Texas startups can be profitable and thrilling. Selecting a legal structure is a critical first step in starting a business in Texas. Many entrepreneurs and small business owners prefer LLCs due to their flexibility, liability protection, and tax benefits. To form an LLC in Texas, you must follow several legal steps. We explain Texas LLC formation stages and legal requirements in this detailed guide.

What is an LLC?

Before discussing Texas' LLC formation requirements, let's define an LLC and why business owners like it. LLCs combine the limited liability protection of a corporation with the simplicity and flexibility of a partnership or single proprietorship. Since LLC members aren't personally accountable for the company's debts and obligations, members' assets are usually protected if the LLC has financial or legal challenges.

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Additionally, LLCs give management and tax freedom. In Texas, LLCs can have one or more members and be taxed as a disregarded entity, partnership, S corporation, or C corporation.

Steps to Form an LLC in Texas

Texas LLC formation requires multiple stages and legal criteria. This extensive guide explains how:

Choose a Name for Your LLC

Texas LLC formation begins with choosing a distinctive business name. The name must conclude with "Limited Liability Company," "LLC," or "L.L.C." Your name must not be in use or infringe on any trademarks. Check your selected business name's availability on the Texas Secretary of State's website.

Designate a Registered Agent

Texas LLCs must choose a registered agent to receive legal documents and official notices. Registered agents can be individuals or Texas-licensed businesses. They need a state street address, not a P.O. box. Choose to be your LLC's registered agent or employ a professional.

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File Certificate of Formation

File a Certificate of Formation (Form 205) with the Texas Secretary of State to form your LLC. Send this form online, via mail, or in person. Fill out the form with the following information:

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  • LLC name and address.
  • Registered agent name and address.
  • Effective formation date (near or future).
  • Management (member- or manager-managed).
  • LLC goal (you can say "engaging in any lawful activity").

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The filing fee depends on the method and type of LLC you're forming (domestic or foreign). As of September 2021, a domestic Texas LLC costs $300 to start. Fees may have changed, so check the Texas Secretary of State's website for the latest schedule.

Create an Operating Agreement

You should write an LLC operating agreement, even if Texas law doesn't require it. This document describes the LLC's ownership, management, and member rights and obligations. It can prevent member disputes and set corporate rules. Even if you're the only LLC member, an operating agreement can help.

Obtain an Employer Identification Number (EIN)

An EIN, or Federal Tax Identification Number, is needed for tax purposes and is usually necessary for LLCs with several members. EINs separate your business's finances from your money and are generally required to open a business bank account, even if your LLC is a single-member LLC. EINs can be obtained from the IRS online or by submitting Form SS-4.

Comply with State Tax Requirements

Your LLC may need to register for Texas state taxes depending on its activities and location. State sales, franchise, and unemployment taxes apply to businesses. Know your tax requirements and register with the Texas Comptroller of Public Accounts if needed.

Register for State Licences and Permits

Certain Texas businesses need licenses or permits to operate. Industry and geography affect needs. Use Texas.gov or the Texas Department of Licensing and Regulation to see if your business needs licenses or permits.

File Periodic Reports

Some states require LLCs to produce yearly reports, but not Texas. If you modify your LLC's name, registered agent, management structure, or other important information, you must file the relevant forms and pay the Texas Secretary of State. Business records must be updated with the state to stay in good standing.

Understand Franchise Tax Requirements

Most Texas LLCs pay the franchise tax, which taxes doing business in the state. Depending on the computation method, your business's franchise tax is based on your LLC's yearly or total annualized revenue. Maintaining state good standing requires understanding and complying with franchise tax laws. Franchise tax liability calculators and extensive information are available on the Texas Comptroller of Public Accounts website.

Keep Good Records and Accounting

LLC financial documents must be accurate and orderly. Track business income, expenses, receipts, and other financial transactions. This aids tax compliance and provides a clear financial picture of your organization. Consider adopting accounting software or hiring an accountant to simplify record-keeping.

Comply with Employment Laws

Texas LLCs must follow state and federal employment rules while hiring. Provide workers' compensation insurance, withhold payroll taxes, and meet minimum wage regulations. Texas businesses benefit from the Texas Workforce Commission's employment services and advice.

Get Business Permits

Your LLC may need local permits and licenses in addition to state ones, depending on its location and operations. Check with your city or county to ensure your business has all the legal licenses. Local requirements can vary greatly.

Consider Liability Insurance

Though LLC members have limited responsibility, your company should obtain liability insurance. Your industry and activities determine whether liability insurance can protect your LLC against litigation. Insurance experts can assist you in picking business coverage.

Stay Informed About Legal Changes

LLC and business laws alter over time. Keep abreast of legal changes that may affect your LLC. Tax laws, licensing requirements, and state restrictions can vary. Regularly monitoring the Texas Secretary of State's website and communicating with legal or business consultants will assist you in keeping current on LLC legal requirements.

Conclusion

Forming an LLC in Texas requires numerous stages, from picking a name to completing the Certificate of Formation and meeting tax and licensing requirements. The procedure may seem complicated, but following these steps carefully and seeking professional counsel can help you build a solid legal basis for your firm.

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Remember that LLC creation laws vary over time, so visit the Texas Secretary of State and other state agencies for the latest information. Consult legal and financial professionals to guarantee your LLC formation is smooth and compliant with state rules. With these steps, you can help your Texas LLC succeed while enjoying this corporate structure's limited liability and flexibility.

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Sources

https://www.marketwatch.com/guides/business/start-llc-texas/

https://www.wolterskluwer.com/en/solutions/bizfilings/state-guides/texas-llc-requirements

https://www.legalzoom.com/articles/how-to-start-an-llc-in-texas‍