A limited liability company is a welcoming legal structure for many businesses. Whether you start small or going big, an LLC will create a solid legal framework for your activities and let your venture easily adapt to the modern business environment. Created as a hybrid combining the best of sole proprietorships and general partnerships, LLCs give entrepreneurs a chance to run their firms independently, without mixing their business and personal funds and worrying that their individual assets might get involved or impacted somehow. This is limited liability protection or a so-called corporate veil.
While beginner entrepreneurs eagerly choose an LLC structure to be a legal form for their future businesses, getting into formalities of LLC formation seems a bit frightening to most of them. The good news is that the formation process is pretty straightforward and quite easy to grasp even for those who have never done it before. LLC laws are state-specific, yet the whole procedure is more or less standard across the states, with some minor peculiarities.
We also recommend to consider the local Texas Company Texan Registered Agent.
Are you standing on the verge of launching an LLC in Texas? If so, our article will make legalities a lot easier for you. Below, in a detailed breakdown, we’ll consider the major and minor steps you need to take to form an LLC in Texas.
Selecting a Name for Your Texas LLC
A company can’t exist without a name. Since a name will make your venture distinctive and recognizable for the customers, as well as distinguish it among the rivals, choosing an original and memorable company name is important. How to create a really good business name you wonder? We have a few easy and helpful tips in this concern:
- Make it different: Steer away from re-doing the existing companies’ names. That’s a road to nowhere in the sense of marketing. Similar names rather sound confusing, not to mention legal issues this could cause. With a name resembling some popular trademark or business moniker, you won’t be able to set up your own strong brand;
- Make it catchy: A business name that catches eyes and is easy to remember will quickly become a buzzword. To make your company name memorable, be inventive and original and avoid using too long, complex, and tricky words;
- Make it meaningful: It’s advisable that a name is directly associated with your business activity. It should give customers an idea of what you are doing. So, a business name should somehow convey your business purpose or be indicative of the industry you operate in or the type of products and services you deliver;
- Make it appropriate: Think about what makes your company special and different from the others. Is it some prominent feature, extensive expertise, wide product or service range, or excellent client service? Let this aspect be evident to customers via your business name;
- Make it web-friendly: If you plan to set up a business website and social media presence, check if there are domain names and social account names available that will match your desired company moniker. It’s strongly recommended that your business name and web-related names are aligned to build a professional business image.
Business Naming Rules in Texas
Once you have a few business name versions in your head that look and sound good, you need to ensure those versions meet certain state regulations. Business naming rules in Texas are governed by Section 5.5056 of the Texas Business Organizations Code. Those rules are quite simple, yet, failure to observe them might lead to your formation application being declined by the state. LLC name standards in Texas stipulate the following:
Your Texas LLC name should contain the words identifying the legal entity structure such as “ Limited liability company”, “Limited company”, “LLC”, “Ltd.Co.”, or “LC”
|Unlike in other states, in Texas, you can’t use the words “limited” or “company” alone.|
Section 5.5056 calls for a company name to be unique. What it means is that the chosen moniker has to be distinguishable from the rest of the business names already registered in the state. It shouldn’t remind any existing names either in spelling or in pronunciation.
|For example, you are about to open a company under the name “ Dallas Food Delivery, LLC”. Yet, after doing the name search, you discover that there is an entity operating under the name “Dallas Food Delivery, Inc.”. Those monikers are too close, so you can’t use the above name.|
The Administrative Code of Texas sets forth restrictions on the use of certain words in the LLC names. These are references to any governmental structure and other types of legal entities, words implying any unlawful activities, as well as offensive, obnoxious, and disrespectful words. More than that, references to financial institutions, educational structures, and sports committees are also forbidden. Likewise, the words “lotto” and “lottery” are under the ban, as well as mentioning war veteran implications;
Using some profession as a part of your business name implies having a professional license or permit in place to run that type of activity.
Performing a Name Search
As stated above, a business name in Texas should be unique. So, before using it for LLC formation purposes, you need to do the name search and make sure your desired company moniker is available in the state of Texas.
In most states, you can check a business name via a free-of-charge search tool on the Secretary of State’s website. Yet, it’s not the case in Texas. Here, you’ll have to register a user account on the state department website first and pay a fixed fee for each search. If you have several name versions to check, you’ll be charged a fee for each of them.
There is a free alternative, though. You can search for existing business names via the State Comptroller’s website. Not only will it cost you nothing but also you can rest assured you’ve done in-depth research.
Using a DBA in Texas
Even if you register an LLC under a distinguishable and unique name, you are entitled to use a different name for operating your business on the market. It’s a so-called fictitious or assumed name or a DBA name (“doing business as”). DBAs are widely used for marketing purposes and for extending the company’s activity to other states. Since a legal entity is allowed to have as many DBAs as it needs, you can easily build several brands, launch several product lines, and transact different types of activities under the umbrella of the same LLC. Meanwhile, the company’s registered name stays the same, and all operations are done “in the house”.
