Key Things To Know When Creating an LLC in Texas
To start an LLC (limited liability company) in Texas, there are a few notable steps to be wary of. But before that, there are also a few things to know beforehand, such as an operating agreement, registered agent service, Employer Identification Number (EIN), and many more that will be explained throughout this guide.
To put it in simple terms, you will need to liaise with the secretary of state to legally form a limited liability company, and have a proper business structure. It is as simple as that.
This guide will act as a step-by-step exactly to that.
What is LLC in Texas?
An limited liability company is a business partnership with at least one people limitedly answerable for the business’ legally binding responsibilities and different liabilities. The limited liability statute regulates the creation and operation of an LLC in Texas.
An limited liability company can organise for some legitimate business reason. The limited liability company is a hybrid model incorporating the limited liability of corporate form with the versatility of relationship type. With its versatile management system, owners will form the LLC to fit business needs.
Limited liability company investors are not founders or investors but are “members.” A member may be an individual, a corporation, a business, a limited liability company or a legal body. To form an Texas LLC, there is also a state fee included in most Texas LLC formation companies.
Do be advised that there is a term called ‘registered agent service’, where there are people available to help with any questions you have, be it business structure, or business taxes and state taxes, or even business formation.
How To Start an LLC in Texas? [Step by Step]
Step 1 – Naming
The prerequisite step before starting a limited liability company is to find a suitable name for your LLC. Later on this guide will show a part where we recommend LLC Formation services, where they will help with a name availability checker and many other services. This is to ensure that your company does not run into a legal barrier.
Step 2 – Registered Agent Service
Rather one of the more important services that often many people do not know about. Registered agent service is a group of registered agents that help you form your LLC, and answer any questions you have regarding the limited liability company formation service.
They are also individuals or business entities responsible for receiving any forms of tax, such as franchise tax and federal taxes, any legal documents, notice of lawsuits, and official government correspondence on behalf of your business.
A registered agent must also consent to appointment in either written or electronic form. The statement of consent should include the name of the LLC, an express statement designated consents to serve as the LLC’s registered agent, name of the person designated as registered agent, signature of registered agent, and date of execution.
The consent statement does not have to be filed with the secretary of state.
Step 3 – Certificate of Formation
Then comes the part to file the Texas Certificate of Formation to set up a Texas LLC. Coming up with the certificate of formation is fairly simple, you may refer to the Texas state website specific details.
When applying to start a business in Texas, the Texas Certificate of Formation is a required legal document to officially establish your limited liability company. You’ll be required to provide the name of your LLC, name & address of the registered agent assigned, purpose of corporation, date of effectiveness of filing, name of director, as well as the state filing fee.
It is important to take note that the standard state filing fees are at a flat rate of 300$.
After filing the Certificate of Formation, the next priority would be to obtain an Employer Identification Number if you plan to hire employees and open a business bank account.
You will also require the municipality’s local business licence. Contact the county clerk and the clerk of the city, state, or village in which the Texas LLC business will work for details on local licences.
Step 4 – What is an LLC Operating Agreement?
It is a document which personalizes a company’s terms according to its owners’ particular needs. It also structures financial and practical decision-making. It is equivalent to corporate papers that regulate a company’s practises. Although drafting an operating agreement is not a legal duty under most jurisdictions, the creation of a partnership still deems an operating agreement an essential document to be included.
Once the members (board of directors) have signed an operating agreement, this operating agreement serves as an obligatory set of laws to adhere to. It is intended to enable owners to work internally in compliance with their own laws. If this guide is not included, the company must be managed in compliance with your state’s default rules.
Step 5 – Getting an Employer Identification Number (EIN)
An Employer Identification Number is essentially a social security number for the company. It is used to keep track of any business tax reporting, and also to identify a business entity. It enables a business bank account for the company, hire employees, federal tax and state tax purposes. An EIN can be obtained by the director from the IRS (Internal Revenue Service) after forming the corporation.
After following all these steps thoroughly, your LLC is now formed and business may proceed.
Other Steps to Starting an LLC in Texas
After forming an LLC, it is not the end. There are several more things to take note of. Once your corporation exists in the legal world, you would need to separate your personal and business assets. Separating these assets discourages the risk in the event your LLC in Texas is sued. In business law, this is also known as piercing the corporate veil.
The corporate veil is a general rule that protects their owners from personal liabilities for the business’s debts. The protection is also referred to in the context of business entities. When a customer sues the business owners, they are only able to sue the Texas LLC, and the owners will not incur any personal liabilities, since they are protected by the corporate veil.
Step 1 – Opening a business bank account
You would first need to separate your personal assets and company’s assets, which will then protect your personal assets. The other benefit of opening a business bank account is that it also makes accounting and tax filing much more convenient and easier.
