t receive them or receive them late, your legal problems will get exponentially worse. Thankfully, thousands of affordable registered agent services in Texas help business owners avert this legal calamity.
Our premier registered agent service offers secure online access to critical documents and enhanced personal privacy. We also support you through numerous other business operations, from getting a DBA to keeping up to date with annual reports and business licenses.
While filing your Texas LLC, double down on convenience and peace of mind with our registered agent service.
Step 4: Create an LLC Operating Agreement
LLC members are not required to create and sign an operating agreement, but it can be helpful. With so much flexibility in management and structure, LLCs can work out their chosen logistics and procedures for the business entity through a written operating agreement.
Unlike your certificate of formation, this agreement is between you and your fellow business owners. It’s not a part of the public record.
Questions an LLC Operating Agreement Can Answer
Management and Compensation | Dissolution and Ownership Transfers | Liability Protection |
Who’s responsible for running the business operations of the LLC? Will it be member- or manager-managed, and how will they be compensated? Who is accountable if the business goes into debt? Handshake agreements about these topics will only put you on shaky ground if things go south. | Under what conditions will the business entity dissolve? How will the members decide this? What happens to a member’s responsibilities if they want out? Having answers to these questions in place can prevent big headaches down the road. | Even single-member LLCs benefit from the codification that a written operating agreement provides, which can shore up liability protections for you and other members. |
We can help you develop a strong template for your LLC operating agreement in minutes, customized to your individual business needs.
Step 5: File for an Employer Identification Number
Your Employer Identification Number (EIN) is the most crucial paperwork your Texas business needs beyond your certificate of formation. Also known as your entity’s Tax ID or Federal Tax ID, an EIN is required for your business to:
Apply for credit cards, loans, and business bank accounts
Secure business licenses
Hire employees
Meet your tax filing obligations required by Texas and the IRS
LLCs are taxed as pass-through entities, meaning you’ll pay Federal income tax with your social security number. But if your business still needs a tax ID to perform the above actions, you’ll want to get one ASAP.
You can apply to get an EIN online with the Internal Revenue Service free of charge. We can also do the work for you while you focus on other things.
Let Us Handle Your LLC Paperwork
Setting up your Texas LLC is no small task. That’s why we’ll take care of your filing for you. We’ve helped thousands of small businesses just like yours through the process of forming an LLC.
Starting your LLC can be a breeze with our affordable and first-class service. You’ll enjoy:
Simplicity: Answer a few questions, and we’ll do your filing. It’s amazing, really.
Security: We store your files online securely so they’ll never be lost. Don’t harbor sensitive paperwork in a messy office; let us handle that stuff.
Certainty: We do this paperwork for entrepreneurs every day, so we know how to get it done right the first time. And we’ll put guardrails in place to set your Texas LLC up for long-term success.
Tax advantages: Enjoy pass-through taxation for your business
Operational flexibility: Choose a management structure that fits your specific needs
Asset protection: Separate personal and business finances, safeguarding your personal assets
FAQs
How much does it cost to set up an LLC in Texas?
You must file a Texas certificate of formation to start an LLC. The filing fee is $300.
How is an LLC taxed in Texas?
LLCs are “pass-through” tax entities, meaning their members claim profits and losses on their personal income tax returns. LLCs can elect to be taxed as C corps or S corps instead if it suits their business models.
What are the benefits of a Texas LLC?
LLCs provide limited liability to their members and prevent corporate double taxation. This advantage, along with the LLC’s flexibility in management and ease of maintenance, makes it a powerful business structure.
How do you dissolve an LLC in Texas?
Follow the dissolution procedure outlined in your LLC operating agreement. Then file Form 651 from the Texas Secretary of State with the $40 filing fee.
Bibliography
Texas Economic Development. “Texas Economic Snapshot.” Accessed January 28, 2023.
Texas Economic Development. “Business Climate.” Accessed January 28, 2023.
Texas Secretary of State. “Selecting a Business Structure.” January 29, 2023.
Internal Revenue Service. “S Corporations.” Accessed January 29, 2023.
Internal Revenue Service. “Limited Liability Company (LLC).” Accessed January 29, 2023.
Texas Administrative Code. “Title 1, Part 4, Chapter 79, Subchapter C: Entity Names.” Accessed January 30, 2023
Texas Business Organizations Code. “Title 1. General Provisions.” Accessed January 30, 2023.
Texas Secretary of State. “Business and Nonprofit Forms: Reserving or Registering a Name Under the Texas Business Organizations Code.” Accessed January 30, 2023.
Texas Secretary of State. “Name Filings FAQs.” Accessed January 30, 2023.
Texas Secretary of State. “Business and Nonprofit Forms: Formation of Business Entities and Nonprofit Corporations Under the Texas Business Organizations Code.” Accessed January 30, 2023.
Texas Secretary of State. “Business Filings & Trademarks Fee Schedule.” Accessed January 30, 2023.
Texas Secretary of State. “Registered Agent FAQs.” Accessed January 30, 2023.
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