Before you decide if a Texas limited liability company is right for you, make sure to identify the specific requirements that are important to you, such as whether or not the company will be required to file income tax returns and how the corporation will be taxed. The specific features are summarized below.
Business Entities in Texas
A Texas LLC is a business entity formed under the laws of Texas. A partnership is a separate legal entity that is usually classified as a for-profit business entity since it has no separate owners and pays taxes (it is not taxed like an individual). A sole proprietorship is a business of one person.
A partnership involves two or more people who jointly own an interest in the business and are liable for the debts and obligations of the business.
There are typically two main choices for Texas LLCs to form the entity, either by joining your existing business or by forming a new one from scratch. When you incorporate in Texas, you can choose to have your company be treated as a corporation under state statute, or you can elect to be taxed separately like a partnership.
How to Register a Texas LLC Yourself
Business entities in Texas are registered with the Texas Secretary of State. To do so, you will need to fill out a form, pay a fee, and mail it in. The form you must use depends on whether your company will be classified as a corporation or a limited partnership.
The fee for your filing will depend on the type of entity you choose to create and how long you have been doing business.
Step 1: Name Your Texas LLC
The name of your Texas LLC should be distinguishable from the names of other business entities. This will help protect you from possible disputes and confusion. It is important to take the time to make sure that everything is spelled correctly to avoid any problems with confusing your business with another one.
- The name of the LLC (name of the owner) cannot have a term used by others, such as a derivation of your name, other names that are confusingly similar, or any other situation that would create confusion.
- The name of the LLC cannot be obscene, defamatory, or disparaging.
- The names of common law members must not violate federal rules like accidentally matching another title already registered by someone else or violate state rules like using only one word in your name like “The.”
- The names of the members and managers must not violate state company laws like using your last name or a word that indicates you are an officer, like “John” or “Smith.”
- The names of the members and managers cannot be deceptive. For example, if you have more than three members in your group, don’t name one of the group as “John Smith” and another as “Jim Jones.”
- The name is not subject to any law that may prohibit what you want to name your company under. In other words, you cannot use an obscene word or a name that violates anything.
- The name cannot be the name of another corporation or business entity that already exists in Texas. For example, it would not be allowed if you are doing a company in the same city as another company already registered there.
- The names of your members and managers cannot include more than two consecutive consonants (like “C” or “K”..etc.); or more than two consecutive vowels (like “E” or “I”..etc.), and there are many other rules that could be applied to the names.
Step 2: Choose a Registered Agent
Once your LLC is registered, you must designate an individual or company to be the Registered Agent. The agent will receive official mail and keep a copy of the signed Certificate of Formation for you.
The Registered Agent must:
- Be registered to do business in Texas.
- Sign the Certificate of Formation
- Maintain a permanent mailing address for the LLC
- Maintain their own set of books and documents that show they are acting as an agent for your company
- Not delegate their authority to another individual or company. If you are the Registered Agent, you must act as one yourself, so this is not an option if you cannot serve efficiently or cannot fulfill your responsibilities adequately.
- Not perform any other company or corporate services for any other company or corporation without the previous Registered Agent’s written permission.
Step 3: File the Certificate of Formation
After completing all of the above steps, you are now ready to file with the Texas Secretary of State in Austin. The different filing fees for your LLC will depend on a variety of factors such as:
- The type of business entity you choose to create (LLC, corporation, etc.)
- How long the business has been active
- The number of members in your company
- The registered agent service for your company.
You can mail the Certificate of Formation or submit it electronically.
Step 4: Create an Operating Agreement
Every LLC requires a written Operating Agreement, even if you do not want to formally register the LLC until you have more than one member.
This contract outlines the rights and duties of each current and future owner in your company. It should address:
- shareholder disputes
- how profits and losses are distributed
- how information gets shared among members in an emergency
- what happens to the business if owners become incapacitated or die while your business is active, etc.
The Operating Agreement should be reviewed and updated regularly for document content and any changes in business circumstances. It is vitally important that you know the current state of the business and practices with your company. If you feel it is ineffective, this is an excellent time to review it before the first owner dies or becomes incapacitated.
