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How To Start An LLC In Texas For Free

How To Start An LLC In Texas For Free

If you are thinking about forming a business in Texas, the type of business structure is one of the most critical factors.

One of the most popular business structures is the limited liability company (LLC). An LLC combines the flexibility and pass-through taxation of a partnership with the limited liability protection of a corporation.

In this article, I'll walk you through the process of forming an LLC in Texas for free - keep reading to learn about the one condition you need to meet.

Steps To Start An LLC In Texas

Here are the main steps to consider when forming a Texas LLC.

Create Your Certificate Of Formation

To form an LLC in Texas, you must first file a certificate of formation with the Texas Secretary of State.

When filing your certificate of formation, you will need to provide the following information:

  • The name and address of your business
  • The purpose of your business
  • The name and address of your registered agent
  • Whether or not you want to create a professional LLC

You can file your certificate online or by mail. The typical cost to set up an LLC in Texas is $300. Depending on your situation, you may also have additional filing fees or taxes that you will need to pay when setting up your business. 

However, from January 1st, 2022, all veteran-owned businesses have become eligible for free filing fees and a five-year exemption from the franchise tax. This opportunity allows 100% veteran-owned businesses to hit the ground running without any financial burden.

Obtain Business Licenses

Once your LLC is formed, there are several other steps that you will need to take before officially launching your business. These include obtaining a business license and registering your business with the state. 

Depending on where you plan on operating, there may be additional permits or licenses that you will need to obtain as well. Additionally, if you plan on hiring employees, then it is essential to familiarize yourself with all applicable labor laws and regulations so that you can ensure compliance at all times.

Name Requirements For Your LLC

When forming an LLC in Texas, it's important to note that the name of your business must be distinguishable from other companies registered with the Secretary of State. This means it must contain at least one unique element, such as a word or phrase that another company is not using in Texas.

In addition, the name of your LLC must also include a designator, such as "LLC," "L.L.C.," or "Limited Liability Company" at the end. This helps to ensure that all businesses registered in Texas are distinguishable from one another.

Registered Agent

A registered agent is required, and the LLC cannot act as its registered agent. The registered agent must have a physical street address within Texas and accept legal documents on behalf of the company, such as tax documents and court summonses.

Articles Of Organization

The next step when forming an LLC in Texas is filing Articles of Organization with the Secretary of State's office. These documents provide basic information about your business, including its name, address, purpose, members/managers/owners, etc. 

They should be done carefully, as any errors may lead to delays or additional fees. It's also important to keep copies of all filing paperwork for future reference should any questions arise regarding ownership or management structure at any point in time after a formation has been completed.

Filing Process

Once you have all relevant paperwork filled out, there are two ways you can proceed: filing online or mailing them in. Online filing is faster than traditional paper filing and often results in fewer errors. However, if there are mistakes in your LLC filing, you must file a Certificate of Correction or Form 403 with the Texas Secretary of State—this has an associated fee of $15 per application type.

Taxes

Most Texas LLCs are subject to an annual state franchise tax (also known as a privilege tax). This fee varies depending on how much revenue your LLC generates, so it's important to calculate it ahead of time. One can find the official documents related to this taxation process on the Texas Comptroller's website.

Open A Business Bank Account

A business bank account is another crucial part of forming an LLC and separating personal from business assets.

The first step is to open a business bank account using the EIN and fund it with money that one will only use for business purposes. A dedicated account can help with taxes, limit liability, and make it easier for investors or lenders to do due diligence on the company.

File Your Annual Report

At the end of the financial year, you must file a Texas annual report with the state comptroller's office. This document is required every year by all entities registered in Texas. 

The purpose of this form is to update any changes related to ownership information or business activities of the entity since its formation date.

The Difference Between LLCs And Corporations 

When it comes to forming an LLC or corporation in Texas, there are several key differences that you should be aware of. For example, LLCs offer more flexibility regarding management structure and ownership rights than corporations.

Corporations must have a board of directors that meets regularly and decides how they will run the company. On the other hand, LLCs don't need boards or directors but instead rely on their members (or owners) to make operational decisions. 

Another critical difference between LLCs and corporations is taxation. Corporations are taxed separately from their owners, so they may owe corporate and personal income taxes on any profits they generate. On the other hand, LLCs are "pass-through" entities, meaning that all profits and losses pass through directly to their members, who then pay personal income taxes on those profits/losses.

Alternative Business Structures In Texas 

If an LLC or a corporation isn't suitable for your needs, you can also establish other types of businesses in Texas. These include sole proprietorships and partnerships. Both offer benefits and drawbacks depending on your company's operations and how many people are running it. 

Before deciding which type of legal entity would best suit your needs, it's essential to understand all available options to make an informed decision regarding the future success of your business venture. 

Using A DBA

A DBA might be the answer if you don't want to form a separate entity but still want an official name under which you can conduct business transactions.

This entity protects your legal representation from liabilities related to transactions under that DBA name.

This option only requires registration with local agencies but offers no liability protection, so it's essential to weigh all potential risks before moving forward with this option too! 

Conclusion

When forming a business in Texas, there are many different entity types to choose from depending on the needs of your particular venture.

The above information outlines the differences between LLCs and corporations and alternative business structures in Texas, such as sole proprietorships and partnerships. 

It is essential to understand all available options to make an informed decision regarding the future success of your business venture.

Further reading on MikeVestil.com: Check out these step-by-step guides to form LLCs in other states:

Whether you start an LLC in Missouri or want to know the cost of an LLC in Maryland, it is essential to understand the laws and regulations in each state.

In addition, knowing which agency to go with can help you make better business decisions if you decide you need help. Here's information on the LegalZoom LLC cost for formation.

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About the author 

Mike Vestil

Mike Vestil is an author, investor, and speaker known for building a business from zero to $1.5 million in 12 months while traveling the world.

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