Creating an LLC is an excellent idea for any small business. This is because an LLC protects the owners from being personally liable against the company’s debts. You don’t get this protection as a sole-proprietor.
It costs $300 to form an LLC in Texas. That may seem like a steep fee, but having an LLC may end up saving you much more than that in the future.
Step 1: Visit the Texas Secretary of State Website
The first thing you need to decide is if you want to file online or file by mail.
File Online
Follow this link to get to the Texas Secretary of State Website. This link will take you to a page asking you to log in to your SOSDirect account. SOSDirect is the system Texas uses so you can easily file your Certificate of Formation online. If you do not have an account, you will have to create one.
Once you log in, you will follow the rest of the steps below to form your LLC.
File by Mail
Visit the Texas Secretary of State Website and print Form 205. After you have completed all of the steps in this article, you will mail the form to the Secretary of State’s office.
Step 2: Name Your LLC
The name of your LLC has to be compliant with the following Texas requirements:
- Your business name must include the words: Limited Liability Company, LLC, or LLC
- Your name must be different from an existing business in the state. For name availability in Texas, check this link
- The business name cannot contain words used to name a government agency (i.e., State Department, CIA, FBI, Treasury)
- Certain restricted words (bank, lawyer, attorney, credit union) may require additional documentation and licensure paperwork
Reserve a Name
If you are not ready to form your LLC and are worried someone might take your business name, Texas allows you to reserve a name. By paying a $40 fee, you can reserve the right to a business name for up to 120 days.
URL Availability
Suppose you don’t already have a website. In that case, it is a good idea to make sure that a domain name is available with your chosen business name before proceeding any further. Having a business domain name will make it easier for customers to find your website and business. Use the search tool on Namecheap to see if your domain name is available. Domain names start as low as $5.98.
Step 3: Choose Your Registered Agent
A registered agent is the state’s point of contact with your company. They are the person that receives tax forms, legal documents, notices of lawsuits, and other official government correspondence on behalf of your LLC.
A registered agent must be a resident of Texas. Most LLC owners pick themselves as the registered agent. However, you can choose an employee or work with an entity that provides registered agent service if you are not a Texas resident.
Step 4: File the Certificate of Formation
Regardless of whether you filed online or by mail, you will have to pay the $300 filing fee.
After submitting the Certificate of Formation, it typically takes 3-7 business days to approve your request and send you official LLC documents.
File Online
After you have completed all of the steps on SOSDirect, simply submit the form and enter in your credit card information to pay the fee.
File by Mail
File by Mail
After you have completed filling out Form 205, you will have to mail this form along with your payment to the address below:
Secretary of State
P.O. Box 13697
Austin, TX 78711
Step 5: Get an Employer Identification Number from the IRS
After receiving your LLC approval from the Secretary of State, you will need to get an Employer Identification Number (EIN) from the IRS. An EIN is a nine-digit number issued by the IRS to identify your LLC for taxes.
The purpose of an EIN is to assist with the following:
- File and manage taxes at the state and federal level
- Open a business bank account
- Hire employees
Obtaining an EIN from the IRS is a free and easy process. Follow this link to apply online.
Step 6: (Optional) Create an Operating agreement
An operating agreement isn’t required for Texas LLCs, but it is good practice to have one.
An operating agreement is an internal document that outlines the ownership and operating procedures of the company. They can be used to help solve any future disputes with your business partners.
The operating agreement should include the following:
- The members’ ownership percentage in the LLC
- The members’ rights and responsibilities
- The members’ voting powers.
- How profits and losses will be allocated
- Rules for holding meetings and taking votes
- Buy-out provisions that determine what happens when a member wants to sell their interest, dies or becomes disabled
Next Steps
Now that you have formed your LLC, it is time to protect your business and stay compliant with the tax code. We recommend that you do the following:
- Open a business bank account
- Purchase Insurance for your business
- Protect your name and logo with a trademark
- Consider electing to have your LLC taxed as an S-corp
- Hire a CPA
At Windstone Financial, we have helped numerous start-ups grow into successful businesses. If you are looking for advice or someone to help walk alongside you as your company grows, click the button below to get in touch.
