Starting a Texas LLC
A Texas Limited Liability Company (LLC) is a legal business structure that offers personal liability protection in case of a lawsuit. In the event your LLC is sued, your personal assets (like your home, vehicles, and bank accounts) are protected.
You can use your Texas LLC to run a business or you can use your LLC to purchase assets, such as real estate, vehicles, boats, and aircraft.
1. Texas Limited Liability Company Name
Before filing your Texas LLC Certificate of Formation with the Secretary of State, you’ll want to make sure that your desired LLC name is available for use in the state.
Your Texas LLC name must be unique and distinguishable when compared to existing businesses registered in the state.
There are 3 ways to search an LLC name in Texas:
- Call the State Business Information Line at 512-463-5555
- Send an email to email@example.com
- Check the Texas Comptroller’s Taxable Entity Search page
LLCU recommendation: Even if you search your LLC name on the Taxable Entity Search page and it seems available, it’s still a good idea to call and confirm. Texas used to be extremely strict about business entity names being available. And while they have changed their laws and loosened their restrictions, the reason most LLC filings are rejected is due to business name issues. It’s best to call just to be sure. And if you call early in the morning, there’s barely any hold time.
Your LLC name must include a designator at the end. Texas law lets you use any of the following:
- LLC or L.L.C. (LLC is the most common)
- LC or L.C.
- Ltd. Co.
- Ltd. Company
- Limited Company
- Ltd. Liability Co.
- Ltd. Liability Company
- Limited Liability Company
Your Texas business name cannot include a designator that makes it sounds like a different type of legal entity. For example, you can’t use Inc, Incorporated, Corp, Corporation, LP, LLP, Non-Profit, or Non-Profit Corporation, etc. in your LLC name.
We see this all the time: People rush the LLC naming process, form their LLC, then want to change their business name 3 months later. While you can do this by filing an Amendment with the Secretary of State, it’s important to know a couple things. First, that Amendment costs $150, and second, you then have to update your business name everywhere else: the IRS, the Comptroller, the bank, debit/credit cards, online registrations, etc. It’s just a pain. It’s better to spend more time and think of a solid LLC name from the start. For naming tips, check out How to come up with a good business name.
2. Texas Registered Agent
The Texas Secretary of State requires you to list a Registered Agent in your LLC Certificate of Formation.
A Registered Agent in Texas is a person or company who agrees to receive notices, legal mail, and court documents (called “Service of Process“) in the event your LLC is sued or involved in a court case.
Your Texas LLC’s Registered Agent must have an actual physical street address located in Texas where service of process and other documents can be received.
As per state law, your a Registered Agent address (called the “Registered Office”) cannot be:
- a PO Box address
- a mailbox rental service (like The UPS Store)
Who can be your Texas Registered Agent?
Note: As we mention in our Texas Registered Agent lesson, who you choose as your business’s Registered Agent will have an impact on your privacy and what addresses show up on public records.
In Texas, you have 3 options for who can be your LLC’s Registered Agent:
- You can be your own Registered Agent
- You can ask a friend or family member
- Or you can hire a Registered Agent Service. Hiring a Registered Agent Service is a good idea if you want to keep your address off public records or if you don’t have an address in Texas.
Consent to serve: The person or company you choose as your Registered Agent must sign a Consent to Serve as Registered Agent form (Form 401A).
Registered Agent Service: If you want to hire a Registered Agent in Texas, our favorite company is Northwest Registered Agent ($125 per year).
Northwest has great customer service and has been in the business for over 20 years. They will scan any mail that is sent to your LLC and upload it to your online account. They’ll also let you use their office address throughout your LLC filing in order to keep your address off of public records.
3. Texas LLC Certificate of Formation
To form an LLC in Texas, you’ll need to file a Texas Certificate of Formation.
Texas LLC filing fee: $300
New in 2022: Texas Veterans can start their LLC for free! Learn more on Free LLC for Texas Veterans.
Filing methods: You can form an LLC in Texas online or by mail. You can also file by fax or walk-in, but we’ll focus on the first two methods since they’re the most common.
LLCU recommendation: We like the online filing via SOSDirect as the approval time is faster. It’s also easier than doing paperwork and sending a letter.
