How to Form an LLC in Texas

The Texas labor market has managed to rebound from the covid-19 pandemic. The rapid population growth in the state is driving demand for jobs. With the number of new businesses taking up operations in the area, unemployment levels have seen a steady decline dropping to 5% in December last year. Texas is, in fact, one of just three other states that have managed to recoup the jobs that had been lost since 2019.

With new startups on the rise, the decision regarding the business structure that a new startup will take on is an important decision that every entrepreneur will have to make. The process often requires consultation with an attorney and accountant to ensure that the decision made is the best possible option for the direction that the business wishes to grow in. The decision-making process will involve taking into consideration issues regarding tax, continuity, transferability of ownership interests, liability, management, and formality of operation.

Starting an LLC in the Lone Star State

Limited Liability Companies are a common business structure that has proven popular among new startups in Texas. A Texas limited liability company is relatively easy to create and is made official by filing a certificate of formation. This is done with the Texas Secretary of State. The Secretary of State provides entrepreneurs with a form that meets minimum state law requirements. The online filing of a certificate of formation is also allowed, and this is provided through SOSDirect.

Entrepreneurs that wish to start an LLC in Texas will have to follow these steps:

Choose a name for the LLC 

The name of a business is extremely important, as a strong name will leave a lasting impression on consumers and will be the foundation of the brand’s image. In Texas, a business will have to follow these naming guidelines in order to successfully register a business:

  • Business owners must use an LLC designator in the name of the business.
  • Cannot use words that could confuse the business with another business structure, e.g., “Corp,” “Inc,” “Non-Profit.”
  • Terms such as “bank,” “university,” “law center,” or other assuming words can only be used if approval from the proper authorities is obtained.

 

Assign a registered agent 

A registered agent is required for all Texas LLCs and essentially is any individual or entity that has provided consent to receiving tax forms, legal documents, official notices, as well as any other important documents or correspondence from the U.S government on the business’s behalf.

File the LLC Certificate of Formation 

To officially form the LLC as a separate legal entity, members will have to file the LLC Certificate of Formation with the Texas Secretary of State. This can be done via mail; however, it is more convenient to complete the form online.

Create a Texas LLC Operating Agreement 

In Texas, entrepreneurs do not have to file their operating agreement; however, it is good practice to have one in place. A comprehensive agreement will outline essential aspects such as how the business will operate and the ownership agreement.

Get an EIN

Assigned to businesses by the IRS, an Employee Identification Number helps the government identify a business and essentially will act as the company’s social security number. The IRS will use the number to keep track of the business’s tax reporting.

Final Thoughts

Forming an LLC in Texas is a great way to capitalize on the state’s business-friendly environment while still receiving superior asset protection should there be a case where the business is unable to pay off debts or is facing a lawsuit. The business structure covers all members of the LLC by keeping their assets separate from the business.

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