(Newswire.net — November 30, 2022) — Since the pandemic, Americans have been forming new businesses at historic rates. Entrepreneurs have jumped onto the bandwagon of opportunities created by the global pandemic, to form new businesses all across the country. One of the most popular places to start a new business in this historic cycle has been Texas. This is what you need to know to start a limited liability company (LLC) in Texas.
Name Your Business
LLCs are formed according to state statutes. In Texas, LLCs have to have a designator such as “Limited Liability Company”, “Limited Company”, “LLC”, “Ltd”, or some other variation of LLC, after your company name. So, for instance, if your company name is Funky Monkeys, then your full company name is going to be something like Funky Monkeys LLC.
An LLC cannot use a designator that makes it sound like a different kind of organization. So, for instance, an LLC cannot use designators such as Inc., Incorporated, Corp., Corporation, LP., or LLP, because these imply that your LLC is not an LLC.
In addition, your business cannot have the same name as an already existing business. This is to protect the brand of the existing business. Not only should your business not have the same name as an existing business, but it also should not be deceptively similar to an already existing business. So, for instance, if there already exists a company called Funky Monkeys, you cannot name your company, Funki Monk3ys, because this might confuse people into believing the two companies are the same.
You can search for your preferred name using the Texas Taxable Entity tool, to see if there is anyone with a similar name. Seeing if there is a business with a deceptively similar name is a bit harder. You can consult with the Texas Secretary of State’s office to see if your preferred name is acceptable.
You are allowed to reserve your preferred name for 120 days by filing a Form 501 for a fee of $40.
If you need to change your business name, later on, amending it will cost you $150, so you want to get the name right.
Get a Registered Agent
Every business needs a registered agent in order for the business to be registered. A registered agent must be a resident of Texas and can be an individual or a business, but a company cannot act as its own registered agent. A registered agent acts to receive services of process, such as subpoenas and lawsuits. Under state law, once your registered agent receives a service of process, it is as if you have received a service of process. Also, your registered agent has to be available at all times during business hours. This means that your best bet is a registered agent service company, that will do this for you professionally.
Whatever person or company that you appoint as a registered agent must sign a Consent to Serve as Registered Agent form, Form 401A.
You can learn more about registered agents here.
Set Up an LLC
Some licensed professionals, such as doctors, dentists, psychologists, lawyers, architects, veterinarians, and accountants, are not permitted to set up an LLC. They have to form what’s known as a Professional Limited Liability Company (PLLC).
That said, your first port of call is to file a certificate of formation, Form 205, for an LLC. The filing fee is $300. The filing can be downloaded online.
If your business is domiciled in another state and you want to register to do business in the Lone Star State, you will need to file a Form 304, or “Application for Registration of a Foreign Limited Liability Company”, for a cost of $750.
Draft an Operating Agreement
An operating agreement serves to outline the owners of the LLC, known as members, how much of the LLC each member owns, and more importantly, how the LLC will operate. It will spell out profit sharing, how taxes will be paid, who the managers are, and how the LLC will be managed.
Whether your business is a single-member or multi-member LLC, it needs an operating member. Not only does it serve to show that the LLC is a separate entity from its owners, but it also helps your business to get clear about how the business will be organized. Even when you are the sole member of the LLC, it is really important to think about how you will run your business. Often, entrepreneurs are eager to start but are not clear about how they will operate. This step makes everything clear. This is especially important in multi-member LLCs, where there may be disagreements about rights and obligations. The operating agreement is something that you can point to so everyone rows in the same boat.
The operating agreement is an internal document, so you will not submit it to any external agencies, but it is important for your business.
Get an EIN
The Employer Identification Number (EIN) is obtained from the Internal Revenue Service (IRS) once your LLC application has been approved. It allows you to pay your federal taxes and acts as social security for your business. You will not be able to conduct business, open a bank account, and do other things without it.
Pay the Texas State Franchise Tax Fee
Every Texas LLC has to file annual state franchise tax returns. Since 2021, LLCs that earn over $1.18 million in revenue also have to pay a franchise tax. The Texas Comptroller provides a franchise tax overview that explains how the tax is calculated. Texas is one of the most attractive states to do business in the United States, and one of those reasons is the limited number of taxes that businesses have to pay. LLCs do not pay any other taxes to remain in good standing with the state.
Fix Any Errors in Your Filing
Most fillings contain errors. If you find errors in your filing, you should fix those errors by filing a Form 403, the Certificate of Correction, with the secretary of state.
You have to clearly state what errors you want to fix. Form 403 is filed at a cost of $15. Currently, the filing can only be made in person.