Starting LLC in Texas: Peculiarities & Detailed Manual
Want to start an LLC in Texas? It is a profitable decision for a business, as the state has waived corporate tax in favor of gross corporate income tax. So you’ve decided to start an LLC? Not sure how to initiate the process? To start an LLC in Texas, you need to get ready for several stages.
We’ve prepared a guide for you with just six steps to form your LLC and to get success! You can also refer to the virtual LLC formation service.
Note: ZenBusiness is the best service to file the LLC. You’ll surely appreciate reasonable prices, company values, and other peculiarities.
An Texas LLC: The Notion & Essence
Many Texas business owners choose to start an LLC. So, unlike a corporation, they can take advantage of flexible management. We’re talking about the protection of personal assets that sole proprietorships and general partnerships lack.
The state of Texas puts forward simplified requirements for registration and maintenance of LLC and invites business owners to choose the type of taxation. Do you still have doubts about the LLC?
6 Stages to Form an LLC Correctly
Stage №1: Choose Your LLC Name
The LLC name is a significant aspect, as it is the name of your company that makes the first and strongest impression on the audience of your potential customers! The name must be different from existing company names and must meet Texas’s regulatory requirements. Now get started with the following aspects.
LLC name in terms of jurisdiction
The State of Texas obliges business owners to include the abbreviation DDS or the phrase – limited liability company in the name. Please note that the terms corporation or registered are prohibited. In addition, you cannot use the designations of other forms of business: banks or law firms.
Take care of the explanations
You must include in the title an explanation of the nature of your business. For example, if you are engaged in the computers’ repairing, write in the LLC title – computer wizard. If you have any values or principles, also indicate this. For example, if you are farming, use the term natural, nitrate-free, etc.
So, you need to get a little creative and fully comply with Texas’s legal requirements.
Stage №2: Hire a Registered Agent
A registered agent is called a statutory agent in Texas and will help you to start an LLC. The agent can be an Texas resident, natural or legal attorney responsible for sending and receiving legal documentation on behalf of the future company. A company representative can also be an employee of the company or its owner. The State of Texas notifies:
A registered (appointed) agent acts as a representative of a company. They receive claims and lawsuits on behalf of the entity and forward them to the company registered address.
A registered agent guarantees an excellent reputation for your Texas LLC. Also, if your business gets worse, Texas can take legal action against it without notifying you. The registered agent will always receive appropriate notification and will be able to take timely measures to protect your interests as an attorney.
You should apply to the online service to get started a business in compliance with all regulations and requirements. So, you will have the opportunity to filter spam and protect your personal and contact information. If you use the ZenBusiness and Northwest Registered Agent to form an LLC, you will receive the free services of a registered agent.
Stage №3: Applying for Registration
To register a business in Texas, you must file the Articles of Association with the Texas State Secretariat. If you are anxious about your LLC formation, you can submit your documents for pre-processing, which will allow the Secretary of State’s office to advise you of the eligibility. It can be a good option if you get started for the first time in an LLC without consulting an attorney. Be sure to provide:
- The desired name of your business.
- Personal and contact details of the registered agent.
- Business management form.
- Personal and contact details of the manager of your company.
- Signature of the applicant and registered agent.
- Date of application submission.
You may submit the form by logging in SOSDirect or print off this form and send papers per post to the Secretary of State.
The fee to establish an LLC: Texas obliges entrepreneurs to cover a $300 fee to ground an LLC.
Duration of processing: Texas municipalities handle your mailed-in papers and forward them to you within 3-5 business days. With online forms, you’ll receive finalized version quicker. Keep in mind that the procession won’t start until your papers have been duly filled.
Stage №4: The Operating Agreement Background
While an operating agreement is not binding in Texas, creating one could significantly improve the company’s climate. An operating agreement is a document that describes the structure of a project, the way it works, the rights and obligations of each partner.
This document reflects the consistency of partners and thereby reduces the chance of controversy and disputes. Therefore, it is significant that all members of the future LLC carefully read this document before joining the company.
