Businesses in Texas have a choice as to which type of legal-business entity they can choose to operate under. Each type of available business entity offers certain benefits (and concerns) that need to be addressed. Therefore, before making the final decision as to the kind of business entity you may choose for your business, it is smart to consider speaking with a business formation attorney and/or business entity tax specialist to ensure you fully understand this important decision.
One type of business entity in Texas is known as a Limited Liability Company, which is often abbreviated as LLC. Limited Liability Companies provide owners with protections that are similar to those of corporations, but do not have onerous reporting mandates usually associated with corporate entities. Additionally, LLCs are more flexible—like a partnership.
An LLC offers business owners these potential benefits:
- An LLC provides a legal distinction between you and the business as a separate entity, which is important in legal matters.
- LLCs allow owners to choose to pass through profits or pay taxes as a corporation.
- LLCs operate with fewer restrictions and fewer formal requirements.
Like most states, Texas allows for the formation of an LLC; however, the state requires applicants to meet specific criteria and costs, which are discussed below.
Steps to Forming an LLC in Texas
The first step is to file the appropriate paperwork with the Secretary of State (SOS) of Texas. This filing is available using the Texas Form 205 – General Information – Certificate of Formation – Limited Liability Company. It should be noted that the state of Texas requires the use of Form 205 as the document, as it was designed to comply with the state’s minimum filing requirements.
Those who choose to form an LLC in Texas should recognize that the Texas BOC governs this type of business entity (Business Organizations Code in Title 3, Chapter 101.A). When applying for a Limited Liability Company, incomplete or incorrect documentation will result in the delay of the application, or the LLC formation’s request can possibly be rejected. This is the primary reason why it is essential to enlist the help of a business formation attorney, before applying or making an avoidable error.
When completing Form 205, include this information to avoid delays or rejections:
- The name of the entity and the type of entity. The chosen LLC name must be unique and not similar to any other existing Texas LLCs. The Secretary of State must also approve the name, which must meet specific criteria. LLC name availability can be checked by inquiring at corpinfo@sos.state.tx.us.
- Contact information for the entity’s Registered Agent (RA). An LLC is mandated to have a Registered Agent (with an office address within Texas borders) at all times. Any change to the RA or the RA’s address must be reported to the Texas Secretary of State. Failure to update the state’s SOS is likely to result in the termination (involuntary) of the Texas Limited Liability Company.
Each Registered Agent of a Limited Liability Company (LLC) must provide written acceptance through executing and completing Form 401-A – General Information – Acceptance of Appointment and Consent to Serve as Registered Agent.
- Governing authority as designated on the Certificate of Formation. Members of the LLC are advised to develop a written agreement that details the LLC’s operating specifics among members.
- The purpose of the LLC—the purpose must be lawful.
- The appropriate execution of Form 205 by an authorized individual, plus any other related paperwork.
The Fees for Filing a Limited Liability Company (LLC) in Texas
The state of Texas requires a filing fee of $300 when submitting the Certificate of Formation for an LLC.
The state accepts the following types of payments, which must go through a United States financial institution:
- Money orders/personal checks are acceptable forms of payment, but they must be made out to the Texas Secretary of State (SOS).
- Debit or credit cards issued by Visa, Discover, Mastercard, and American Express are acceptable. However, note that the state of Texas adds a statutorily approved additional fee of 2.7 percent for convenience.
Submitting Forms & Fees for an LLC
If an applicant submits a Certificate of Formation for a Limited Liability Company that is appropriately signed and complete, the state of Texas generally can complete its processing in about five business days.
Applicants who want the Texas Secretary of State (SOS) to expeditiously process the application paperwork for a Limited Liability Company must request this expedited process in writing, and agree to pay additional expediting fees for each document processed.