Step 2 – Getting a business credit card
This entails business expenses. In other words, it will separate your personal spending and business expenses so it does not get mixed up. It also builds your company’s credit history, which can be extremely useful to raise capital in the future.
Step 3 – Business Accountant
Having an accountant that is savvy in business terms, alongside with accounting knowledge is very useful. You can also make full use of the sole benefit that it literally saves you and your business thousands of dollars in taxes each year. A business accountant will really make a colossal difference even when your business is small.
- Along with the obvious benefit of massive tax savings, a business accountant can help you to:
- Track business expenses and reconcile your bank accounts
- Discover areas of unforeseen loss or extra profit in your business
- Run payroll for you and your employees
- Prepare and submit your quarterly tax filings
- Advise on advanced business strategies for even deeper tax savings
- Avoid costly errors and ensure your business stays on the good side of the IRS
Step 4 – Business Insurance
- There are several business insurances that help you control risks and channel your LLC into the right direction. These insurances are, and not limited to;
- General Liability Insurance: A broad insurance policy that protects your business from lawsuits. Most small businesses get general liability insurance.
- Professional Liability Insurance: A business insurance for professional service providers (consultants, accountants, etc.) that covers claims of malpractice and other business errors.
- Workers’ Compensation Insurance: A type of insurance that provides coverage for employees’ job-related illnesses, injuries, or deaths.
Step 5 – Press Release
Press Releases are one of the simplest and fastest ways to advertise the brand. They are also one of the most cost-effective strategies:
- Ad publication
- Set up your brand identity on the internet
- Enhance SEO on your website, bring more consumers to your website
- Are a one-time effort and money loss
- Have long-term advantages
Avoid Automatic Dissolution When Setting Up Your LLC in Texas
If one or more State filings are unavailable, LLCs can face fines and even automatic dissolution. If so, the owners of LLC fear losing their limited liability. A quality registered officer service can help avoid this consequence by notifying you of imminent filing deadlines and also by sending files for an extra fee on your behalf.
Recommendation For LLC Formation services
Zen Business is a Public Benefit Corporation and small business empowering the next generation of small businesses to be successful by assisting them in their LLC formation process. The goal of Zenbusiness is to make the dream of starting a new company accessible to everyone across the country by providing ease to their LLC formation process.
Zenbusiness makes it their mission to empower the next generation of entrepreneurs, small company owners, and freelancers by making it easier than ever to start, run, and grow a successful business and form an LLC.
ZenBusiness is there to join and support the brave entrepreneurs and owners in taking the leap towards their dream of building a better life by offering them LLC formation services.
Not only that, Zenbusiness also offers business formation services with quite positive customer reviews, meaning that Zenbusiness has an amazing service review as an entity with a number of features that can be a great first choice if you’re looking for a stepping stone.
Registered Agent Services
If you’re forming an LLC structured business, you’ll be needing secagent services. Why’s that? Agents from ZenBusiness accept service of process notices such as legal documents and government notices on behalf of the LLC.
The agents from ZenBusiness also safeguard the owner’s privacy by receiving mail instead of the owner’s personal email address. Registered agents from ZenBusiness can also help businesses file taxes as well as keep legalities in check, preventing possible incoming lawsuits.
All of the limited liability company formation packages from ZenBusiness include a reliable agent service. Registered agent services often have a higher price tag, so it is appealing that ZenBusiness includes such a service even in their starter package, which price is actually lower than what a lot of other companies charge for their services alone.
Northwest Registered Agents LLC Service
Most limited liability company owners will most likely recommend you to use Northwest Registered Agents for if you want to start an LLC and we won’t blame them for doing so, founded in 1998, Northwest Registered Agents started out as a no-nonsense and straight to the point company that provides LLC formations and legal services for businesses.
They are a family owned company and are a very transparent company in what they do and they will not be afraid to tell you how everything works and we commend their honesty. The reputation of Northwest is built on good wills and honesty that’s for sure.
They are most famous for their top of the line customer support, promising to never leave you with no communication and making it a mission that you should never be able to not talk to them at any time.
What does Northwest have to offer?
Northwest has two services that you should take note of, a LLC formation service and a Agent service. You will need to consider very carefully on which one you need. LLC formation services are typically for people who need assistance on the filing part of forming an limited liability company LLC.
This will cost you $225 per year and a state fee, if you only need the Agent service since you can handle your own state filing fee you can hire the service for $125 per year which is a $100 price reduction.
Frequently Asked Questions (FAQs) : How To Register an LLC in Texas?
What is the processing time to form my LLC in Texas?
On a normal basis, it is 3 business days online, and if you are using courier mail service, it is 5 to 7 days.