Formally, you’ll have to register each fictitious name you are going to use. In Texas, DBA registration is regulated by Chapter 71 of the Business and Commerce Code. Here, you’ll have to file for a DBA both at a state and at a local level. In practice, it translates into submitting applications with the Secretary of State and county offices in each locality you plan to use a DBA.
To legalize a DBA, you need to obtain a fictitious name certificate. A template is available on the Secretary of State’s portal and before submitting it to approval, you’ll have to fill it in with the following info:
- A prospective DBA name;
- Full registered LLC name;
- The state of formation, which is Texas;
- The period of DBA use (up to 10 years);
- Your LLC’s mailing address;
- Counties where you plan to use a DBA.
A filing fee specified by the Secretary of State is $25 per DBA. Yet, there might be additional local fees applied. You’d better check with your county clerk.
Designating a Registered Agent
Most likely than not, you’ve heard that all US states have a registered agent requirement for LLCs. In Texas, an assigned and approved registered agent is a compulsory prerequisite for LLC registration as well.
What is this role and what are its functions? In a word, a registered agent is an important element in the LLC legal structure greatly contributing to your business compliance with the state. The main function of a registered agent is simple. It’s receiving and handling legal correspondence and service of process on your behalf. At the same time, though, it’s not worth underestimating the importance of this role. Should you fail to promptly receive some state notifications, requests, or statements, you can fail to meet crucial filing and reporting deadlines, thus putting your company’s good standing status at stake.
|The service of process above stands for legal papers and documents. To put it differently, a registered agent serves as a constant point of contact between your legal entity, government, and the general public.|
There are no strict rules for a registered agent. Either an adult individual residing in the state of formation or a legal entity registered in this state can perform this function for your LLC. However, it’s not as easy as it seems. While beginner entrepreneurs often choose to serve their own registered agents, more experienced LLC owners prefer to hire a professional service for this role. There are many companies dedicated to providing registered agent services and using their offices and trained staff for that purpose. Which option is better for you?
For many of us, it feels natural to be our own registered agent:
- It’s affordable: while services are payable, you don’t have to pay yourself for handling those duties;
- It’s convenient: You can use your own contact data and address for your company and get all the mail right at home;
- It’s safe: You’ll personally accept all the correspondence and rest assured no one will review your legal docs.
However, registered agent services are currently getting more and more popular among modern businessmen and for a good reason:
- Enhanced privacy: your private data won’t become a part of public records and won’t linger on state databases;
- No junk mail: along with important letters and correspondence, there will be a lot of spam mail coming to your company’s address. A registered agent will sort it out for you;
- Service consistency: The main rule for a registered agent is a permanent presence under the specified address during business hours to be able to personally receive mail and sign for it if necessary. Serving your own registered agent, chances are great that you won’t be able to keep up with that rule;
- No failures: With a professional service functioning as your assignee, you can rest assured you’ll get all urgent mail in time and miss no important info or deadlines.
With a hired registered agent on your side, you can delegate routines and focus on business planning and strategic development. Besides, should you decide to set up a foreign LLC in another state, you won’t have to search high and low for a new assignee since most registered agent services operate across the country.
|If you set your eyes on a professional service, our Best Registered Agent review will come in handy to help choose the company that will meet your business needs to a tee.|
Registering the Texas Certificate of Formation
When you’ve picked a business name and approved a registered agent for your future venture, it’s time to proceed to a state filing, which is submitting your LLC Certificate of Formation to the state. In fact, this is the only document you have to register with the state and this is what formal business formation is about. According to Texas law, this very step will give legal birth to your business and make your entity existent at a legal level. Once the Certificate of Formation is approved and registered with the state, your legal entity acquires an independent status and is entitled to act as a legal person.
Texas Certificate of Formation Content
By and large, a Certificate of Formation or the Articles of Organization as they call it in other states is quite a simple document aimed at making your business info a part of state records and giving your business status as a legal entity. Hence, the document has a standard form, and its content is stipulated in Section 3.005 of the Texas Business Organizations Code. Make sure your Certificate of Formation contains the following information:
- Complete LLC name;
- The purpose of your business activity (in brief, outlined in a lawful manner);
- The term of your LLC existence if applicable;
- Registered agent contact data and detailed address;
- Names and addresses of company owners;
- Name and address of your LLC organizer (normally, it’s a single person that files all the docs with the state and signs the Certificate of Formation. Signatures of all members are not required).
|If you want to skip the formal part and the paperwork hassle, you are free to delegate this task to one of the LLC services. Company specialists will do everything diligently and professionally minimizing the risk of filing errors and delays. And in our Best LLC Services review, you’ll find many decent alternatives to go for.|
Texas Registration Fee
Though the LLC formation procedure is not complex, state registration is not free of charge. Similar to LLC laws, filing fees are state-specific. It’s the money you pay for the state authorities to review your formation docs and enter your business information into government records.