Step 5: Get an EIN
Every new business should get an Employer Identification Number (EIN). This tax ID number is used for all business entities, sole proprietorships, partnerships, and limited liability companies. It is a nine-digit number preceded by a specified number.
- The EIN can be applied electronically, or you can do it by mail with a paper application. You will be asked to submit information like the entity name, the mailing address of your company, etc.
- After you have your EIN assigned, you will need to provide that number to the IRS. You will use it when you file your first tax return (Form 1120). The first tax year is called the fiscal or administrative year
- You will not need to send in a separate form for the EIN since Form SS-4 contains a line for this assignment.
The TPIN number is the Texas Helps ID Number and can be used for qualifying for tax incentives and other government programs if applicable.
Pros and Cons of Texas LLC
There are several benefits to a Texas LLC as compared to other states’ LLCs.
Pros of LLCs in Texas:
- They are faster and cheaper
- The formation fee is lower than for other legal entities. This is because your business is actually just one person, not an entirely separate entity.
- You also do not have to pay taxes on the wages or the profits until they are paid out.
- You do not have to file anything separately. If you are a sole proprietor, you will generally file your own personal income tax return.
- When you have employees, you can offer them a company benefit plan. This is called an employee benefit plan, and it allows the employees to participate in a pension or profit-sharing plan alongside the usual 401(k) retirement plans.
- The liability protection is much more flexible than the liability protection offered in other states.
Cons of LLCs in Texas:
- Texas and other states do not recognize the “pass-through” tax rates for C-Corp (Corporation) and S-Corp (Small Business).
- The limited liability company (LLC) is not the only entity used; it can also be used as a sole proprietorship.
- LLCs might not be as flexible if the needs of your business change over time.
- LLCs are subject to an annual public information report and renewal state fees.
- LLCs Are Not Allowed to:
- Act as a corporation or any other business entity.
- Have more than 100 members.
- Have a non-resident member.
- Participate in any political activity or fundraising event.
- Donate funds, provide services, support, or participate in such an event on behalf of any other candidate or cause for public office.
- Have a paid lobbyist.
- Employ representatives, agents, or other persons to act on behalf of the company or any purpose.
As a Professional Plan Administrator, please do your due diligence and consult with one of our licensed Texas professionals for assistance when needed to understand and properly carry out these requirements.
Cost to Form an LLC in Texas
LLC fees are virtually the same in every state. Texas LLC’s require a filing fee of $300 (price may vary by county) along with the Articles of Organization. While forming an LLC is not difficult, there are many rules and regulations that you must follow to comply with state laws. You must research the specific requirements for your state and file accordingly. This will save you time, money, and a lot of aggravation.
Texas LLC Filing Fee: $300
The filing fee will vary depending on what county the LLC is filed in. The minimum filing fee is $300 in Texas. If you are incorporating your business, then we recommend that you speak with an experienced incorporation attorney.
This is because certain situations may cause the type of corporation to be different from what you think it would be. Therefore, you need to be prepared with the information to properly incorporate your business.
LLC Annual Fees: $85-$500
Annual filing fees vary by the type of LLC that you have. An LLC is considered a “regular” LLC if formed under the Texas Business Organizations Code, while an “exempt” LLC does not fit into any of these categories.
A regular LLC would consist of a sole proprietor, a partnership, or two or more people who are liable for the debts and obligations of the business. An exempt LLC will meet one or more of these criteria: it is formed under another state’s LLC law, has an owner not doing business in Texas (nonresident), or has a membership not engaged in a trade or business within Texas.
There are different requirements for each type of entity. The annual fees differ by the type of entity you choose and the number of members. For example, if your LLC has one member and is nonresident in Texas, you will need to pay an annual $85.00.
If you want to keep track of your information, an online membership management system such as MemberUp can be helpful for you and your LLC.
Texas Annual Report Fee: Free
The annual report fee for limited liability companies is $0.00. If you have a regular LLC with one member and that member is out of state, the annual report fee would be $85.00. However, you are not required to file an annual report for your LLC in Texas if treated as a corporation.
If your LLC has more than one member and is not taxed as a corporation, then the cost to file an annual report would be $500.00. Keep in mind that this fee only covers the annual report filing and not any professional services.
