As you start forming a business entity in the Lone Star state, you’re bound to have a lot of questions. From registering your new business in Texas to business licenses and franchise taxes, the information can get overwhelming.
Where do you start? What are the LLC requirements in Texas?
We’ve taken some of the most common questions asked about LLC requirements and answered them below to help make the process as smooth as possible.
What is an LLC?
A limited liability company (LLC) is a business structure in the United States whereby the owners are not personally liable for the company's debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
How an LLC is more flexible than a corporation
An LLC can be a single-owner business, a partnership, or a multi-member structure. When you’re searching for the best business structure, you often hear how an LLC is the most flexible entity.
Corporations have a stricter management structure that is set by the law – this includes a board of directors, officers, and shareholders – each responsible for a certain aspect of the corporation.
With an LLC, there is not a limit to the number of members you can have, and the laws can be managed with an Operating Agreement set by the members. LLCs can be managed by all members or one elected manager. Through an Operating Agreement, LLC owners have the flexibility to modify their rules as they see fit for business.
What is Required of an LLC
LLCs are one of the most flexible business entities, but that doesn’t exempt them from a few requirements. There are a few elements of structure that are required of an LLC:
- Business Name – A unique name that is not similar to another business in the state.
- Registered Agent – Someone who is the person of contact for official paperwork.
- Operating Agreement – This is not a requirement for an LLC in Texas, but it’s an excellent resource to have for written rules on how your LLC will be ran.
- Articles of Organization – This is the birth certificate for your LLC. You must fill this out to legally have an LLC.
- Business Licenses and Permits – Business licenses and permits depend on the type of business you form. For example, you may need a general business license, a sales tax permit, EIN, and more.
- Tax Forms – Tax form 1065 is used to file a tax return on partnership income. You may also be issued a tax for 1099 if you did business with other companies. Depending on the tax standards, there are other forms that may need to be filed as well.
- Pay Required Fees – The amount of fees you’re required to pay depend upon the state in which you live and file. In Texas the startup fee is $300, but there are other optional fees.
When forming an LLC, there’s other information you need to know and details you need to work out such as:
- Members and management
- The purpose of your business
- Dissolution date (if applicable)
- Business bank account
Once you’ve gathered all of this information and received approval of your Articles of Organization, it typically takes 4 to 6 weeks to officially form an LLC in Texas.
Who is an LLC Best for?
If you’re a new business owner, you probably often hear two pieces of advice: “Don’t form an LLC, form a corporation.” Or “Corporations are complex, opt for an LLC.”
From how the business is formed and business ownership to profits and losses to income taxes, there are some big differences between the two.
If you want to form a business with one or more people as owners, an LLC is best for you. If you want those members to have equity interest in the assets of the business, an LLC is also the right choice for you.
Any individual currently operating as a sole-proprietorship, or a business partnership, should consider forming an LLC. The two biggest reasons are for legal protection and tax benefits. Additionally, having an LLC attached to your business name makes you more “official” and professional.
However, if you’re looking for a more structured business formation with a board of directors and shareholders who have shares of stock in your business, a corporation is right for you.
Work with a Lawyer to Create Your LLC
Knowing Texas LLC requirements and choosing the best business structure for you is challenging. It’s a complex process and decision, and one you shouldn’t make quickly nor without help from a business lawyer.
Every business situation is unique. The advice you hear for one business could be the total opposite for your business. This is why you need a lawyer who works directly with you and knows your situation. A lawyer can advise you on structure and tax decisions, as well as ensure all requirements are met when filing.