Opening up an LLC in Texas – here is what you need to know

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LLC (Limited Liability Company) has emerged as one of the most sought-after business structures. The standout feature of an LLC is that it creates a wall between your personal and business assets. That way, nobody can harm your savings even if your business is going through a rough patch or somebody sues it.

When it comes to establishing an LLC, every state goes by its own set of rules and regulations.  Since Texas is by far the most desirable location to form an LLC, here is what you need to know before setting up an LLC in that state:

  1. Check the availability for your LLC’s name

You have to start the process by picking a suitable name for your LLC. You can cherry-pick any name you would like to as long as you are abiding by the certain rules of the state. The rules are as follows:

  • You are not supposed to duplicate the name which is already taken. A unique name is the first prerequisite for forming a Limited Liability Company Texas
  • You can’t use certain names which can easily be mistaken for certain government agencies like IRS, CIA, and suchlike.
  • In Texas, you have to include LLC, L.L.C, LC, L.C, ltd. Company, ltd. Co or Limited Liability Company right at the end of the selected name.
  • You are also strictly forbidden from using any explicitly sexual word in the name.

Some people select the name in a hurry and then want to change it after a few months. This is an irresponsible attitude that comes up with some backlashes. Firstly, you will have to pay in order to replace the name. Secondly, you will be bound to update the name everywhere else. It is going to be such a pain in the neck.

So take your time before settling for a title. Besides, once you hit upon the ideal name, you must reserve it with the Texas Secretary of State.

  1. Selecting an agent

The laws of Texas bound us to take the services of a registered agent to form an LLC. This agent is the person who will receive legal notices or other legal documents if your LLC is going through a case in court. It is a must for your agent to have a physical street address in Texas.

Concerning an agent, you can exploit the following three option in Texas:

  • You can appoint a friend or a family member as the agent of your LLC
  • As an owner, you are also eligible to become the agent of your LLC
  • You may allow a registered agent company to take charge of your LLC as the agent. It is an ideal option if you want to keep your address hidden from the public eyes.
  1. File your LLC’s certificate of formation

A certificate of formation requires you to mention some necessary information in it. For example, the name of your LLC, legal address of the company and the appointed agent, names of members (if any), and it’s business purposes.

The submission fee is 300 dollars. There are multiple modes of submission, like online and walk-in. It is recommended to go for an online method via SOSDirect because it consumes less time, and you are more likely to get quick approval.

The online approval timing ranges from 2 to 3 days, unlike direct mail which takes about 5 to 6 business days.

  1. Draft an operating agreement

In an operating agreement, you have to define certain things clearly. For example, how profits are shared, what is the procedure of paying taxes, how the company is managed and so on.

According to the laws of Texas, it is not mandatory for you to have an operating agreement. However, it is strongly recommended that you must have one because it is the best way to avoid future conflicts among the partners.

If you don’t have an operating agreement, you will be obliged to follow the state’s LLC laws. Remember, an LLC operating agreement is an internal document. Meaning, you don’t have to submit it to any federal or state institute. All you have to do is to keep it secured among the other documents of your company.

  1. Obtain an EIN

EIN stands for an Employer Identification Number. You have to get in touch with the IRS department to obtain the EIN for your LLC. So if your company comprises two or more than two members, you need an EIN for tax purposes.

Don’t apply for the EIN if your company is yet to be approved by the secretary of state. As for charges, getting an EIN won’t cost you anything in Texas.

  1. Get the required licenses

You don’t require a general license to operate a business in Texas. However, licenses depend on the county in Texas. Besides, you may or may not need a license or permit for your kind of business.

The best person who can guide you through this dilemma is the clerk at your county’s office. You can also seek guidance from the Texas Department of Licensing and Regulation.

  1. Set up a bank account

If you use a personal bank account for the transactions of your LLC then there is always a risk of losing personal assets in case you are dragged into court. That’s why it is necessary to have a business bank account. At the same time, a separate account for your company means you can easily manage LLC’s taxes.

To sum up, as soon as you are allotted EIN, open a bank account at the earliest.

The final verdict

As it is pretty much explicit from the above explanation, it does not take much to set up an LLC in Texas. The process is undoubtedly demanding to some extent, but if you remember these key points, nothing can pose any hurdle down the road.

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