Texas LLC Formation: A Complete Checklist
Creating a Texas LLC formation checklist can make the process of forming your new business a little easier. 6 min read updated on January 16, 2025
Key Takeaways:
- Choosing a Business Structure: Evaluate the pros and cons of various business structures before deciding on an LLC.
- Name Selection: Conduct a trademark search and consider reserving your LLC's name with the Texas Secretary of State.
- Operating Agreement: Draft an operating agreement to outline the management and operational structure of your LLC, especially if it has multiple members.
- Tax Compliance: Register for an EIN, and ensure compliance with federal, state, and local tax obligations.
- Registered Agent: Designate a registered agent with a physical address in Texas to receive legal documents on behalf of your LLC.
- Certificate of Formation: File the Certificate of Formation with the Texas Secretary of State to officially create your LLC.
Creating a Texas LLC formation checklist can make the process of forming your new business a little easier. You must register with the Secretary of State office in Texas, fill out specific forms, and pay the required filing fees. However, the process is a little more complex than just filing a few forms.
In general, it's easy and affordable to create an LLC in Texas. However, there are some specific requirements that aren't seen in some other states. Here are some important checklist items to keep in mind when forming a new LLC in Texas. These are especially helpful when you have a business with multiple owners.
Basic Information Checklist
- Have a list of three names, in order of preference, that you want to name the LLC.
- Have complete names and addresses for all potential members, along with their spouses.
- Decide whether it will be member-managed or manager-managed?
- Will there be officers? If so, have their names and titles.
- Write a description of your business.
- Have the location in mind — will there be branch offices? Offices in other states?
Business Structure Options
Before forming an LLC in Texas, it's essential to evaluate whether an LLC is the most suitable business structure for your needs. Texas offers various business entity options, including sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). Each structure has its benefits and drawbacks in terms of liability, taxation, and management. For instance, an LLC offers limited liability protection, meaning personal assets are typically not at risk if the business faces lawsuits or bankruptcy. Additionally, LLCs provide flexibility in taxation options, allowing you to choose between being taxed as a sole proprietorship, partnership, or corporation.
LLC Name Requirements
This is one of the most important aspects of LLC creation so take ample time to choose the multiple names you have decided on. You can pick any name, provided it's not already registered, but it must include some variant of the abbreviation “LLC” or the words “Limited Liability Company” at the end. Do an LLC name search and then you can reserve your name by filing Form 501 with the Texas Secretary of State office.
Trademark Search and Reservation
Once you have a potential name for your LLC, it’s crucial to conduct a trademark search to ensure the name isn't already in use or trademarked by another entity. You can perform this search through the U.S. Patent and Trademark Office (USPTO) database. Reserving your LLC's name with the Texas Secretary of State might also be a wise move, especially if you’re not ready to file the formation documents immediately. A name reservation in Texas is valid for 120 days, providing you with ample time to prepare your formation documents.
Questions for Existing Businesses
If you have an existing business you plan to change to an LLC, have the answers to these questions:
- Will any properties in the business name be transferred to the LLC?
- Will all licenses, certificates of ownership, and insurance policies be transferred?
- What liability of the old business will the new LLC assume?
- Do you need to dissolve the old business?
Capital Contributions
- What are the terms of contributions? Cash, property, a combination of both? When are monies due?
- Is there an agreed value of property and what did it cost the member?
- Are any members going to contribute services or intangible property?
- Is any member loaning property to the LLC?
- What are ownership percentages?
- Will any members not be required to make a capital contribution?
- What about provisions for capital call contributions and penalty provisions in case the contribution is not made?
Operating Agreement
While Texas does not legally require LLCs to have an operating agreement, it is highly recommended that you draft one. An operating agreement outlines the ownership structure, member roles, management procedures, and the process for handling disputes. This document is crucial in preventing misunderstandings and ensuring that all members have a clear understanding of their rights and responsibilities. It’s especially important if your LLC has multiple members, as it serves as the governing document of the business.
Accounting
It helps to understand the accounting and procedures for an LLC in Texas.
- What will be the individual and fiscal years for members and the LLC?
- Will you use the cash basis or accrual method of accounting?
- When will you distribute financial statements to your members?
- How will you calculate annual profits and losses?
- Do you have special provisions on accessing the books or any restrictions for confidential information?
Federal, State, and Local Tax Requirements
After forming your LLC, you must register for federal, state, and local taxes. Start by obtaining an Employer Identification Number (EIN) from the IRS, which is necessary for tax filing and opening a business bank account. Texas LLCs also need to register for state taxes, such as franchise tax and sales tax, if applicable. Additionally, depending on your business location and the nature of your services, local taxes or business licenses might be required. It’s crucial to consult with a tax professional to ensure compliance with all tax obligations.
LLC Management
Deciding on the terms of your management structure is very important with an LLC.
- Will members have equal votes? If not, will they be divided into multiple groups with different voting and management rights?
- Will the management be transferred to one or more specified people? When do managers need member approval?
- Will a manager need a bond?
- How will you handle salary changes?
- Who and how will checks be signed?
- When will manager and member meetings be held?
- Will you pay management a fee? If so, how will you calculate it?
- Can all members enter into contracts on behalf of the LLC?
- Are all members and managers expected to devote all their time to the business? What are provisions for possible conflicts of interest?
- What dispute resolution provisions will be enacted?
Registered Agent
Every Texas LLC must designate a registered agent—a person or entity responsible for receiving legal documents on behalf of the LLC. The registered agent must have a physical street address in Texas and be available during regular business hours. This role is vital for ensuring that your LLC receives important legal notices and communications from the state. You can act as your own registered agent, appoint another individual, or hire a professional registered agent service.
Dissolution of an LLC
In the event of a possible dissolution, you need to have a plan in place.
- What events can cause a dissolution?
- Are members expected to act as liquidators? Will the manager(s) select who will? Will liquidators be compensated?
- Are assets ones that can be distributed wholly or partially?
- Do any members require the return of specific property items they contributed?
- What is the distribution order for assets?
- Is there a way the LLC can be continued?
Other Important Topics
There are a number of other topics that need to be addressed when forming an LLC:
- Tax treatment (how will the LLC be taxed?)
- Life insurance (are members required to purchase, how much do they need, etc.)
- Admitting new members
- What constitutes a prohibited act?
Filing the Certificate of Formation
To officially form your LLC in Texas, you must file the Certificate of Formation (Form 205) with the Texas Secretary of State. This document includes essential information about your LLC, such as its name, address, registered agent, and management structure. You can file this form online or by mail, and a filing fee applies. Once the Certificate of Formation is approved, your LLC becomes a legal entity in Texas, and you'll receive a stamped copy of the form as confirmation.
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