How to Set Up an LLC in Texas
Step 1: Decide on a Business Name (and Reserve It, If Desired)
Every registered business in Texas must have a name that's distinguishable from other business names in the state. If you have a name you want to use and want to make sure it's available, you can email or call the Texas Secretary of State to make a preliminary inquiry. However, you won't get a final formal confirmation until you've filed the official Certificate of Formation.
Texas also gives business owners the option to reserve a name before filing the Certificate of Formation. This is something you may opt to do if you've come up with a business name you love and want to protect but aren't yet ready to file the Certificate of Formation. You can complete Form 501 to request a name reservation for 120 days. The filing fee is $40.
Step 2: Designate a Registered Agent
According to the Texas Business Organizations Code (BOC), every LLC is required to maintain a registered agent in the state. A registered agent is an individual or entity that is allowed to accept certain legal documents on behalf of the business, such as service of citation initiating a lawsuit..
The registered agent must have a physical address that can be served during regular business hours. You can't use a P.O. box as a registered address. There are many different providers that you can pay to act as a registered agent for you if you do not wish to serve as your own agent.
Step 3: File the Texas Certificate of Formation
The formal document needed to register an LLC in Texas is the Certificate of Formation, Form 205. When completing this document, you'll have to provide your business name and registered agent information. You will also have to name the governing authorities of the LLC and provide a description of the business' purpose, plus the business' address.
You can also designate when you want the LLC formation to become effective. Usually, the filing becomes effective once it's filed by the Texas Secretary of State. However, you can also ask that it becomes effective at a later date or time, of a maximum of 90 days from signing the document.
Step 4: Consider Drafting an Operating Agreement
When you complete the Texas Certificate of Formation, you'll see a box on the form for "Supplemental Provisions/Information." This can be a good spot to reference a formal operating agreement. Although not legally required for a Texas LLC, an operating agreement has significant benefits, and we advise every one of our business clients to have one.
This document details your business' structure and management and can help protect you from personal liability, solidify verbal agreements (for example, with other LLC members), and add a layer of protection in case of legal issues. Operating agreements may include details like how profits and losses are to be distributed; the percentage of each LLC member’s ownership; and the duties, voting rights, and responsibilities of each member.
Step 5: Get Your Employer Identification Number (EIN)
An Employer Identification Number (EIN) is a unique identifier that's assigned to your business by the Internal Revenue Service (IRS). The IRS uses this number to help identify your business on tax paperwork, like your annual filing. It's a little bit like a Social Security Number (SSN), but for businesses instead of individuals.
Your new LLC will also need an EIN if it ever hires employees. Getting an EIN is easy and affordable. You can request an EIN from the IRS, for no cost. The IRS recommends applying for your EIN online. However, you can also request an EIN for your new entity via mail, fax, or phone, if preferable.