What is the difference between a domestic Texas LLC and foreign LLC?
An LLC is referred to as a “domestic LLC” when it conducts business in the state where it was formed. Normally when we refer to an limited liability company LLC we are actually referring to a domestic limited liability company LLC. A foreign LLC must be formed when an existing limited liability company LLC wishes to expand its business to another state.
Foreign LLCs work differently. To register a business in Texas, you must file an Application for Registration of a Foreign Limited Liability Company with the Texas Secretary of State. You can download a copy of the application form from the Secretary of State website.
Do I need to file my operating agreement with the state of Texas?
No, that is not necessary. The operating agreement is a legal document that should be archived for future references. However, a number of states legally require all LLCs to have an operating agreement in place.
What tax structure should I choose for my LLC?
Once EIN is obtained, you will be shown a series of tax classification options that are available. Majority of LLCs will elect the default tax status. Do know that unlike most other states, Texas does not have a state income tax. However, there is one main type of tax, that is the Texas business comptroller, which is also known as Texas state sales tax.
Is EIN really necessary for my LLC?
All LLCS with employees must have an EIN. It is required by the IRS. However, do keep in mind that you are still able to get an EIN if you do have an SSN. You can simply fill out IRS Form SS-4 and leave section 7b blank. Then call the IRS at 267-941-1099 to complete your EIN application.
How to Dissolve an LLC in Texas?
If at any given point of time, you’re looking forward to discontinue your Texas LLC then you must dissolve it formally. The failure to do so may render you in potential legal implications, penalties and tax liabilities. Hence, there’s 2 methods such as closing your business tax accounts and file the Articles of Dissolution.
How Do I Maintain the Corporate Veil in Texas?
This is a rather lengthy answer, henceforth we’ve come up with a whole section to cover this.
But before we begin, we’ll start off by explaining what exactly is a corporate veil, and what you can do to maintain your liability protection.
What is a “Corporate Veil”?
A corporate veil is basically the general rule of thumb in law which states that a business entity, such as LLCs, can protect their owners from incurring any sort of liability personally.
All the debts incurred from the owner’s business will not be transferred over to him personally. This protection, in the context of varying business entities, acts as a shield for small business owners who just formed their LLC.
However, starting up your LLC is not alone sufficient enough to ensure that you have the protection you need for your business. Creditors may be able to pierce the corporate veil if they are found in these following situations:
- The company has not enough funds
- The company and the owners do not carry a separate identity
- The company was found to have been involved in fraudulent activities
Step 1 – Have Adequate Start-Up Capital
On the off chance that the business didn’t actually have adequate funding to cover its liabilities, creditors will contend that it was not adequately discrete or autonomous from its proprietors to offer ascent to a corporate veil. When beginning an organization, it is critical to cause a sensible introductory interest in the business to keep away from this case.
Funds are often tight at the start for new corporations, yet every business should make a judgment about how much capital is sensibly important to take care of its underlying expenses and liabilities, including installments because of creditors and possible liabilities to third-parties. Maintaining solvency—company assets in excess of liabilities— in the early days of your businesses reduces the chances of a successful veil piercing.
Step 2 – Do not commingle financial affairs
The LLC ought to have its own bank account and credit card and participate in its own exchanges separate from the proprietors. The individual proprietors ought not use the organization’s cash for their own individual purposes (for instance, taking care of home link tabs) without enough recording the exchange as an advance or a draw.
In the event that the organization needs extra assets and the proprietor wishes to contribute, this should be archived as a capital commitment, with proper documentation made at the hour of the exchange.
How do you stay compliant?
The following steps help establish clear separation between personal and business finances:
- A business bank account and credit card should be present, to ensure all transactions for the company are kept separate from personal expenses.
- Keep track of accounts documenting business expenses via cloud for convenience.
- Document every transaction with written agreement between the owner and the LLC, as well as a supporting resolution by the LLC authorizing the transaction.
Step 3 – Sign correctly
All documents should be read thoroughly before signing to avoid unwanted legal issues. However, that is not all. Any business dealings of the company should be carried out in the name of the company. Meaning that, whenever any authorized member of an LLC is signing a document, everything should be clarified. The name of the LLC should be reflected on the signature area, to separate the entities.
Step 4 – Document company business
Minutes of meetings are extremely important, and should be documented for future references. It is also known as corporate formalities, and helps maintain the corporate veil. This ensures that your company has a liability shield, in the event that something does not seem right or has not been discussed.
Step 5 – Maintain your LLC
Failure to file an annual report with the state of formation can result in automatic dissolution of your LLC. If your LLC is dissolved by the state, the owners of the business no longer have limited liability protection. ‘
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.