Texas Registered Agent Services Fee: $50-$100 (May vary by county)
The fees for a registered agent are not very expensive in Texas, mainly because it is a relatively new law that went into effect in 2007. Before then, the registered agent was appointed official, which is no longer the case.
Please note that you must fill out a Certificate of Service form every time you change your registered agent information. This form is very simple and can be completed using your computer or in person at a Secretary of State office.
Cost to Form a Foreign LLC in Texas: $750
If your LLC is from outside the state of Texas, then it would be considered a foreign LLC. To form a foreign LLC, you will need to file an Application for Registration of a Foreign Limited Liability Company (Form 705).
The cost of filing this application will vary depending on the county and whether or not you are filing online or in person. Filing online will cost you $50 while filing in person would be $300. Keep in mind that the application fees do not include any other fees that the Secretary may require.
Business Permits and Licenses
There are several different licenses and permits that you may need to get to run your business. You need to research these requirements so that you can ensure that you will have all of the necessary documents before you start operating your business. Some of the most common licenses and permits include:
- Texas Dept. of Licensing and Regulation
- Texas Sales Tax License
- Business Tax Registration
- Occupational License (Texas Department of Industrial Production)
- Service Provider License
Cost of Licenses & Permits: Varies
The cost of business permits and licenses will vary depending on which type of business you are starting. For example, if you are starting a home-based business and only need a sales tax permit, then the cost would be $10.00. If your company will provide childcare services, you will need to apply for a childcare license that will cost $100 per year.
Keep in mind that there are certain occupations that require more licenses and permits. For example, if you are in the business of selling real estate, then you will need a Real Estate Brokerage license. The cost of this license ranges from $380-$600 depending on the type of broker and what type of transactions you carry out.
Office Space and Business Facilities
This is where organizations like the Secretary of State can really help you. If you do not have the money to cover your start-up expenses, then it can be very difficult to get your business off the ground. The office space that you use for your business should mirror that of a professional business.
For example, if your business is geared towards warehousing and freight services, you would need to obtain a warehouse or storage facility. The same rule applies to a sales and distribution business. If you are going to do business as a manufacturer, you will need to find some sort of manufacturing facility capable of meeting your needs.
LLC Name Reservation Fee
If you have decided to use your name for your LLC, then it is very important that it is not currently in use. It is a good idea to check with the Texas Secretary of State’s website to see if your business name is available. If you find that your name cannot be used, then you will need to reserve the name before filing for your LLC.
The reservation fee will depend on how long you are reserving the name and whether or not it is an exact match or a similar match. An exact match would be the same as using the word Texas as it appears on your name. If you are using a similar match, then the cost will vary. For example, if you use the words “Texas” and “Texas LLC,” then your fee will increase to $20.00.
Business Domain Name & Website Fee
If you are going to use the internet to advertise your services or products, then it is very important that you have a domain name. The same rule applies if you are going to incorporate an online membership management system such as MemberUp.
If you do not have a website, it can be very difficult for potential customers to find your business and determine what type of services or products you offer. There are several domain name sites, so keep in mind that your first choice may not be available. On the plus side, you can have up to ten domain names attached to your business.
The cost of registering a domain name depends on the type of domain you are looking for and whether or not you already have a web host. For example, most web hosting companies are very expensive. If you are going to have your own web host, then the cost of having your domain name registered will be $15.00-$25.00 per year.
Certificate of Formation Fee
If you want to change the essential information on your certificate of formation, then you will need to file a Certificate of Amendment. For example, if you find that your LLC name is not available anymore and you want to use a different name instead, then you can change the name in your Certificate of Formation.
In order to file a Certificate of Amendment, it is important that the State of Texas receives an amended version of your original certificate. The cost of filing a Certificate of Amendment will vary depending on the situation and is dependent on how many revisions you are making. For example, if you are looking to change the name of your business, then your fee would be $30.00.
If you are filing a request that involves changing your LLC’s purpose or the names of the members, then your fee would increase to $50.00.
It is very important that you research your rights as a business owner. You should contact an experienced business attorney to find out how much it will cost to protect your interests as a new business owner.
The costs of an attorney can range from $500-$1,000 or more depending on the type of legal advice that you need. For example, if you have been charging a monthly fee for your business and you are planning to increase it, then it is likely that you will need to hire an attorney.
