Texas is legitimately one of the best states to form an LLC. No state income tax. No annual report fees. And if you make under $1.23 million/year (most small businesses), you pay zero franchise tax.
The filing fee is $300, which is higher than most states. But you save that back pretty quick with no annual fees. Plus the state processes your LLC in like 2-5 days, which is fast.
How to Form Your Texas LLC (The Actual Steps)
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Choose Your LLC Name
Your Texas LLC name must:
- Include "Limited Liability Company," "LLC," or "L.L.C."
- Be distinguishable from existing Texas businesses
- Not contain restricted words (bank, insurance, university) without approval
Check name availability: Texas Business Name Search
Pro Tip: You can reserve your name for 120 days by filing Form 501 ($40 fee). Useful if you're not ready to file immediately. -
Appoint a Registered Agent
Texas requires every LLC to have a registered agent—a person or company authorized to receive legal documents on behalf of your business.
Requirements:
- Must have a physical Texas address (no P.O. boxes)
- Must be available during normal business hours
- Can be yourself, a partner, or a professional service
Cost: $0 if you act as your own agent. Professional services cost $100-300/year.
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File Certificate of Formation (Form 205)
This is the official document that creates your LLC. You'll submit it to the Texas Secretary of State.
Required information:
- LLC name
- Registered agent name and address
- Management structure (member-managed or manager-managed)
- Purpose of business (can be general)
- Organizer information
How to file:
- Online: SOSDirect (fastest, 2-3 business days) — $300
- Mail: Send completed form to Secretary of State (5-7 business days) — $300
- Expedited (24-hour): Add $25 fee
Filing Fee: $300 (non-refundable)
Download Form 205 -
Create an Operating Agreement
While not legally required in Texas, an Operating Agreement is highly recommended. It defines ownership percentages, profit distribution, management structure, and procedures for adding/removing members.
Why you need it:
- Protects your limited liability status
- Prevents disputes between members
- Required by most banks to open a business account
- Overrides Texas default LLC laws (gives you control)
Pro Tip: Even if you're a single-member LLC, create an Operating Agreement. It strengthens the legal separation between you and your business. -
Get an EIN (Employer Identification Number)
An EIN is like a Social Security number for your business. You need it to open a bank account, hire employees, and file taxes.
How to get it: Apply free online at the IRS website. Takes 10 minutes, receive immediately.
Cost: $0 (free from the IRS)
Scam Alert: Third-party services charge $50-200 for EIN applications. Don't pay. The IRS does this for free. -
Understand Texas Franchise Tax
Texas charges a franchise tax (also called "margin tax") on LLCs, but most small businesses pay $0.
Exemption threshold:
- Businesses earning under $1,230,000/year owe no franchise tax
- Businesses earning $1.23M - $20M pay 0.375% - 0.75% on "taxable margin"
Good News: If you're a small business owner, you'll likely pay $0 in franchise tax. Over 70% of Texas businesses qualify for the exemption.Filing requirement: Even if you owe $0, you must file a "No Tax Due Report" annually (due May 15).
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Get Business Licenses & Permits (If Needed)
Texas doesn't require a general state business license, but you may need:
- Sales tax permit: If selling taxable goods/services (free from Texas Comptroller)
- Professional licenses: Contractors, therapists, attorneys, etc.
- Local permits: City/county business permits or zoning approvals
- Health permits: Restaurants, food trucks, salons
Check with your city clerk's office and the Texas.gov Business Portal for specific requirements.
Complete Cost Breakdown
| Item | Cost | When Due |
|---|---|---|
| Certificate of Formation (Form 205) | $300 | At filing |
| EIN (Federal Tax ID) | $0 | Anytime |
| Franchise Tax (Annual) | $0 | Most small businesses exempt |
| Annual Report | $0 | Texas has no annual report |
| TOTAL (Lifetime) | $300 | — |
Note: Optional costs like registered agent services ($100-300/year), name reservation ($40), and business licenses (varies) are not included.
Timeline: How Long Does It Take?
| Step | Time Required |
|---|---|
| Choose name and check availability | 15 minutes |
| Complete Form 205 | 20-30 minutes |
| State processing (online filing) | 2-3 business days |
| State processing (24-hour expedited) | 1 business day |
| Create Operating Agreement | 1-2 hours |
| Get EIN from IRS | 10 minutes (instant online) |
| TOTAL (standard filing) | 3-5 days |
Common Mistakes to Avoid
1. Not Understanding the Franchise Tax Exemption
Many business owners panic when they hear "franchise tax." Relax—if you earn under $1.23 million, you owe $0. Just file your "No Tax Due Report" by May 15 each year (it's free and takes 5 minutes online).
