How to Form an LLC in Texas in 2021 Comprehensive Guide

Written by Hasham Usman

October 7, 2021

This guide will talk about the three primary documents necessary for a new LLC in Texas and explain a little about them. You’ll learn about some specific requirements.

Texas has including one that happens every year on May 15th. We’ll discuss how to make changes to your LLC after it’s been filed.

LLC in Texas
Aerial view of downtown Ft Worth Texas during the day with Trinity River in the foreground

What is an LLC?

LLC stands for Limited Liability Company. An LLC is formed by making a filing with the Texas government, not the federal government. Each state has its name for an LLC filing, in the State of Texas, this filing is called the Certificate of Formation. Here are some names you may have heard of that other states call their LLC filings.

An LLC is a type of business officially recognized by a state government. Other business entity types you may have heard of are Corporations

or Limited Partnerships. 

LLCs are the most common business entity type for small businesses.

If you’re not sure if you should become an LLC or other business entity type, BetterLegal has created a helpful comic is called the “Choose Your Own Entity Adventure.” Filing the Certificate of Formation with the Texas Secretary of State is the bare minimum of what your business needs to be legal. The Texas Secretary of State charges $308 to file an LLC and takes two business days to return this filing which officially creates a new Limited Liability Company.

LLC

The State of Texas requires you have a unique business name within the state for your LLC as well as an in-state address.

If you want to be called ‘XYZ Tile’ and you own xyztile.com, which doesn’t matter. If another company has been operating under the name ‘XYZ Tile’ in Texas continuously for 100 years, it doesn’t matter whether

Do they have a website or not? They officially own the name ‘XYZ Tile’ in Texas. You can search the state’s website to check and see what names are already taken.

The State of Texas also requires you have an in-state address where they can contact you by mail or in person during regular business hours. This requirement is known as a Registered Agent and can be a person or business that acts on your behalf. You can be your own registered agent, but the Registered Agent information is public on the state’s website, so if you don’t want your name or home address to be shared, it’s best to hire a third party like BetterLegal.

Necessary Documents

While the Certificate of Formation is all that is technically necessary to be a legal LLC in Texas, to function as a real business [for example] working for others, collecting money from customers, opening a business bank account, or hiring anyone, you’ll need a couple more items. 

Generally, the holy trinity of what a small business needs to operate includes an LLC filing, an EIN, and an Operating Agreement.

What is EIN (Employer Identification Number)

EIN stands for Employer Identification Number and is also known as a Tax ID, FEIN, or Federal Tax ID. You do not need to employ anyone to need an Employer Identification Number, and it’s just a poorly named term. 

The EIN is your business tax id in the same manner that your social security number is your tax id and will be required to file your taxes at the end of the year. As you might have guessed, an EIN is obtained from the federal government through the IRS.

If another business hires you, they’ll often require you to fill out a W-9 document from the IRS containing your business tax id. If you don’t have an EIN, you’ll need to give everyone your social security number, which isn’t very secure.

 The IRS requires that any company paying a contractor [like you] over $600 per year report how much they’ve paid within a year through a filing called 1099. The tax id you provide on the W-9 is what the company uses to file 1099 with the IRS.

Federal Employer Identification Number (FEIN), also known as an Employer Identification Number (EIN).

Legal Documents

The Operating Agreement (or sometimes known as a Company Agreement) is the final piece in the holy trinity of documents your LLC

needs to operate. The Operating Agreement is a legal document that identifies the owners of the LLC and the rules by which the LLC operates. 

These rules are commonly accepted practices honed over many decades and explain how decisions are made, disputes are handled, or how owners and operators are added, changed, or removed.

Without the Operating Agreement, nobody knows who owns the business. Ownership is never filed with the state; therefore, anyone you’ve ever worked with can *CLAIM* that they’re partners with you without a signed legal document. 

Going any deeper into this concept opens up an entire can of worms. So know that, unfortunately, things like this happen much too often, which is why a signed Operating Agreement is so essential for you to have.

Be careful of an Operating Agreement that is too short as it probably doesn’t have everything it needs for your business to evolve or have

enough basic protections. A solid Operating agreement should be 20-40 pages long.

Changes You Need to Make in your LLC

An Operating Agreement is not set in stone, nor is the information provided to the State of Texas in your original LLC filing locked forever.

Both the information with the State of Texas and the rules the business operates within are changeable.

A name, address, or registered agent change is handled by filing change amendments with the State of Texas. Sometimes these amendments

are filed online, but the state can also require changes be made by fax or snail mail.

To change [operators] or [owners], or even change the rules of the company; nothing needs to be changed with the state. In this case,

an amendment is added to the back of the original Operating Agreement.

It’s like a low-tech form of tracking changes. The original Operating Agreement lives alongside all the changes that have also been made over

the years. 

Any changes to the Operating Agreement must be made with the approval of majority ownership unless otherwise stated in the Operating Agreement.

BetterLegal has a unique feature called the Live Dashboard, which allows you to request any of the changes mentioned above directly from your account. Yes, it’s true that BetterLegal only company that provides this.

State Conformity

The State of Texas requires that your LLC file an annual compliance report called the Texas Franchise Tax with them every year on May 15th. Unless you’ve made a little over 1 million dollars in the previous year, your

LLC likely doesn’t owe any taxes, but the form will tell you as such.

If you fail to file your Texas Franchise Tax on May 15th, you’ll be placed in Forfeiture, then have one year to pay a $50 penalty to get back into Active standing. If you neglect your Forfeiture status, the state can simply dissolve your LLC.

If the State of Texas dissolves your LLC, you NO LONGER GET THE PROTECTION OF THE LLC.

This means that anyone is claiming you can now go after your personal assets like your house or car. Because of this, it is extra important

to keep on top of this annual Texas requirement.

If you filed with BetterLegal, we’ll automatically (and for no extra charge) notify you when your State Compliance is on the horizon. But

we can optionally file this for you if you’d prefer to avoid the hassle.

Suppose you’ve stayed with us this long, congratulations! You know more than 90% of Americans, and that deserves a reward. 

Why BetterLegal is the Better Option

In addition, BetterLegal helps you start your LLC and provides free tools to help MANAGE your business. 

These tools include the Live Dashboard so you can make changes to your LLC in Texas in just a few clicks, as well as free documents with functionality that makes filling out legal documents as easy as playing Mad Libs. 

But they are always adding more tools, so being a BetterLegal customer becomes better over time.

The Complete Guide of How to form an LLC in Texas is very helpful for you if you are willing to form an LLC in Texas.

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