How to Form a LLC in Texas

When considering forming a business, understanding the different corporate formation types is necessary. In Texas, as in many other states, a popular choice among entrepreneurs is the Limited Liability Company (LLC). This format combines elements of a partnership and corporation, offering both flexibility and protection.

The state sets certain requirements that must be met:

1. Naming Your LLC

Choosing the right name is the first step. In Texas, there’s a protocol for LLC naming:

• Inclusion Requirement: The name of your LLC has to include either “Limited Liability Company,” “LLC,” or “L.L.C.” This is a standard requirement across many states and signifies the type of business entity.
• Uniqueness: The name you choose should stand out. It can’t be too similar or identical to the names of other entities already registered in Texas. This distinction ensures that your business has its own identity and reduces confusion among the public or potential clients.

2. The Role of a Registered Agent

The registered agent is the bridge between your LLC and the state. This role involves:

• Physical Presence: The agent must have a physical address in Texas. This can’t be a P.O. Box; it has to be a location where they can receive legal papers.
• Availability: The agent should be available during regular business hours to handle and receive legal notifications for the LLC. This ensures any urgent or important legal notices are addressed promptly.

3. Specifying Your Business Address

It’s more than just a location; it’s the primary point of operation:

• Central Location: The address you provide should be the main hub where the primary business activities occur. It’s where correspondence from the state will be sent and where official records are typically kept.
• Consistency: To avoid confusion, use this address consistently across all your official paperwork.

4. Deciding on a Management Structure

An LLC offers flexibility in how it’s managed. You have two primary options:

• Member-Managed: This means that the day-to-day operations and decisions of the LLC are managed by its members (owners). It’s common for smaller LLCs where owners prefer a hands-on approach.
• Manager-Managed: In this setup, members appoint one or more managers to handle the business’s daily operations. It’s a structure often preferred when there are multiple members and they’d rather delegate daily responsibilities. It allows members to focus on bigger decisions while managers handle the routine.

Each of these requirements is foundational in setting up an LLC in Texas, and while they might seem basic, they play a pivotal role in the smooth operation and legal standing of the business.

How Much Does It Cost to Have an LLC in Texas?

Starting an LLC in Texas involves fees. The primary cost is the filing fee for the Texas LLC application, which is currently $300. However, depending on your situation, there may be some optional or additional costs.

For example, you may need to pay for:

• A certified copy of the filing document ($15) or a certificate of status ($5) if you want official proof of your LLC’s existence.
• A commercial registered agent service ($125/year) if you don’t want to be your own registered agent or use someone you know.
• An expedited or rushed processing time ($50-$100) if you want your LLC approved faster than the default 2-3 weeks.
• A franchise tax report (varies) if your LLC earns more than $1.18 million in annual revenue.

What Paperwork Do I Need to Form an LLC?

To form an LLC in Texas, the primary document required is the Certificate of Formation – Limited Liability Company. This form captures the following:

• The name and address of the LLC.
• The name and address of the registered agent.
• Information about the management structure.
• Although a general purpose statement, the LLC’s purpose is typically acceptable.

What Benefits Does Texas Give to an LLC?

Setting up an LLC in Texas has several noteworthy advantages that make it an enticing option for business founders. Here’s a more in-depth look at some of these benefits.

1. No State Income Tax Advantage

One of the perks of setting up an LLC in Texas is the lack of personal state income tax.

• Financial Savings: Without a personal state income tax, members of an LLC can enjoy a significant financial benefit. Since LLCs are typically considered pass-through entities (meaning the company’s income is passed through to members and reported on their personal tax returns), the absence of a state income tax in Texas can lead to considerable savings for members.
• Attractiveness for New Business: This tax advantage can make Texas an appealing destination for entrepreneurs looking to maximize their earnings and minimize their tax liabilities.

2. Asset Protection

Many choose the LLC structure because of asset protection, and Texas is no exception.

• Shielding Personal Assets: The primary advantage of an LLC in any state is the protection it offers to members’ assets. In case of business debts or if the business faces a lawsuit, the personal assets of the LLC members in Texas remain untouched. This ensures members won’t lose their personal property, such as homes or cars, because of business-related issues.
• Distinct Entity: An LLC is considered a separate legal entity in Texas. This distinction ensures that any liabilities or debts the business incurs don’t directly affect the personal financial standing of its members.

3. Flexibility in Management

Texas is known for offering businesses a lot of leeway regarding management structures.

• Choose Your Style: Texas LLCs aren’t bound by rigid management rules. They can decide if they want to be member-managed, where all members have a say in the day-to-day operations, or manager-managed, where specific individuals (members or outsiders) are designated to handle daily tasks.
• Tailored for Your Needs: This flexibility allows Texas LLCs to choose a management style that fits their business model, size, and members’ preferences, whether it’s a small LLC where members want to be involved in every decision or a larger one where delegation is more practical, Texas provides the latitude to make it work.

In essence, Texas offers an environment where LLCs can thrive, with financial incentives, strong legal protections, and the adaptability to structure the business as members see fit.

What Disadvantages Does Texas Give to an LLC?

While there are many advantages, some potential challenges or disadvantages to consider include:

• Franchise Tax: Texas doesn’t have a personal income tax, but it imposes a franchise tax on certain businesses, including LLCs.
• Public Disclosure: The Texas LLC application process requires certain information to be disclosed publicly, which may concern some business owners.

Do I Need a Lawyer to Form an LLC in Texas?

While it’s possible to create an LLC on your own, having the guidance of a lawyer ensures that every detail is handled correctly. They can offer advice tailored to your situation, making the process smoother and helping to avoid potential legal pitfalls.

Are you thinking about forming an LLC in the state of Texas? Let LegalMatch connect you with an experienced Texas corporate lawyer who can guide you from start to finish. Ensure your business starts on the right foot – contact LegalMatch today!