Are you wondering how to start an LLC in Texas? You’re not alone. American entrepreneurs are starting small businesses in record numbers in the Lone Star State. In fact, the U.S. Small Business Administration Office of Advocacy determined that there were over 3 million small businesses in Texas. Every day, people look for guidance about starting a limited liability company.

A limited liability company (LLC) is one of the most popular business structures. It works well for people who are looking for maximum flexibility and don’t need the structure of corporate formalities. LLCs provide liability protection and tax benefits, making them an attractive choice for small businesses.

When starting a Texas LLC, there are important steps to take to ensure that your LLC complies with state and federal law. This guide will cover those steps and more, so you understand how to start an LLC in Texas the right way. Note that you can also use a business formation service to take care of the process and make it easier on yourself.

The first step to take when learning how to start an LLC in Texas is to choose a suitable name for your business endeavor. To be compliant with Texas law, your company’s name must include at least one of the following terms:

• Company or Co.
• Limited
• Limited Liability Company
• L.L.C.
• LLC
• Ltd.
• Limited

In addition, you’ll need to comply with other requirements when naming your LLC. Texas law provides more guidance for your business name:

• Must be original and easily distinguished from other businesses in the state
• Cannot be grossly offensive or cause people to believe your LLC is a government agency (e.g., avoid words like “Treasury” and “State Department”)
• Cannot use any trademarked or restricted words like “Bank,” “Trust,” “Trust Company,” “Olympic,” “College,” “University,” “Veteran,” etc. unless given express permission by the governing committee (e.g., The Banking Commissioner, United States Olympic Committee, Texas Higher Education Coordinating Board, etc.)
• Must meet additional naming requirements of the Texas Secretary of State

Once you’ve chosen a suitable name for your Texas LLC, you’ll need to determine if it’s been used by another business entity. You can search for existing business names using the Texas Comptroller of Public Accounts website.

Inside Scoop: If you plan to set up a website to boost visibility and credibility for your business, make sure you also look at available domain names. When figuring out how to start an LLC in Texas, it’s also a good idea to choose a domain name that is similar to the name of your LLC. Texas is a big state and you don’t want to get lost in the crowd.

Should I Use a Trade Name or DBA?

Some companies may want to register their business with a formal name while running the LLC under a more marketing friendly “doing business as” (DBA) moniker. It’s an option, not a requirement. You can complete the Assumed Name Certificate using Form 503, and then make sure to file with the Texas Secretary of State.

Any Texas LLC needs to have a registered agent for service of process. This means your LLC will need a designated individual who is responsible for receiving any legal papers — such as tax documents or notice of lawsuits — on the LLC’s behalf. The registered agent should be on-site during regular business hours so they can receive documents through the mail, and the agent must maintain a physical address in Texas.

If you don’t want to appoint an individual person as your registered agent, you have the option of using a registered agent service.

Inside Scoop: Once you choose an individual or a service to act as your LLC’s registered agent, make sure they consent and accept the appointment. The consent doesn’t need to be filed, but you are required to keep a copy with your business records. Texas Form 401-A details what should be included in the consent:

• Name of the “represented entity” (your LLC)
• Express statement that the designated person consents to serve as the entity’s registered agent
• Name of the person designated as registered agent
• Signature of the registered agent
• Date of execution (signature by all parties)

The Certificate of Formation is a formal document that details how your LLC is structured and managed. As you learn how to start an LLC in Texas, know that you can organize your LLC with one person or several. However, only one organizer is needed to file the company’s formation paperwork with the state. They must be 18 years of age or older, a corporation or other legal entity.

All LLC operators in Texas must file Form 205, a Certificate of Formation for a Limited Liability Company, with the Secretary of State. There is a $300 filing fee. You can submit Form 205 directly through the Secretary of State’s website or via mail. You can also apply in person at the James Earl Rudder Office Building at 1019 Brazos St., Austin, TX 78701.

The Certificate of Formation will request several pieces of information about your LLC, such as:

• Entity type and name
• Registered agent and registered office
• Governing authority (stating whether the LLC has or does not have managers)
• Purpose
• Initial mailing address
• Supplemental provisions/information
• Organizer’s name and address
• Organizer’s signature

Inside Scoop: Starting an LLC in Texas doesn’t require an attorney but having one who is knowledgeable about forming an LLC or the business formation process — or having a business formation company overseeing the process — will ensure that you stay in compliance with state and federal guidelines. Also, an attorney can help review your internal policies and procedures to ensure that they comply with the law as your business begins to grow.

While not required in Texas, forming an operating agreement is strongly recommended for a well-established LLC. These agreements, called “company agreements” in Texas, outline operating procedures and ownership. These documents are useful for making sure that all stakeholders agree to essential aspects of how the LLC will conduct business. The operating agreement should also put procedures in place to address disagreements between members to make conflict resolution easier down the road.

