LLC Texas Cost: Everything You Need to Know
The Texas LLC cost is worth it for access to one of the most prosperous states in the United States of America.3 min read
The Texas LLC cost is worth it for access to one of the most prosperous states in the United States of America. An LLC, or limited liability company, is a way of organizing a company to take advantage of the best parts of a sole proprietorship and corporation. Since LLC status is granted by and relevant to states, a business looking to form has to decide in which state or states they wish to do business. Those who choose Texas find many advantages to doing business in the Lone Star State.
What Are LLCs?
The most basic forms of businesses in the US are the sole proprietorship and the partnership. Both formations treat the business as a direct extension of the owner or owners, with money earned going directly to the owners, which is helpful when it is time to pay taxes. But in terms of liability, they are far from ideal; if a legal judgment is entered against the business for any reason, the assets of the owners are considered fair game when it is time to pay the penalties.
A corporation is a business entity in which a new “person” is created, in a legal sense, and able to own property and conduct business. The corporation issues share to its owners, entitling them to some degree of control of the operation and piece of the financial returns. This person is able to stand in as the legal person being sued in court cases; any judgment can only be against the corporation's assets, not those of the owners. But there is a special tax on corporations in that they are expected to pay an income tax similar to an individual income tax in addition to the individual tax on the salaries and dividends of the shareholders, leading to double taxation.
An LLC is a state law entity with a liability shield similar to that of a corporation. But for state taxation purposes, their income counts as “pass through,” meaning that it counts as the individual income of its owners. LLC status is primarily relevant in state matters, with the fed taxing it as either a sole proprietorship/partnership or corporation, depending on how it is filed. Note that some LLCs are eligible for S Corporation status, a set of filing rules that allow small corporations who follow strict rules to count income as “pass through.”
Preparing a Texas LLC
There are a few steps to form a Texas LLC.
- Prepare the proper paperwork.
- Search to make sure no other LLCs exist with your desired operational name.
- Send in your paperwork.
- Pay your fees.
An LLC's paperwork starts with a Form 205, or Certificate of Formation. This document designates the company's name, the name and address of a local agent, and a declaration of whether the business will be run by its owners or by professional managers. To form an LLC, you will also want a local agent, especially if you do not reside in the area at the moment. You'll also probably want to bring in an attorney to look over the paperwork and make sure you are making the best decisions.
Your business' name needs to be distinguishable from others operating in the area, to prevent confusion between your business and others. There is a website where you can search to make sure your name is free. When thinking up a name, try not to be too generic; in addition to making your business stand out, an individualistic name will also speed up the registration process. Your name needs to include some form of LLC designation, whether the words “Limited Liability Company” or “Limited Company” or one of the many abbreviations for that term. That name can be reserved for 120 days with the filing of Form 501 with the Secretary of State if you need more time to get the rest of the paperwork together.
There is also a $300 fee to process the paperwork, as well as a yearly franchise tax due every May 15th, so be sure you have your financial ducks in a row when you file. The tax is somewhat complex and may require a trained accountant or attorney to help you fill out.
If you need help with filing your Texas LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.