Starting a business in the Lone Star State starts with proper legal structure. Forming a Texas LLC protects your personal savings from business debts while keeping tax paperwork straightforward. Unlike corporations, an LLC doesn't bog you down with board meetings or complex governance rules.
You don't need a lawyer to get started, but you do need to follow the state's exact sequence. Missing a single filing fee or registration step can delay your launch by weeks. Here is how to build your company right the first time.
1. Choose a Compliant Business Name
Your company name needs to stand out in the market and satisfy state rules. Texas requires every limited liability company to include an identifier like "Limited Liability Company", "LLC", or "L.L.C." at the end.
Before you buy a domain or print signs, check the Texas Secretary of State direct portal to see if your preferred name is available.
- Check availability: Run a direct name search on the state's SOSDirect or SOSUpload databases.
- Avoid restrictions: Certain words like "Bank", "University", or "Insurance" require special state agency approvals and licensed professionals.
- Secure your handle: If someone else already uses your exact name, look for a distinct variation or reserve the name for a small fee while you finalize your plans.
2. Appoint a Registered Agent
Texas requires every LLC to designate a registered agent. This person or entity accepts official legal mail, tax notices, and state correspondence on behalf of your company.
Your agent must have a physical street address in Texas—post office boxes aren't allowed. You can act as your own agent, hire an employee, or pay a commercial registered agent service.
- Availability rule: The agent must be available at that Texas address during standard business hours.
- Privacy benefit: Using a commercial service keeps your home address off public state records.
- Reliability: Missing a lawsuit notification because you were out of town can result in a default judgment against your company.
3. File the Certificate of Formation
Your company doesn't legally exist until you file the Certificate of Formation (Form 205) with the Texas Secretary of State and pay the standard $300 state filing fee. You can submit this paperwork online through the state's SOSUpload system.
- Management choice: State documents ask whether your LLC will be managed by its members or by appointed managers.
- Effective date: You can choose to make the formation effective immediately or up to 90 days in the future.
- Processing time: Online filings typically clear within a few business days, while mail-in filings take longer.
Note: The competitor guide mentions a "Certificate of Publication," which is an outdated requirement from other states and does not apply to Texas LLCs.
4. Draft an Internal Company Agreement
Texas doesn't require you to file your company agreement with the state, but skipping this step is a major operational risk. This internal contract establishes ownership percentages, profit distribution rules, voting rights, and procedures for adding or removing members.
- Protect liability: Courts look at this document to prove your LLC operates as a legitimate separate entity rather than an extension of your personal bank account.
- Prevent disputes: Clear rules on what happens if a partner wants out prevent costly legal battles later.
- Custom terms: You can tailor management powers precisely to fit your business model.
5. Obtain an EIN and Handle Tax Registration
Once your formation clears, request a free Employer Identification Number (EIN) directly from the IRS website. You'll need this nine-digit number to open business bank accounts and hire workers.
Next, look at state tax obligations. While Texas doesn't levy a personal income tax, most businesses must register for the Texas Franchise Tax through the Texas Comptroller of Public Accounts.
- Sales tax permit: If you sell physical goods or taxable services, you must collect and remit state sales tax.
- Franchise tax reports: Even if your revenue falls below the state's no-tax-due threshold, you must still file an annual information report.
- Local permits: Check with your specific city or county clerk's office for local business licenses or zoning clearances.
6. Open a Dedicated Business Bank Account
Never mix personal funds with company money. Commingling funds destroys your personal liability shield, leaving your personal savings vulnerable if someone sues your business.
Take your filed Certificate of Formation, your EIN confirmation letter, and your company agreement to a bank to set up checking and savings accounts dedicated entirely to your company operations.
Common Formation Mistakes to Avoid
- Rushing name clearance: Spending money on branding before checking state trademark and availability records often forces expensive rebrands later.
- Ignoring annual filings: Forgetting to file franchise tax reports or public information reports leads to state penalties and forfeiture of your good standing.
- Skipping the bank split: Paying business expenses from a personal credit card weakens your legal separation in court.
Frequently Asked Questions
How much does it cost to form a Texas LLC?
The baseline state filing fee for the Certificate of Formation is $300. Additional costs may include registered agent fees, name reservation fees, or expedited processing charges if you use a filing service.
Do I need to live in Texas to start an LLC there?
No. You don't need to be a U.S. citizen or a Texas resident. However, you must maintain a physical registered agent address within the state.
How long does the approval process take?
Online submissions through the state portal usually process within 2 to 4 business days. Mail submissions can take a week or longer depending on state backlog volumes.
What is the difference between member-managed and manager-managed?
In a member-managed LLC, all owners share daily operational control and decision-making power. In a manager-managed LLC, owners appoint specific individuals or outside managers to run daily operations while passive members hold investments.