An attorney can help draw up an operating agreement and determine the way income and liabilities will be distributed among the owners of your LLC. You will find more information about the operating agreement here. Prepare to enter the following information:
- Names of all participants.
- The rights and obligations of each of the listed participants.
- Description of procedures for voting or resolving differences between members.
- Regulations on the financial share of participation of LLC members.
- Description of the way you’re going to manage the LLC.
So, do not neglect this stage of LLC formation. It largely guarantees your safety and the observance of your rights by all members of the business project.
Stage №5: Tax Compliance
To conduct a business that you want to register as an LLC successfully, you need to comply with several tax requirements at various levels.
Requirements of Federal Significance
Does your LLC involve multiple owners? Then you need to take care of the EIN! The EIN, or Employer Identification Number, is a unique nine-digit number assigned by the IRS to US corporations. This number must be obtained by all business owners under whose leadership the hired employees work. A business owner can obtain an EIN from the IRS in person or by mail.
Your state’s cess requirements
State taxes depend on the legal type of your company. Generally, LLCs cover income taxes, either personal or corporate. By contrast, Texas abstains from charging income taxes, but it levies a business franchise tax instead. Every LLC, even a sole proprietorship, must cover the franchise tax. A comprehensive guide on managing the tax is available here.
LLCs operating in retail sales must pay the state the streamlined sales tax. It currently amounts to 6.25%. You’ll access further details on the tax here.
LLCs with staff must cover fees dedicated to the labor force. Texas business owners must fund unemployment insurance of the state. While it’s essentially not a tax, you must make regular payments, so we’ve listed it here. You’ll access additional information on the fund at Texas Workforce Commission.
Besides collective taxes, the state also levies industry-specific fees. For instance, Texas charges extra the LLCs operating in property, fuels, tobacco, and others. The full assessment of the tax is available here.
Local Tax Business Demands
The county your LLC is registered in determines whether you’ll cover local taxes. Besides, Texas permits all counties to charge extra sales fees. With the Sales Tax Rate Locator, you’ll calculate all your taxes. We advise you to consult the local municipality to grasp all local requirements.
Stage №6: Getting Business Licenses & Permits
Texas doesn’t’ obliges LLC owners to acquire a statewide general business license, which is generally needed to run a business.
Nevertheless, Texas demands that entrepreneurs obtain permits needed for the federal government. They cover several branches like maritime transportation, logistics, television, and others. We advise you to consult the list offered by the Small Business Association, which includes all federally-regulated industries demanding a license.
Since Texas upholds industry-specific taxation, it’s natural that operating in certain industries comes with additional licensure. Texas issues over 750 customized permits, so you’ll find the one reflecting your business. We suggest all entrepreneurs check the licensure database provided by the state here. Keep in mind that local municipalities may demand additional licenses as well.
Other Stages for Business Owners After LLC Registration
After completing the six mandatory steps towards starting an LLC, you need to take care of the following.
Opening a business bank account
Separate your personal and LLC accounts. Thus, you will be sure of the safety of your personal and financial data. Besides, you won’t have any hassle when filing your charge returns. Your EIN will help you open a business account quickly, no matter what you choose a bank or credit union.
Business Insurance
All owners of companies/corporations, regardless of their form of management that attracts employees, must go through the compensation insurance procedure. All basic and detailed information is available with the Texas Bureau of Workers’ Compensation.
This policy aims to protect the rights of workers who are injured at work and unable to work. It will not be superfluous to get a civil liability insurance policy, as well as pay attention to some other types of insurance.
Income reporting
The procedure is fully represented in its name – every LLC must regularly report on the profit it has gained. The form must be filed regardless of whether you’re making or losing money.
Although Texas doesn’t levy income taxes, you still must present corresponding reports to the federal government. It’s important to highlight that LLCs with a sole proprietor must submit this form, while LLCs run in partnership present this one.
Referring to the services of a qualified accountant
Texas obliges every LLC to present an annual report. You have the option of making it online with the help of SOSDirect. The annual report functions as an updating means, which helps the state to keep track of any pertinent changes your LLC has undergone over a fiscal year.