Knowing how much you will spend to form a limited liability company (LLC) in each state is a huge step in taking your business on the right path. We will begin by looking at LLC costs in Texas. If you will be forming an LLC in Texas, this article will be very important to you.
An LLC is a business structure created by state law. An LLC is formed to offer liability protection – the owners of the company are not personally liable for the company debts and other liabilities.
It is worth noting that the amount it costs to start an LLC in Texas now may change with time. For that reason, you need to constantly visit the secretary of state online for up-to-date information.
Filing Requirements & Overall Texas LLC Costs
Depending on your business requirement, a lot of expenses may be involved during your limited liability company formation and keeping it in good standing. For that reason, the overall cost required to set up an LLC in Texas will be determined by state filing requirements as well as your business requirement.
Texas LLC Filing Fee
To form an LLC in Texas, you need to file a certificate of formation with the Texas secretary of state during which you will fill form 205. The Texas secretary of state will charge some fees in order to process and record your filing. The Texas secretary of state charges a $300 filing fee and an additional state-mandated complies 2.7% convenience fee to file a limited liability company certificate of formation.
Texas LLC Annual Report
Most states will require that you file an annual report, which usually comes at a fee. Thankfully, Texas does not require LLC to file an annual report. However, you will have to file an annual franchise tax report. The form is due on May 15 and once filled, you can submit it through the Texas Comptroller of public account website .
Registered Agent Fee
To maintain your company in compliance with the state regulations and get reminded of important deadlines, Texas requires that LLCs have registered agents. You can be your own registered agent, or have a member of a company serve as an agent or a third party individual or a business entity. Hiring a third party costs somewhere between $50- $300 to get this service in Colorado.
Application for Withdrawal (Foreign LLC)
You must file the certificate of termination with the secretary of state in order to withdraw your LLC application. The form can be filed online during which you will pay a filing fee of $15 for both foriegn and domestic LLCs. Prepare the certificate of termination and send it to the Business & Commercial Section Secretary of State P.O. Box 13697. Austin, TX 78711.
Depending on the geographical location and the nature of your industry, a Texas business may need a local, state, or federal permit or license to legally operate in the state. The cost of a business license or permit in Texas will depend on your business requirements and geographical location, but it is somewhere below $100.
LLCs are considered a pass-through entity for tax purposes and they don’t file a separate corporate tax return. For that reason, each company member will pay individual income tax. Texas charges one of the best individual income taxes . Each LLC member will also pay self employment tax at the rate of 15.3% unless you decide to have your LLC taxed as a corporation. In addition, you will have to file franchise tax [4 depending on what you earn per year. The maximum franchise tax rate is 0.75%..
Other LLC Filing Costs
In addition to the mandatory charges that have been discussed above, there are other optional fees associated with LLC formation in Texas.
LLC Name Reservation Fee
If you have a great name in mind and are still working on some issues before filing a certificate of formation, Texas can reserve the name for 120 days. The Texas secretary of state charges a filing fee of $40.
“Doing Business As” (DBA) Name
If you are planning to run your LLC with a different name from your official LLC business name, you’ll need to register a DBA. To get a fictitious name, you need to file an assumed name certificate with the Texas secretary of state or county clerk in the county where you live. This can be done online and the filing fee is only $25.
Business Domain Name & Website
A business domain name is the web address for your business website. You need to register a domain name for your Texas business so that nobody else can use the same name. A domain name registration can cost you anywhere between $2 to $20 depending on special offers or discounts offered. However, newer domain name extensions such as apps. may go beyond this range.
Articles of Organization Fee
You cannot start and operate an LLC in Texas without filing an article of organization. You can file with the secretary of state on your own, or seek the help of a professional service or an attorney. Whichever the case, you will need to pay the state filing fee which is $300.
If you want a reliable LLC formation in Texas, you’ll need to hire an attorney. However, attorney services are not cheap and will depend on whether you opt for a flat fee or hourly changes.That being said, expect to pay somewhere between $500 – $2,000 flat fee or $150 – $350 hourly fees.
Tax ID Number (EIN)
EIN is essentially a social security number for an organization. You will have to get an EIN to help you open an account, file and manage federal state taxes, and hire employees. You can get an EIN for free from the IRS by applying online or via email.