In Texas, to bring your LLC into existence and let it operate on the market, you’ll have to pay $300. In most states, a filing fee falls anywhere between $50 and $150. Yet, Texas is one of the states standing on the higher end of the price range.
Texas Turnaround Times
Usually, it takes from 5 to 7 business days for the Secretary of State’s Office to review your formation documents. It’s a normal turnaround time the state department claims under the average workload. If you want to get your papers back sooner, you can pay $25 per document in extra for the Secretary to process your application within a single business day. Under “a single day”, they mean the next day after receiving your formation papers. Though it looks great, it’s not always the case, and the Secretary’s office reserves the right to change those timings depending on the overall workload.
|To choose express filing, you’ll have to attach a cover letter to your application requesting expedited services. You should specify your name and contact phone number in that letter.|
Notably, processing time also depends on the method of delivering formation documents to the state department. Thus, documents sent via mail or fax will be processed within 40 business days under a standard procedure. Expedited filing cuts this term down to 4-5 business days, which is really fast. At the same time, documents filed in a digital form via the Secretary’s website are processed within the same 4-5 business days by default. You just need to sign up with the service to make use of electronic filing.
Writing an Operating Agreement for Your Texas LLC
An Operating Agreement is a document that regulates internal relationships between the company owners and sets up procedures for business control and operation. Though it’s a company bylaw and is not a regulatory requirement for business formation, we insist that you have it at hand. Even if you do every bit of planning and think you’ve considered the tiniest details, you don’t know where business activities can bring you. With an Operating Agreement, you can rest assured you’ll be able to cope with any business-related issue or problem that might arise.
An Operating Agreement covers all essential info about your LLC and establishes the rules for the company management and operation, as well as for how LLC members should act in certain situations. By and large, it’s your business running guide you can rely on when you are not sure what to do.
It’s worth noting that an LLC Operating Agreement has a priority over default state laws that are generic and don’t take into account your specific business situation. An Agreement, on the other hand, is customized to your business circumstances and will always offer a more favorable way out. As such, this document is your efficient business management tool that will enable you to run your venture your way.
To give you a better understanding of this document importance, let’s take a closer look at points an Operating Agreement covers:
- LLC ownership structure: In a multi-member LLC, it’s not necessary that all owners have equal equity shares. An Operating Agreement will clearly describe each owner’s participation;
- LLC members’ powers and responsibilities: Some members might maintain business financially while others take care of its management. An Agreement will outline each member’s rights, powers, and duties to avoid any disputes and confusion;
- LLC management structure: An Operating Agreement should state whether an LLC is a member-managed or manager-managed company and stipulate the responsibilities of an LLC manager both to the company and to its owners;
- LLC Operating Procedures: The document will describe in detail what activities and operations an LLC is entitled to perform on a daily basis as a legal person;
- Profits Distribution: An Agreement will outline the rules and schemes for distributing company profits between the members;
- Changes in LLC Membership Structure: In an Operating Agreement, you can find the rules for the members to leave the company and new owners to join it;
- LLC Dissolution: Should you decide to dissolve your LLC at some point, an Agreement will provide an accurate plan of what you can do to avoid any problems.
In Texas, the Business Organizations Code doesn’t require an Operating Agreement to form an LLC. More than that, you can use your formation certificate for the same purpose. Yet, we don’t think it’s a good idea. An Operating Agreement is an internal company doc that needs no state registration. To amend it, you just need all the members to agree on any potential changes. With a Certificate of Formation, it’s not that simple. The document requires state filing and so do any amendments to it. Not only is it inconvenient and takes time but also it’s quite expensive since each amendment will cost you $150.
Acquiring an EIN for Your Texas LLC
An EIN is an Employer Identification Number or a Federal Tax ID. Just like individuals identify themselves for tax and governmental authorities via social security numbers, legal persons use EINs for that purpose. Assigned and issued by the Internal Revenue Service, EINs are unique nine-digit numbers making your business visible through state databases.
Not all LLCs are required to get an EIN, yet, most companies do need it at some point. The most common business situations when you’ll have to apply for an EIN are as follows:
- If you have a multi-member LLC;
- If you plan to hire employees;
- When you choose a corporate tax status for your LLC;
- When you need to register for a franchise tax;
- If you are going to open a separate checking account for your business.
