- Texas is the leading destination for companies and businesses relocating from other states.
- A favorable business environment and supporting utilities are among the leading attractions to business.
- These factors make Texas one of the best places to start an LLC.
Companies seeking to relocate from other states increasingly opt for Texas due to the state's favorable business environment. Texas offers several incentives, including tax exemptions to businesses, and has a vast community of foreign and local companies calling it home. For example, 53 of the fortune 500 companies are headquartered there. The state has no personal or corporate income tax and offers franchise tax exemptions, among other benefits.
How to form a Texas LLC
A limited liability company is an excellent asset protection resource whether you are using it for estate planning or protecting your wealth from business liabilities. This article provides more information on the benefits of a Texas LLC. Forming a Limited Liability Company (LLC) in Texas can be relatively straightforward if you follow the necessary steps. Here is a step-by-step guide on how to create an LLC in Texas:
1. Choose a Name for Your LLC
The first step is to select a name for your LLC. The name must comply with Texas state law requirements and be distinguishable from any other business entity registered in Texas. Here are the essential requirements to keep in mind:
- Name Availability - The name of your LLC must be available and not already in use by another business entity registered in Texas. You can search for names using the Texas Secretary of State online database.
- Name Designation - Your LLC name must include one of the following designations: "Limited Liability Company," "LLC," "L.L.C.," "Limited Company," "LC," or "L.C..”
- Restricted Words - Texas state law prohibits using certain words in an LLC name that could cause confusion with government agencies or imply a specific business purpose without proper licensure. Examples of restricted words include "bank," "attorney," and "university."
- Trademark Infringement - Your LLC name should not infringe upon another business entity's existing trademark or intellectual property rights.
- Professional Licensing - If your LLC is formed to provide professional services, such as legal or medical services, your business name must comply with the licensing requirements of the relevant profession.
2. Appoint a Registered Agent
Texas requires that all LLCs appoint a registered agent, who will be responsible for receiving legal documents on behalf of the LLC. Here are the requirements for a registered agent in Texas:
- Texas Resident or Business Entity - The registered agent must be a Texas resident or entity authorized to do business in Texas.
- Physical Address - The registered agent must have a physical street address in Texas, not a P.O. Box or mail forwarding address.
- Availability - The registered agent must be available during normal business hours to receive and forward legal and official documents on behalf of the LLC.
- Consent - The registered agent must consent to be appointed as the registered agent for the LLC.
- Change Notification - If the registered agent's address or contact information changes, the LLC must promptly file a statement of change with the Texas Secretary of State.
3. File Certificate of Formation
To form an LLC, you must file a Certificate of Formation with the Texas Secretary of State. You can file online or by mail. Here's what you need to include in your Certificate of Formation:
- LLC Name - The name of your LLC must comply with Texas state law requirements.
- Registered Agent Information - The name and physical street address of the registered agent for your LLC.
- Organizer Information - The name and address of the LLC's organizer(s) responsible for creating and filing the Certificate of Formation.
- Management Structure - The Certificate of Formation must indicate whether the LLC will be member-managed or manager-managed.
- Effective Date - The effective date of the LLC, which can be the date of filing or a future date, up to 90 days in advance.
- Governing Authority - The Certificate of Formation should state the governing authority of the LLC, which may be a manager or a member.
- Purpose - Texas law does not require LLCs to include a statement of purpose in the Certificate of Formation.
- Signature - The Certificate of Formation must be signed by the organizer(s).
- Filing Fee - The filing fee for the Certificate of Formation is $300, payable by check or credit card.
4. Operating Agreement
Although Texas law does not require an LLC to have an operating agreement, it is recommended to create one. An operating agreement outlines the rules and regulations of the LLC. Here's what an operating agreement typically includes:
- Company Information - The operating agreement should include basic information about the LLC, such as its name, address, and purpose.
- Ownership Structure - The operating agreement should specify the ownership structure of the LLC, including the names and ownership percentages of each member.
- Management Structure - The operating agreement should outline the management structure of the LLC, including whether the LLC is member-managed or manager-managed.
- Member Rights and Responsibilities - The operating agreement should define the rights and responsibilities of each member, including voting rights, capital contributions, and profit and loss allocations.
- Financial and Accounting Procedures - The operating agreement should specify how the LLC's finances and accounting will be managed, including how profits and losses will be distributed, how bank accounts will be managed, and how taxes will be filed.
- Dissolution and Termination - The operating agreement should outline the procedures for dissolving and terminating the LLC, including how assets will be distributed and how outstanding debts and obligations will be handled.
5. Obtain any Required Business Licenses and Permits
Depending on the nature of your business, you may need to obtain additional licenses or permits to operate in Texas. You can check the Texas Department of Licensing and Regulation's website for more information.
6. Obtain an EIN
If your LLC has more than one member, you must obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is a unique identification number assigned to your LLC for tax purposes.
7. File Annual Reports
All LLCs in Texas are required to file annual reports with the Secretary of State. The filing fee for the report is $0.01 per member, with a minimum fee of $50 and a maximum fee of $750.
The above guide provides a step-by-step overview of forming an LLC in Texas. You can always go and visit Texas in person - or study it a bit more before making the leap. By following these guidelines and working with a qualified attorney or formation service, entrepreneurs can successfully establish and operate a limited liability company in Texas.