Texas LLC online: Can be done via SOSDirect. The system is a bit funny in that you have to enter your credit card information first. Don’t worry though. They don’t charge you, unless you click submit at the end. This is just to prevent fraudulent filings.
Texas LLC by mail: Prepare a Certificate of Formation (Form 205) and Consent to Serve as Registered Agent (Form 401A). Mail 2 copies of your forms, with a check or money order for $300 (made payable to “Secretary of State”), and mail to:
Secretary of State
PO Box 13697
Austin, TX 78711
LLC approval time: 2-3 business days if you file online. Or
5-7 business days 3-4 months if you file by mail. The state is extremely back up right now for mail/paper filings.
Note: Filing times may take longer due to the current global situation and government delays. Please see how long does it take to get an LLC in Texas.
Approval documents: You’ll get back a Certificate of Filing and a stamped and approved Certificate of Formation. They’ll be returned by email if you file online. And if you file by mail, they’ll be returned by regular mail (sent to the Registered Agent’s address).
4. Texas LLC Operating Agreement
A Texas LLC Operating Agreement is a written contract among the LLC Members that spells out who owns the LLC and how much of the LLC they own.
Your Texas LLC’s Operating Agreement will also document how your LLC is managed, how profits are split, how taxes are paid, and more.
Operating Agreements should be in place for both Single-Member LLCs and Multi-Member LLCs located in Texas. Having an Operating Agreement for your LLC helps prove that the company is a separate legal entity from its owners. If you ever end up in court, this helps maintain your personal asset protection.
Internal Document: An LLC Operating Agreement is an “internal document”, meaning, you don’t have to send a copy to the Secretary of State, the Texas Comptroller, the IRS, or any other state or government agency. You just need to keep a copy of the Operating Agreement with your LLC business records and give a copy to any other LLC Member(s), if applicable.
Download an LLC Operating Agreement: We provide free LLC Operating Agreement templates that you can download on this page: Texas LLC Operating Agreement
5. Federal Tax ID Number (EIN)
A Texas EIN Number (Employer Identification Number) is obtained from the Internal Revenue Service (IRS) after your LLC is approved by the Texas Secretary of State.
An EIN is also called an EIN Number, FEIN, Federal Employer Identification Number, or a Federal Tax ID Number. These all mean the same thing.
It’s helpful to think of your LLC’s EIN Number as its “social security number”. It helps identify your LLC to the IRS for tax and filing purposes.
Your LLC’s EIN will also be used when you open an LLC bank account, register your LLC for taxes, and process employee payroll (if applicable).
How is an LLC taxed?
The IRS doesn’t have a specific tax classification for LLCs and instead, an LLC can be taxed 4 different ways with the IRS. 2 of these occur by default (they occur simply by obtaining your LLC’s EIN), and the other 2 require a special election (a form must be filed after you obtain your LLC’s EIN). We recommend reading How is an LLC taxed before applying for your LLC’s EIN Number.
Wait for LLC approval: Don’t apply for an EIN until your LLC is approved by the Texas Secretary of State.
An EIN is free ($0): The IRS will issue an EIN to your LLC at no cost.
Husband and wife LLC: If you are forming a 2-Member husband and wife LLC in Texas you can elect a special type of taxation called a Qualified Joint Venture LLC. This allows a 2-Member husband and wife LLC to be treated as a Sole Proprietorship instead of a Partnership for tax purposes.
EIN Responsible Party: This will be the IRS’s “contact person” when you apply for your LLC’s EIN. If you have a Single-Member LLC, you will be the Responsible Party. If you have a Multi-Member LLC, any LLC Member can be the Responsible Party. For more information, please see EIN Responsible Party for an LLC.
How to apply for an EIN
There are 3 ways to apply for an EIN for your LLC:
- If you have an SSN or ITIN, you can apply for an EIN online
- If you apply for an EIN online and you get an error message, you’ll need to apply for an EIN using Form SS-4 instead
- If you don’t have an SSN or ITIN, you can still get an EIN for your LLC: how to get an EIN without an SSN or ITIN
6. Texas LLC Franchise Tax and Public Information Report
All Texas LLCs, regardless of revenue or business activity, must file a Texas Franchise Tax Report and a Public Information Report (PIR) every year.