The Top 2 Texas LLC Services
ZenBusiness basic formation package is pretty cheap yet offers a long list of services. They offer a registered agent service for one year free before you begin to pay their otherwise cheaper annual renewal fees.
ZenBusiness also offers a worry-free guarantee in their pro-package, they help you start and maintain your LLC by offering to take care of Texas annual reports and ongoing LLC maintenance.
In addition to their pricing and a long list of features, their great customer support and easy-to-use interface are some of the other reasons they have the best customer feedback.
Incfile has the cheapest basic LLC formation package in the market. Their basic formation package will leave you with only Texas filing fees to worry about and still offer registered agent service for a 1 year free to new subscribers. Besides, they boast a tone of experience with more than 500,000 having relied on them for business formation.
How to Start an LLC in Texas
- Name Your Texas LLC
- Choose Your Registered Agent
- File Articles of Organization
- Prepare an Operating Agreement
- Obtain an EIN
- File Annual Reports
Step 1: Name Your Texas LLC
You should conduct a name search to ensure the name you pick is in compliance with Texas law. Similar names or names that are close are always rejected during business formation.
Step 2: Choose Your Registered Agent
You will need a registered agent to receive vital legal documents on your behalf. An LLC’s registered agent in Texas can be yourself, a member of a company, a third-party individual, or a business entity.
Step 3: File Articles of Organization
You can not start and operate a limited liability company in Texas without filing articles of organization with the Texas secretary of state at the state level or county clerk at the county level.
Step 4: Prepare an Operating Agreement
An LLC operating agreement is not a mandatory requirement when forming an LLC but it is very important as it lists down how your business is managed and the members of your company. In essence, an operating agreement for your LLC is equivalent to the board of directors in a corporation.
Step 5: Obtain an EIN
An Employer Identification Number (EIN) is like your company’s social security and it is very important. You will need an EIN to open a business bank account, file and manage federal tax as well as hire employees in Texas.
Step 6: File Annual Reports
Annual reports provide updates on essential company information including contact, name, and address to be registered.
After learning what it cost to form an LLC in Texas, the next thing is to give it a try. Though their one-time state filing fee is among the most expensive states, the fact that they don’t require LLCs to file annual reports makes it cheap in the long run. For that reason, a Texas-based business should not hesitate to form an LLC in this state. For a foreign LLC registration, I would recommend cheaper and tax-friendly states like Nevada, Delaware, or Wyoming.
Frequently Asked Questions
You will have to pay annual fees to keep your LLC in compliance with the state. Some of the annual fees you will incur are the yearly franchise tax, registered agent services among others.
An LLC member in Texas will have to pay a self-employment tax at the rate of 15.3% and a franchise tax at the rate of 0.75%. However, you can avoid the self-employment tax and individual tax by having your LLC taxed as a corporation.
LLC themselves do not pay corporate taxes but are treated as a pass-through entity. Profits and losses are passed to each member who reports to their personal income tax returns.
The cheapest way to form an LLC is by filing the certificate of formation form with the secretary of state yourself. Filing an LLC certificate of formation on your own will leave you with only state filing fees to cater for.
For Texas-based businesses, forming an LLC in the state comes with more benefits than forming a foreign LLC in Nevada and Wyoming. However, I don’t recommend forming a foreign LLC in Texas; it will cost you a lot of fees. Consider forming foreign LLCs in cheaper states like Nevada and Wyoming.
+ 4 sources
- State.tx.us. (2021). Business and Nonprofit Forms. [online] Available at: https://www.sos.state.tx.us/corp/forms_boc.shtml?_ga=2.236271361.1816636701.1622742838-1486709132.1613033660 [Accessed 15 Jun. 2021].
- Texas Comptroller of Public Accounts (2021). Home Comptroller.Texas.Gov. [online] Texas.gov. Available at: https://comptroller.texas.gov/?_ga=2.207551131.903298399.1612551609-1804035595.1612551608 [Accessed 15 Jun. 2021].
- Walczak, J. and Cammenga, J. (2020). 2021 State Business Tax Climate Index. [online] Tax Foundation. Available at: https://taxfoundation.org/2021-state-business-tax-climate-index/ [Accessed 15 Jun. 2021].
- Texas Comptroller of Public Accounts (2021). Franchise Tax. [online] Texas.gov. Available at: https://comptroller.texas.gov/taxes/franchise/ [Accessed 15 Jun. 2021].