What Should Be Included in the Operating Agreement?

Your Texas LLC operating agreement isn’t a legal requirement, and you won’t need to file it with the state. However, knowing how to start an LLC in Texas includes making sure the operating agreement works for you. It should include a few key items:

• Organization. The LLC can be organized by a single person, several people or even other business entities. The operating agreement should specify all members of the LLC and how ownership is divided (e.g., whether all members hold an equal ownership interest).

• Management. An LLC can either be member-managed or manager-managed; the difference is the involvement of members in the day-to-day operations of the business.

• Contributions and distributions. If members are investing (contributing) money, the amount should be noted in the agreement, as well as how any profits or losses are distributed among members.

• Changes to structure. Detail any procedures for changes to the structure of the LLC, such as if a member decides to withdraw from the business.

• Dissolution. In the event you want to end the business and dissolve the LLC, you should determine how that process will move forward. You’ll also need to file a Certificate of Termination using Form 651.

Inside Scoop: Nothing lasts forever, and at some point you may need a way to “break up the band” and end your LLC. If you can’t work it out together, hiring a “business divorce” mediator may help you and other members of your Texas LLC dissolve the company on friendly terms.

• Supplemental provisions/information
• Organizer’s name and address
• Organizer’s signature

The IRS will assign your LLC an employee identification number (EIN). This number is important for conducting certain business operations such as hiring staff and working with banks.

Starting a new business doesn’t end with filing initial formation paperwork. So now that you’ve learned how to start an LLC in Texas, you’ll need to maintain it.

Taxes and Annual Filings

Once your LLC is fully formed in Texas, be sure you keep your business compliant with all Texas regulations. This includes maintaining a registered agent, making tax payments and filing your annual LLCFranchise Tax and Public Information Report.

• State taxes. State taxes depend on your particular business. For example, if your Texas LLC is selling a product subject to sales tax, you need to collect those taxes and file a sales tax return.

• Federal taxes. Most LLCs use “pass through” taxation to streamline the process and avoid paying taxes on both personal and business income. It’s always a good idea to consult with a tax professional or business attorney if you’re not sure how to address your business taxes.

Inside Scoop: Your LLC may be able to take advantage of certain tax credits and refunds. Don’t leave money on the table! Check out the Texas Comptroller site for information about ways to reduce your tax burden.

Permits and Licenses

Forming your LLC is just the first step to legally operating your business. From acupuncture to winemaking, the Texas Business Permit Office has a comprehensive guide to help you figure out whether your LLC needs a license, permit or both.

You’ve formed your business, drafted an operating agreement and are in the know about taxes and compliance for your LLC. Texas business owners may be wondering, now what?

Funding

There are a variety of ways to fund your business venture, including loans, grants and other creative ways to infuse much-needed cash into your Texas LLC.

• Small Business Association. Get an SBA-backed loan that helps you reduce risk and raise capital. You can get matched with a local lender who can help you apply to and manage your business loan.

• Grants. There are hundreds of grants available to help fund and grow Texas businesses. If you are a woman- or minority-owned business, you may also have access to additional grant opportunities, such as the Amber Grant for Women that awards a $10,000 grant to a woman-owned business every month.

• Creative funding. Consider other creative, non-traditional routes to fund your new business such as crowdsourcing, microfinancing or pitching your business to venture capitalists and angel investors.

Marketing

Even though you’ve figured out how to start an LLC in Texas, you also have to market your business effectively. Behind every great ad is an even better product or service, so let your community know you’re up and running. Marketing can be as simple as a few neighborhood flyers or as complicated as a year-long ad campaign:

• Pitch a radio spot on your favorite local or independent station.
• Create a social media ad campaign that targets your customer base.
• Have friends and family spread the word about your new venture.
• Ask community organizations to list your company as a referral for specific services.

Inside Scoop: Austin-based independent radio station KOOP welcomes email inquiries and submissions. If you’re in the area you might want to pitch a story about your new business venture.

Insurance and Banking

As a new Texas LLC owner, make sure all your money matters are in order. It’s important to keep business and personal finances separated. A business bank account may be a good idea. Check around to see which banking institutions offer low or no monthly fees, favorable rates for business loans and low transaction fees.

Now that you’ve done all the legwork learning how to start an LLC in Texas, it’s time to secure that investment. Purchasing business insurance is also a great way to protect your new company from unexpected events. Whether you have a home-based business or offer products out of a shopfront, there’s a policy that can meet your needs.

Inside Scoop: If you have employees, you may want to offer health insurance as part of the benefits of working for your LLC. Texas has a Department of Insurance with resources to help you shop around and find the best plan.

Starting your own company is an exciting time. Now that you’ve done your homework, you’re ready to put your business plan into action. Reach out for additional help to get the process started by setting up your Texas LLC online today.

Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.