2. Forgetting to Get a Sales Tax Permit
If you sell taxable goods or services in Texas, you MUST register for a sales tax permit before making your first sale. It's free and easy—don't skip it or you'll face penalties.
3. Using Your Home Address as Registered Agent
Your registered agent address is public record. If you value privacy, use a professional registered agent service or a business address instead of your home.
4. Skipping the Operating Agreement
Even though Texas doesn't require it, banks often won't open business accounts without one. Plus, it protects you in disputes and strengthens your liability protection.
5. Not Checking Local Requirements
Texas doesn't require a state business license, but your CITY might. Check with your local government for permits, zoning approvals, or health department requirements.
Do You Need a Lawyer?
Short answer: No.
Forming a Texas LLC is straightforward. The forms are simple, and the Secretary of State website has instructions.
When you might want a lawyer:
- Complex ownership structures (multiple members with different equity stakes)
- High-risk industries (oil & gas, healthcare, construction)
- Significant startup capital or investor involvement
- You want custom Operating Agreement provisions
Typical lawyer cost: $500-1,500 for LLC formation services.
Texas LLC Checklist
Print this checklist and check off each item as you complete it:
- Choose LLC name and verify availability
- Appoint a registered agent
- File Certificate of Formation (Form 205) with $300 fee
- Create an Operating Agreement
- Apply for EIN with the IRS (free)
- Register for sales tax permit (if selling taxable goods/services)
- Open a business bank account
- Set calendar reminder for franchise tax report (May 15, even if $0 owed)
- Obtain any required local business licenses or permits
Frequently Asked Questions
Can I form a Texas LLC if I don't live in Texas?
Yes. You can form a Texas LLC from any state or country. However, you'll need a registered agent with a physical Texas address.
Does Texas require an annual report?
No. Texas is one of the few states with NO annual report requirement. However, you must file a franchise tax report annually (even if you owe $0).
What's the difference between member-managed and manager-managed?
Member-managed: All LLC owners (members) make day-to-day decisions. Most common for small businesses.
Manager-managed: Members appoint one or more managers to run the business. Used when some members are passive investors.
Do I need a DBA (Doing Business As) in Texas?
Only if you want to operate under a name different from your official LLC name. For example, "Smith Consulting LLC" doing business as "Texas Business Solutions." File an Assumed Name Certificate with your county clerk ($10-50 depending on county).
How is a Texas LLC taxed?
By default, LLCs are "pass-through" entities—profits pass through to your personal tax return. Single-member LLCs are taxed as sole proprietorships. Multi-member LLCs are taxed as partnerships. You can also elect S-corp or C-corp taxation if beneficial. Texas has NO state income tax.
Can I convert my sole proprietorship to an LLC?
Yes. You'll form a new LLC and transfer your business assets to it. Update your licenses, permits, contracts, and bank accounts with your new LLC name. Consult a tax professional about any tax implications.
What if my business makes over $1.23 million?
You'll pay Texas franchise tax on your "taxable margin" (basically profit). The rate is 0.375% for most businesses, or 0.75% for certain industries. Still way cheaper than most states' corporate taxes.
Do foreign LLCs need to register in Texas?
Yes. If you formed your LLC in another state but do business in Texas, you must register as a "foreign LLC" (File Form 304, $750 fee). You'll also need a Texas registered agent.
What Happens After Your LLC Is Approved?
Once the Texas Secretary of State approves your LLC, you'll receive:
- Certificate of Formation (stamped/approved)
- File number (your official Texas identification number)
Next steps:
- Open a business bank account using your EIN and LLC documents
- Register for sales tax permit (if applicable) at Texas Comptroller website
- Get business insurance (general liability, professional liability, etc.)
- Obtain required licenses for your city and industry
- Set up accounting (separate business finances from personal)
- Mark your calendar for franchise tax report (due May 15 annually)
Additional Resources
- Texas Secretary of State - Business Organizations
- SOSDirect - File Your LLC Online
- Texas Comptroller - Franchise Tax Information
- IRS - LLC Tax Information
- Texas.gov - Starting a Business Portal
Information verified with Texas Secretary of State and IRS guidelines.