Foreign Qualification Fee
If you are forming a corporation or partnership outside of the United States, then you will need to pay an additional fee. The cost of your fee will increase if you are forming a limited liability company or company outside of Texas.
If the foreign corporation or partnership is going to be based in Texas, then it will only require a $125.00 fee. You will also need to pay an additional Texas LLC License if you are incorporating your business outside of the U.S.
Texas LLC Taxes
Texas does not have a Corporate Income Tax or a Net Profits Tax. The state of Texas has a license tax on corporations and partnerships. In order to be eligible for Texas LLC, you must pass the “Texas LLC Qualification Test” that the State of Texas created. Please note that as long as your company is based in Texas, your annual tax will be $200 for every member.
“Texas LLC License Tax” is a tax on corporations and partnerships. If your company is based in Texas, you will be required to pay a $125.00 license tax annually for every member you have.
If your business is based in Texas, then the state of Texas does not have a corporate tax or dividends tax. As long as the income generated from the business is distributed evenly to all members, then there are no taxes imposed on these distributions from the LLC.
However, if you have a business in another state in which you are holding your LLC, then you will need to file an income tax return and pay any taxes that may apply.
Self Employed Tax for Over
If you are self-employed and make more than $9,500.00 annually, then it is likely that you will be required to file an annual tax return. The “Texas Self Employed Tax” is a tax on all self-employed individuals who work more than 300 days over the year.
The tax is based on an individual’s net profit. For example, if you make $100.00 in gross profit and pay $10.00 in taxes each year, you will need to pay a self-employed tax of $10.00 in addition to the regular state income tax that you pay for each paycheck.
In order to be considered a Texas LLC, you must have business activity within the state of Texas. Depending on your income and sales, you may be required to pay a franchise tax each year. The franchise tax is an income tax that is imposed on corporations that do business in the state of Texas.
If your company has $1 million or more in taxable gross receipts, then you will pay $1000.00 as your annual franchise tax. If your company’s taxable gross receipts are less than $1 million, then your fee will be a flat rate of $800.00.
Business Income Tax
If you are receiving income from your business, it is very important that you complete a personal income tax form and pay any taxes required by the State of Texas or other states in which you do business. The estimated amount of your taxes will be based on the amount you earned over the year.
The taxes that you pay are business income taxes and are separate from your personal income taxes. The amount of tax that you pay is a percentage of your net profit and varies depending on how much money you made over the year. For example, if your company’s net profits were $100,000.00 for the year, then you would pay 8% or $8000.00 in income tax to the state of Texas.
It is important that you create a reserve fund that will help your company meet any unforeseen expenses. This fund should be set aside as a money safety deposit box, and the expense should be clearly stated on the business’s bank account statement. All receipts for this money should be kept as well.
What if I Don’t Pay?
If you do not pay your license fees and taxes, then the Department of State will revoke your business license. However, if you can prove that the business closed voluntarily or is still in operation, then you may be able to get your company’s license back without paying any penalties.
You should contact a tax attorney to discuss the situation that you are in. Often, extenuating circumstances caused you to miss your payment deadlines, and you may be eligible for a fee waiver. You should discuss your situation with an attorney before paying a late charge.
If the company’s address has changed, you must contact the state and change your company’s records over to the new address. Once you have filed this notice, then it could take up to 15 days for your notarized paperwork to process before it is officially registered with the state.
Planning Your Expenses
You should consider the following types of expenses when creating your LLC’s business plan. The plan should include detailed information about the company’s finances and how much money was received, spent, and saved during the previous year.
I. Administrative Expenses
The administration expenses should be designated and separated into a separate category on your company’s financial statements. These expenses are the costs you have to pay to run the business, such as accounting services, office supplies, and telephone bills. You should also include any fees that you have paid for permits, licenses, or taxes into this category.
II. Operating Expenses
The operating expenses will vary based on your business type. However, the main operating expenses that you should consider are your salaries and the amount of money that you must pay in taxes.
III. Equipment Expenses
You should include any costs that you incur with equipping your business. These costs may include the cost of a computer, office furniture, or a delivery truck. These costs will be listed under “depreciation” on your company’s financial statements and are not considered an annual expense.