To receive an EIN for your LLC in Texas, you don’t actually need any assistance. So, decline any third-party proposals to register it for money. You can acquire it from the IRS on your own in mere minutes by filling in an online form on the IRS website.
Prime Post-Registration Tasks
When your LLC is formed, it’s only the beginning of a longer way. Now you need to create favorable legal conditions for your business’s smooth operation and make it move in the right direction. Hence, there are a few post-formation steps to take to give your business a solid lawful ground to stand on.
Setting up a Bank Account
There are many reasons for separating your personal and company finances from the start. To name a few:
- Better protection for your individual assets: If you use your personal bank account for business transactions, eventually, it will be very difficult to distinguish between your own and company’s money. In fact, the prime goal of establishing an LLC is to shield your private property from business liabilities;
- Clear accounting: It’s essential to accurately record incomes and expenses, as well as keep a close eye on cash flows overall not only to control business finances but also to built efficient growth plans. It’s very hard to realize without a separate business bank account;
- Business crediting: At some point, any business might need a credit or a bank loan to maintain strategic plans or finance the working capital. Whatever the reason, getting a credit for business is only possible when your company has an active bank account of its own;
- Building solid business reputation: In the world of business, reliable and professional reputation means a lot. And you need to build it from scratch. A dedicated checking account is one of those things that greatly contribute to a well-tailored company’s image.
Keeping individual and business finances separate is one of the core elements of the so-called corporate veil or limited liability protection. By mixing your own and company cash, you put this protective shield at risk. Should your company be sued, the court will consider that you treat business finances as your own and will pierce your corporate veil nullifying your personal protections. So, don’t neglect opening a business bank account once you set up an LLC.
Getting Insurance for Your Texas LLC
While an LLC provides protection for you, you need to ensure protection for your company. There are many circumstances and situations that can affect your business, not to mention your own mistakes. Business insurance can create a protective blanket for your company. The type of insurance you’ll need for your enterprise in Texas depends on your business activity and locality you operate in. However, most common types of insurance LLCs need include:
- General liability insurance to protect your property from potential damages;
- Professional liability insurance providing enhanced legal defense for professional LLCs;
- Commercial property insurance to shield your real estate;
- Workers compensation insurance to ensure payments to company workers against job-related injuries. This insurance policy is not a law requirement in Texas, yet it would be smart to have it to prevent any potential lawsuits.
Meeting Compliance Requirements
State compliance is one of the formal business aspects you can neither avoid nor neglect. Unless you consistently maintain your company in good standing with the state, its eligibility will be always in question, not to mention permanent penalties and fines you’ll have to pay. So, let’s take a look at compliance requirements you’ll have to observe on a regular basis.
Getting Business Licenses and Permits in Texas
Every state has certain licensing requirements. It means to run some types of activities, provide some services, or hire some professional, you’ll have to get a special license or permit. Depending on your LLC purpose and the industry you operate in, you might need licenses at a federal, state, and even local level.
The lack of an appropriate license will cause fines. So, get all the necessary permissive documents as soon as you form your LLC. To figure out what types of licenses are required for your business in Texas, check with the Texas Department of Licensing and Regulation.
Reporting Business Taxes in Texas
Since LLCs are taxed as pass-through entities by default, the company’s income taxes are payable on the personal tax returns of the business owners, which means there are no direct tax payments at a federal level. In most states, the same is true for state taxes. However, in Texas, there is a compulsory franchise tax imposed on all LLCs. It’s charged over the “net surplus” of the enterprise. On the State Comptroller’s website, you’ll find a special form that will help you calculate corresponding tax amounts.
Some other types of taxes your LLC can be exposed to include sales taxes and employment taxes if you plan to get engaged in commerce or hire workers. To establish proper taxation schemes for your venture and avoid missing any mandatory tax payments, you’d better consult an accountant.
Meeting Annual Reporting Rules
State reports allow the government to keep your company records up to date. Normally, LLCs should report on an annual or biennial basis. The Texas state department has no requirement for LLC reports. Yet, you’ll have to submit annual franchise tax reports to the comptroller’s office.
Useful Texas Business Links
Below, we’ve summed up helpful links on Texas authorities you can rely on when forming your LLC in this state:
- IRS EIN Application Form
- IRS Federal Tax Info for LLCs
- Secretary of State’s System for Business Filings
- Texas Administrative Code
- Texas Secretary of State
- Texas Comptroller
- Texas Department of Insurance Employer Resources
- Texas Department of Licensing and Regulation
- Texas Business Organizations Code Chapter 3
- Texas Business Organizations Code Chapter 5
- Texas Business Organizations Code Chapter 71
A limited liability company is a welcoming legal structure for many businesses. Start an LLC is easy. Select your state to start.
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