Filing for an LLC can be intimidating because every state has its own rules and regulations. According to surveys, the state of Texas is one of the best states to start a new business. This easy step-by-step guide provides an easy walkthrough which should make Texas LLC formation hassle-free.
Step 1 – Choose an LLC Name
Choosing a name for any business can be challenging. The chosen name must be unique and can not closely resemble the name of any other registered business in Texas. Business names should not be misleading to the public. This means that words like “University” or “State Department” for example can’t be used in the name as it is suggestive. The Texas Secretary of State website provides tools for searching whether a name has already been registered.
Texas law states that an LLC should have the following included in its name:
- Limited Liability Company
- Limited Company
- Ltd. Company
- Ltd. Co.
Once an appropriate LLC name has been chosen, it can be reserved for 120 days by filing Form 501 (Application for Reservation) with the Texas State Secretary for $40.
Step 2 – Appoint a Registered Agent
A registered agent is an individual or a business entity that receives legal paperwork on behalf of the LLC. In Texas, it is a legal requirement for an LLC to have an appointed registered agent. The agent must be available during regular business hours and must have a physical address in Texas.
The required availability of the registered agent is why many businesses choose to use a registered agent service, which is a business entity that specializes in serving the role. The LLC registered agent service will ensure that documents are received and distributed in a timely manner and keep all required documents safely filed for easy access.
Step 3 – File a Certificate of Formation
A Certificate of Formation (Form 205) is filed with the Texas State Secretary. This is done in order to detail how the LLC will be managed and structured. This can be done online and cost $300. The Certificate of Formation must include the following information:
- The LLC name, including the suffix
- Appointed registered agent name and address
- The governing body of the LLC (Whether the LLC is member-managed or manager-managed)
- The general purpose of the LLC
- The name and address of the LLC organizer
- Signature of the organizer
Once the Certificate of Formation is filed, the processing time is around 10-12 business days for online applications. Alternatively, filing can be done through the post, however, the turnaround time is a little bit slower and will take approximately 70-72 business days.
Step 4 – Create an LLC Operating Agreement
An Operating Agreement is a legal document used by an LLC to outline the governing, management, and ownership of the business. Basically, it details how the LLC will be managed in terms of financial and functional decisions. It is not a legal requirement in Texas to have an operating agreement, however, it is a must for any business to have proper procedures in place. A well thought out and comprehensive operating agreement should include the following:
- The percentage of ownership for each of the LLC members
- The responsibilities and rights of each of the members
- The members’ voting powers
- How profits and losses will be distributed
- Regulations on how often meetings must take place and how minutes will be taken
- Rules for members selling LLC interests
The operating agreement can be customized and is an effective way to avoid conflict between members by having governing rules documented.
Step 5 – Obtain an EIN
An Employer Identification Number (EIN) can be obtained from the IRS and is also necessary when applying for a business bank account. Any business that aims to employ staff members, must have an EIN. This will allow the LLC to be taxed properly as well as allow the LLC to obtain permits and licenses if required.
LLC formation in Texas is not something to be intimidated by. The state has a very effective regulatory system in place which makes the process fast and simple. The 5 steps mentioned in this guide will make the process go even smoother. All that is left to do is to open a business bank account and start earning some profits.
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