The depreciation is based on how long it takes for the equipment to wear out and become obsolete. For example, a computer costs $5000.00 but only costs you $1000.00 to purchase it. If you own the computer for 3 years and it has been used to make $100,000.00 during those 3 years, then you would only be able to deduct $3000.00 from your company’s profits each year.
IV. Salaries & Wages
This category of expenses is the amount that you have paid to your employees and yourself over the course of one year. In general, the salaries and wages category of your business expenses should include your annual salary, commissions, and benefits. In addition to salaries and wages, you should include any bonuses that you have paid out over the year to your employees.
If you have different rules for staff, you should consider creating a payroll category on your financial statements. This way, all of the information is in one place, and it will be easier to keep track of tax filing deadlines.
The Top 3 Texas LLC Formation Services
Texas LLC Formation is one of the riskiest types of businesses because of its limited exposure to liability. The purpose of hiring an attorney or consulting with your accountant about these issues is to ensure that your business has all the necessary insurance and paperwork needed for your LLC formation.
1. Zenbusiness -www.zenbusiness.com
Zenbusiness.com is the largest and most professional Texas LLC formation service provider with over 30,000 clients in the last year alone. Zenbusiness LLCs are fully compliant with both state and federal regulations.
They are also familiar with popular business programs, such as QuickBooks accounting software and toll-free phone lines for all of their clients to call if they have any questions or concerns about their business plan.
Zenbusiness.com makes it very easy to personalize your company and create a business plan for your company’s future goals. You can also find payroll calculators on Zenbusiness.com, which is very convenient for small businesses to use.
2. The Law Offices of Bob Berkley- www.bobberkley.com
The Law Offices of Bob Berkley is one of the top Texas LLC formation service providers. The Law Offices of Bob Berkley specializes in trust and probate law, estate planning, business law, real estate law, and criminal defense. The Law Offices of Bob Berkley offers a wide variety of legal services for small businesses and individuals.
The Law Offices of Bob Berkley is a small and efficient law firm, which means that you will receive personalized attention from their professional staff. The Law Offices of Bob Berkley serve the Austin area residents with an experienced legal team and affordable rates.
3. Denicola & Associates- http://www.denicolaassociates.com/index.html
The primary focus of Denicola & Associates is in business law and litigation matters for small businesses as well as individual clients in the Austin, TX area. Denicola & Associates is a well-established and experienced law firm that offers affordable services to local residents.
The Law Offices of Bob Berkley recommends Denicola & Associates for your Texas LLC formation and other legal needs. Denicola & Associates has been serving the Austin area residents for more than 15 years, so you will benefit from their experience and a large number of satisfied clients.
How quickly does Texas process LLC formations?
The Texas Secretary of State will store all submitted documents for 20 months in case the documents are needed for investigative or other purposes. After that time, the information is destroyed unless it is already on file and needs to be updated. The Texas Secretary of State does not keep a list of submitted documents.
- If your address changes or you have to update the address, simply go online and update your filings with the Secretary of State. It is also possible to update information from your Texas business bank account.
- If you are incorporated as a C-Corp, your business does not have to comply with the same requirements as an LLC. The application process is similar but more complicated than LLC formation.
- For a corporation (C-Corp), you can incorporate in Texas by filling out the articles of incorporation and filling it with the appropriate district court once you have obtained a certificate from the IRS.
- If you are forming as an LLC, you must first obtain a certificate of formation from the Texas Secretary of State and file your articles of organization with your county clerk.
The time to get your LLC formed is approximately 15 business days after your application has been filed with the Secretary of State. But for many, this is an unrealistic time frame. For this reason, the Secretary of State uses a private contractor to assist with the LLC formation process.
- The Secretary of State then immediately partners with one of three companies for this purpose: Millenia Law Group, LLC.
- Turner and Associates, PLC
- Denicola & Associates.
The form you wish to file will determine which company is assigned to help you form your business.
As an example, if you are forming a corporation (C-Corp), your assistance will be from Millenia Law Group. If you are forming an LLC, your assistance will be from Turner and Associates, PLC, or Denicola & Associates.
