Forming a LLC in Texas separates your personal assets from those of the company and helps protect you as a business owner. It also legitimizes your business in the eyes of customers and potential clients.
A good name is essential and must comply with Texas naming guidelines. Restricted words (bank, lawyer, university) require additional paperwork and licensure.
1. Determine Your Purpose
Your business’s purpose is a critical part of the process of establishing an LLC. It determines whether your business is eligible for certain tax benefits and how courts will likely interpret your separation of personal and business assets in the event of a lawsuit.
It also dictates how profits and losses will be distributed among members, helping to affirm your limited liability status in court. It’s also helpful in establishing buyout, or buy-sell, provisions for situations where a member wishes to leave the company or passes away.
Your business’s purpose will determine what industry-specific licenses and permits you may need to operate in Texas. For example, if you’re selling alcohol, you’ll need to obtain a liquor license. In addition, you’ll need a sales and use tax permit if your company will be making taxable sales.
2. Select a Business Name
Choosing a business name is one of the most important decisions you’ll make when starting an LLC. Make sure the name you want is available as a URL and check the state’s rules for restrictions.
For example, in Texas you can’t use words that imply your business is a government agency or was created for an illegal purpose. Also, your name must be distinguishable from other businesses. Adding punctuation, capitalization, or the addition of “the” in front of the business name doesn’t qualify as being distinguishable.
You’ll also need to decide whether your LLC will be manager-managed or member-managed. This will determine how your company is run and who makes the decisions. It’s important to clarify this in your operating agreement to prevent confusion and conflict.
3. File Articles of Organization
This is a state-level document that outlines the most important information about your company, including its name, purpose and management structure. It’s also where you indicate whether your LLC will be member-managed or manager-managed and how long you want it to exist (either perpetually or for a specific number of years).
You can file your articles online using SOSDirect or by mail or fax. Before filing, you should search the state’s database to make sure your chosen business name isn’t already being used by another entity.
The documents should also list your registered agent, a phone number where you can be reached and your business address. If your LLC is going to be selling taxable products, you’ll also need to get a sales tax permit.
4. Designate a Registered Agent
In addition to meeting Texas state LLC requirements, your new business should also comply with federal tax requirements by obtaining an Employer Identification Number (EIN). The EIN is like a personal Social Security number for the corporation and is required when opening a bank account or filing taxes.
The EIN and address of the registered agent are listed in public records, so if you want to protect your privacy and don’t want to list your home address, you can hire a professional registered agent service. BetterLegal has helped tens of thousands of entrepreneurs start their businesses and can act as your Texas registered agent for a reasonable fee. Click here to learn more.
5. Create an Operating Agreement
If you are starting a new LLC with one other person or more, an operating agreement is an important document to help establish your management structure and relay how the company will be run. You will need to determine whether you will be a member-managed or manager-managed LLC, how the company will vote on business matters and what percentage of the company each member will own.
You will also need to obtain a federal Employer Identification Number (EIN) from the IRS. The EIN is like an LLC’s “social security number” and is required to open a bank account, apply for employee benefits and file taxes. A Texas LLC can’t legally operate without an EIN. An operating agreement will also help affirm your limited liability status should a dispute arise.