LLC Formation Texas: Current State Requirements

“Despite the nation’s economic challenges, Texas’ economy has remained resilient, with continuous double-digit growth in new business creations,” State Secretary Cascos said. This 10% increase reflects people’s trust in the state as they seek new possibilities for their businesses to succeed.

The state of Texas has many advantages for starting a business, especially LLC formation. With more and more entrepreneurs choosing this state for business formation, we have decided to do some research.

LLC Formation
LLC Formation

LLC Texas

By obtaining a certificate of incorporation with the Texas Secretary of State, a Texas limited liability company is formed. The Secretary of State offers a form that meets the requirements of state law. A certificate of formation can be filled in online.

The limited liability company (LLC) is a different type of entity that possesses the powers of both a corporation and a partnership.

It is not a partnership or a corporation. The LLC may be compared to a general partnership with limited liability, a limited partnership where all owners are free to participate in the management and all have limited liability, or an “S” corporation without the ownership and tax restrictions imposed by the Internal Revenue Code, depending on how it is structured.

Unlike a partnership, where the main element is the individual, the limited liability company’s essence is the entity, necessitating additional formal criteria for its formation.

An LLC’s owners are referred to as “members.” An individual, partnership, company, trust, or any other legal or business organization can be a member.

Members’ responsibility is generally limited to their investment, and they may be eligible for the same pass-through tax treatment as partners in a partnership.

An LLC can benefit from both structural flexibility and favorable tax treatment as a result of federal tax categorization rules. However, anyone considering incorporating an LLC should seek legal advice from a qualified attorney.

Managers or members of a limited liability company can manage the company. The management structure must be specified in the formation certificate.

The management structure of the LLC and its members is a decision made jointly by the LLC and its members. The Secretary of State is unable to provide management structure recommendations.

Below we will discuss the steps needed to follow in order to form an LLC in the state of Texas. Each step has its own regulations in accordance with Texas law:

STEP 1: Name Your Texas LLC

The first and most significant step in forming an LLC in Texas is deciding on a name. Make sure your name conforms with Texas naming regulations and is easily searchable by potential customers.

  • The phrase “limited liability company,” or one of its acronyms or phrases, must appear in your name: “LLC, L.L.C., Limited, Ltd., Company or Co.”
  • Your LLC’s name cannot contain any words that could be mistaken for a government agency (FBI, Treasury, State Department, etc.).
  • Restricted words (e.g., bank, attorney, university) may necessitate additional paperwork and the inclusion of a licensed professional in your LLC, such as a doctor or lawyer.

STEP 2: Choose a Registered Agent in Texas

For your Texas LLC, you must designate a Registered Agent.

What is the role of a Registered Agent?

A registered agent is an individual or corporate organization that accepts vital tax forms, legal documents, lawsuit notices, and official government correspondence on your behalf. Consider your registered agent to be your company’s point of contact with the government.

Who is eligible to serve as a Registered Agent? A registered agent must be a Texas resident or a corporation allowed to do business in Texas, such as a registered agent service. You have the option of electing someone from your company, including yourself.

STEP 3: File The Texas LLC Certificate of Formation

You’ll need to file Form 205 – Certificate of Formation with the Texas Secretary of State to register your Texas LLC. You can submit your application online, by mail, or in person.

You must choose whether your LLC will be member-managed or manager-managed when filing your Certificate of Formation. You’ll need to register as a Foreign LLC if you’re expanding your existing LLC to Texas.

STEP 4: Create a Texas LLC Operating Agreement

Although an operating agreement, also known as a company agreement in Texas, isn’t essential for Texas LLCs, it’s a good idea to have one. An operating agreement is a legal document that spells out an LLC’s ownership and running processes.

A detailed operating agreement guarantees that all firm owners are on the same page and decreases the likelihood of future disagreement.

For more information regarding operating agreements, one can visit The Really Useful Information Company (TRUiC) website.

STEP 5: Get an EIN for your Texas LLC

The Internal Revenue Service (IRS) issues a nine-digit number called an Employer Identification Number (EIN), Federal Employer Identification Number (FEIN), or Federal Tax Identification Number (FTIN) to identify a company organization and maintain track of its tax reporting. It’s effectively the company’s Social Security number (SSN).

For the following, an EIN number is required:

  • To open a bank account for the company.
  • For the purposes of federal and state taxation
  • To appoint staff for the business

The business owner obtains an EIN from the IRS (for free) after forming the company. This can be done either online or in the mail.

Final Thought

When you form an LLC in Texas, you can take advantage of a number of benefits that the state provides to entrepreneurs, including consistency, deductible employee profits, lawsuit protection, tax savings, and personal asset protection. You can also choose a different individual to handle your legal matters.

A person should make a decision on the business structure after consulting with an attorney and accountant and considering factors such as tax, liability, management, continuity, transferability of ownership interests, and formality of operation.

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