You will need to file the appropriate paperwork with the Secretary of State’s office. The company that you have chosen will then handle all of the work for you. You can choose to receive email updates on your application or go online to see your status in real-time. The entire process takes approximately ten business days after filing the articles of organization with the county clerk and paying the fee.
How many small businesses are there in Texas today?
There are approximately 3.7 million small businesses in the state of Texas today. This number is expected to increase over the next few years as more small businesses are formed.
I. According to CNBC, the U.S. Census Bureau reported that there were 8 million small businesses in 2015 and 5 million in 2012, so it is reasonable to assume that the state will see an increase of 1 million new small businesses in 2016 alone.
For comparison purposes, there were approximately 3 million C-corporations and 3.5 million S-corporations in the United States as of the end of 2015.
II. According to the U.S. Small Business Administration, there were approximately 27 million small businesses in the U.S. in 2012 and approximately 28 million small businesses in 2011.
However, a majority of these small businesses were closely held corporations. The number of small businesses that are structured as LLCs has increased significantly over the past few years.
As we know from CNBC, approximately 95% of all private employers in the state are considered to be small businesses.
What are the top small business resources and websites in Texas?
According to the U.S. Small Business Administration (SBA), the top resources and websites for small businesses in Texas include:
The Texas Secretary of State’s website is also a valuable resource for small businesses in Texas. The Secretary of State regularly updates information on new legislation and important updates on the structure and procedures of Texas firms, such as LLCs, C-corporations, and S-corporations. You should visit this website at least once a month to stay current with changes in the law for your business.
There are also many local groups and organizations that provide valuable resources for small business owners in Texas. Some of these include the Small Business Development Center, the Small Business Council of America, the Greater Austin Chamber of Commerce, SCORE-Austin, and many more.
The U.S. Small Business Administration has a list of resources available to assist you in starting your new small business in the state:
Startup Resources for Texas at www.sba.gov/startup.
If you are interested in relocating to Texas, you will be interested to know that the state has several resources available to assist you with your relocation. For example, the Texas Business Development Corporation can help provide financing for your business and/or hire people away from other states for your company.
The 24 regional offices of the Office of Foreign Missions and eight overseas sites of the U.S. Department of Commerce can help with trade and investment between Texas and other countries.
There are many reasons to move your business to the state of Texas. Still, you should be aware that the state does have a reputation for litigation against businesses, as opposed to some other states that have a reputation for addressing issues out of court. This means it is important for your company to be diligent in understanding the laws of Texas and ensuring you comply with these laws at all times.
Texas LLC FAQ
Q. Can you form an LLC in Texas without going through the Secretary of State?
A. No, you must first file an application with the Secretary of State and then obtain a certificate of formation from the county clerk’s office.
Q. What are the most important factors in choosing a company form for your LLC?
A. You have to be sure of what form your company will take because this will determine the way you are taxed, how you are governed and how members can act as officers and board of directors.
When you choose a form for your LLC, you should consider whether it is an “entirely new business entity” (i.e., a corporation) or a “substantially all” existing business entity (i.e., a partnership or a C-corporation). If you want to be treated like a C-corporation for tax purposes, then you should choose the “C” form.
Q. Can I form both a C-Corporation and an S-Corporation in Texas?
A. Yes. You can form your company as either an S-Corporation or a C-Corporation, but you cannot do both at the same time. Either one of these forms is acceptable for use with the Texas Secretary of State.
Q. What are the three most common forms for a Texas LLC?
A. The three most common forms for a Texas LLC are:
- Texas Limited Liability Company,
- Texas Series LLC and
- Texas Domestic LLC.
Q. What is the difference between a domestic LLC (D-LLC) and an international LLC (I-LLC)?
A. An I-LLC is not necessarily required to have a business address. Doing business in foreign countries through an I-LLC is not always beneficial compared to using other forms of an LLC for businesses that have operations in foreign countries.
A D-LLC is a domestic LLC that can only be used for business operations in the United States.
In conclusion, Texas provides numerous benefits for new and existing small businesses. Starting a new small business can be difficult, but it can also be extremely rewarding. The Texas Small Business Development Center provides resources that will increase your chances of success in the state.
The most important thing to remember is to accurately complete your filings with the appropriate Secretary of State and county clerk’s offices in Texas. This may sound simple, but it is essential to the success of your business.