Unlike most states, where an LLC Annual Report is filed with the Secretary of State, the Texas LLC “annual report” (Franchise Tax Report and PIR) is filed with the Texas Comptroller’s Office.
The franchise tax is a “privilege tax” for doing business in Texas. Part of this privilege includes liability protections provided by state law.
Due date: Texas franchise tax reports are due every year by May 15th. Your LLC’s first franchise tax reports are not due until the year after your LLC is formed. For example, an LLC formed in March 2022 wouldn’t file its first franchise tax report until May 15th, 2023.
Welcome Letter: A few weeks after your LLC is approved by the Texas Secretary of State, you’ll receive a Welcome Letter from the Comptroller’s office. The Welcome Letter has your LLC’s 11-digit Taxpayer Number. This isn’t your federal Tax ID Number. This is a Texas Taxpayer Number.
Franchise Tax Questionnaire: In your Welcome Letter, you’ll also find an FQ number, which you’ll use to complete the Franchise Tax Questionnaire. This can be done online via WebFile. Once your questionnaire is submitted, the Comptroller’s office will issue you an XT Number. You’ll use your 11-digit Taxpayer Number and your XT Number when filing your Franchise Tax Report and PIR each year.
No tax due: Over 90% of LLCs in Texas fall under the “no tax due threshold” of $1,230,000 in annualized total revenue. In that case, they file a report, but don’t pay any tax. The report they file is called the No Tax Due Report (Form 05-163).
The No Tax Due Report should be filed online via WebFile. When filed online, the No Tax Due Report includes the Public Information Report. WebFile combines them into one interface.
If your LLC has more than $1,230,000 in annualized total revenue, you can file via the EZ Computation method or by using the Long Form. The EZ Computation tax rate is 0.331% of total revenue and doesn’t allow for deductions. The Long Form tax rate is 0.375% of taxable margin for retailers and wholesalers, and 0.75% for all other businesses.
In summary: Texas franchise tax can be quite involved. This is just a brief overview. For further details, please see our Texas LLC franchise tax page.
7. Business Licenses and/or Permits
State business license: Texas doesn’t require any individual or business entity to get a statewide general business license to conduct business. While you will need to check with your local city/town, most cities in Texas also don’t have a general business license. Texas is following through with their business-friendly approach here.
Sales tax permit
Your LLC in Texas will need to register for sales tax if:
- it sells or leases tangible personal property in the state
- it sells a taxable service
You can get a sales tax permit for your LLC online via WebFile. There is no charge.
Tips on preventing telemarketing
The sales tax permit asks for a phone number. We recommend not using your actual cell or home number, because you’ll get a ton of annoying marketing calls. Check out Phone.com or Sonetel. You can get a pretty cheap phone number and use it as a “voicemail only” number.
Your LLC can use a Resale Certificate (Form 01-339) to buy goods for the purpose of resale without paying sales tax. Form 01-339 can be downloaded from the Resale Certificate FAQ page.
Local license or permit
Depending on where your Texas LLC is located and the industry it is in, you may need local (city, town, etc.) business licenses or permits to legally operate. Since there are far too many cities and towns to list here, it’s best to call your local municipality for guidance. You can also find a list of licenses here:
- Texas.gov (click “Business”, then click “Occupational & Professional Licenses”)
- List of licenses on the Department of Licensing and Regulation website
- Texas Commission on Environment Quality has a list of permits and licenses you may need
For more information, see Texas Business License.
Tip: Save time by hiring an expert. We recommend using IncFile ($99) to handle the business license research for you.
8. Texas LLC Taxes
There are many different types of Texas LLC taxes. It’s most helpful to think of taxes on 3 levels: federal, state, and local.
No state income tax: Texas residents don’t pay personal state income tax. However, LLCs in Texas are responsible for filing franchise tax reports and collecting sales tax (if applicable), as mentioned above.
Federal income tax: Most LLCs in Texas (with default tax elections, owned by U.S. persons) are “tax-reporting entities” with the IRS and not “tax-paying” entities. Meaning, because default LLCs are pass-through entities, the LLC owners report and pay taxes on their personal US income tax return (Form 1040).
- If you have a Single-Member LLC that is foreign-owned, you have to file Form 5472 every year.
- If you have a Multi-Member LLC that is foreign-owned, you don’t have to file Form 5472, but you do have to file Form 1065 every year.
If the LLC owner is an individual, the Texas LLC is taxed like a Sole Proprietorship by the IRS. If the LLC owner is a company, the LLC is taxed like a branch/division of the parent company. In LLC/Sole Proprietorship taxation, income is most often reported on a Schedule C, although a different Schedule may be needed depending on how the money is made.
Husband and wife LLC
Because Texas is a community property state, if a husband and wife own an LLC and file their taxes jointly, they can elect to be taxed as a Sole Proprietorship (instead of a Partnership). The IRS calls this a Qualified Joint Venture LLC.
A Multi-Member Texas LLC is taxed like a Partnership by the IRS. In LLC/Partnership taxation, the LLC files an informational return (Form 1065 Partnership Return). Then each LLC Member gets a K-1 which reflects their share of profits. The K-1 then becomes a part of the LLC Member’s personal 1040 income tax return.
Taxed like a Corporation
If a Texas LLC doesn’t want the default treatment from the IRS, it can elect to pay federal taxes like a Corporation. An LLC can elect to be taxed like a C-Corporation, although this isn’t very common. An LLC can also elect to be taxed like an S-Corporation, which is more popular because of self-employment tax savings. The S-Corp election only makes sense once an LLC has a certain amount of net income. For more information, please see LLC taxed as S-Corp or LLC taxed as C-Corp.
While Texas doesn’t have a personal state income tax, depending on your business industry, your LLC may be responsible for other taxes. Some examples are battery sales tax, crude oil tax, mixed beverages tax, natural gas tax, tobacco tax, and more (see all taxes and fees in Texas). While these don’t apply to the majority of our readers, you’ll want to check with an accountant to make sure your Texas LLC meets all its filing obligations.
You’ll also want to ask an accountant if your Texas LLC is responsible for any local taxes (city, town, etc.). This varies depending on where your LLC is located and where it’s doing business.
9. Business Bank Account
Once the IRS has issued an EIN Number to your Texas Limited Liability Company, you can open a business checking account.
It’s best practice to have a business checking account for your LLC in order to maintain your personal liability protection. Using a personal bank account for your LLC is called “commingling of assets” and this can lead to personal liability issues if you end up in court.
Having a separate business bank account for your LLC also makes record keeping easier for accounting and tax purposes.
Since banks in Texas all have their own rules and regulations, we recommend calling a few banks to determine the following:
- minimum initial deposit
- minimum balance requirements
- monthly maintenance fees (if any)
Required LLC paperwork: In order to open an LLC bank account, you’ll likely need to have the following documents:
- Certificate of Formation (stamped and approved)
- EIN Confirmation Letter from the IRS
- Photo ID (driver’s license and/or passport)
- Operating Agreement (usually not needed, but good to bring anyway)
Tip: Call the bank ahead of time and double-check what documents are required.
For more details, please see the following article: Business bank account for an LLC
LLC Members: If you have a Multi-Member LLC, all Members that want to be on the bank account should be present when opening the account.
Non-U.S. residents: If you are a non-US resident and formed an LLC in Texas, you can still open a U.S. business bank account. Please see this lesson: Opening an LLC bank account for non-US residents
Debit card: The bank will give you a debit card when you open the account.
Credit card: You can also get a business credit card to earn points, miles, and other rewards.
10. Business Phone Number
Instead of giving out your cell phone number (or home telephone number), it might be a good idea to get a separate business phone number for your Texas LLC.
We recommend getting a phone number from Phone.com. They have the most affordable plans and good customer service.
You can get a local Texas telephone number or you can get a “1-800” number for your business. Phone.com lets you set up call forwarding to any number you like, create pre-recorded messages, and you can have your voicemails sent right to your email.
Getting a separate phone number for your Texas LLC is also a good idea if you’d like to keep your actual phone number off of those annoying “public record” websites.
Another option is Sonetel. Sonetel is cheaper than Phone.com, but setting up an account with Sonetel can be a little tricky. Additionally, Phone.com’s customer support is easier to reach.
Texas State Agencies
(LLC taxation, franchise tax, sales tax, etc.)
800-252-1381 (8:00am to 5:00pm, M-F)
Texas Workforce Commission
(if you’ll hire employees)
512-463-2222 (8:00am to 5:00pm, M-F)
Starting an LLC in Texas FAQs
It costs $300 to start an LLC in Texas. This is the fee paid to file the LLC Certificate of Formation.
For a list of all LLC costs, please see Texas LLC costs.
If you have an LLC formed in another state, but you want to do business in Texas, you’ll need to register that out-of-state LLC in Texas. This is known as a Foreign LLC registration. You can find Foreign Limited Liability Company fees on this page: Foreign LLC fees by state.
The cost of maintaining an LLC in Texas varies depending on your unique business needs.
All Texas LLCs are required to file annual Franchise Tax Reports, but these are free for most LLCs. You only have to pay the tax associated with this filing if your LLC makes more than $1,230,000 per year.
If you hire a Registered Agent service, you’ll have an annual fee to pay each year. This is usually about $125 per year.
Some LLCs may need a business license in Texas. This depends on your industry and where your LLC is located. You’ll need to check with your municipality to see if there are any annual fees for the business license.
The amount you pay in business taxes will also vary. We recommend hiring an accountant who is familiar with business accounting in Texas.
Sort of. All Texas LLCs must file a Texas Franchise Tax Report and a Public Information Report (PIR) every year. This is true regardless of whether you conduct business activity in a given year, or how much money your LLC makes.
The franchise tax is a “privilege tax” for doing business in Texas, and the paperwork is filed with the Texas Comptroller’s Office.
Texas franchise tax reports are due every year by May 15th starting the year after your LLC is formed. For example, an LLC formed in February 2022 wouldn’t file a franchise tax report until May 15th, 2023.
That said, Texas has a “tax due threshold” of $1,230,000. Meaning, if your LLC makes less than $1,230,000 per year, you still have to file the report, but you don’t pay any tax.
Over 90% of LLCs in Texas fall under the “no tax due threshold” and the report they file is called the No Tax Due Report (Form 05-163).
If your LLC makes more than $1,230,000 per year, you will likely have to pay this tax. You can file via the EZ Computation method or by using the Long Form.
You can file an LLC in Texas yourself by following the instructions in our Texas LLC Certificate of Formation guide. We break down the process for you step-by-step.
How long it takes to get an LLC in Texas depends on how you file your Certificate of Formation.
If you form a Texas LLC online, it will be approved in 4 business days.
If you form your LLC by mail, it’ll take 3-4 months for your LLC to be approved. The state is extremely back up right now with mail/paper filings.
take 22-25 business days for the state to process your Texas Certificate of Formation filing. So it’ll be about 7 weeks total before you receive the approval documents back in the mail.
Yes, you should still get an EIN for your Texas business even if you don’t hire employees.
Even though it’s called an Employer Identification Number, it doesn’t mean you as a business owner has to have employees. Again, the EIN Number is just a way for the IRS to identify your business.
Note: If you are the only owner in your business, you are not considered an employee. You are simply the owner.
As far as we’re concerned, there aren’t any downsides of choosing an LLC for your legal business entity. But there are many benefits!
The first benefit of an LLC is protecting your personal assets. Meaning, if your business is sued, your personal assets – like your home, cars, and bank accounts – are protected.
This protection applies to all LLC owners (called LLC Members). It doesn’t matter if you have a Single-Member LLC or Multi-Member LLC. All of the LLC owners are protected from the business’s debts and liabilities.
This type of protection wouldn’t apply if you operate as a Sole Proprietorship or Partnership. With these types of informal business structures, the owners aren’t protected in the event of a lawsuit. For that reason, Limited Liability Companies (LLCs) are a much more common business structure than a Sole Proprietorship or Partnership.
Another benefit is LLC pass-through taxation.
This means the LLC itself doesn’t pay federal income taxes. Instead, the profits “pass through” to the LLC Members. And the Members report and pay the taxes on their personal tax return.
To learn more, please see How are LLCs taxed.