How to Start a Texas LLC: A Complete Guide
Starting an LLC can be a daunting process. How much will it cost? How long will it take? What challenges have other entrepreneurs faced? This guide will answer these questions and more, ensuring you're well-prepared to establish your Texas LLC.
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Why Start an LLC?
If you're new to the process, let's discuss why forming an LLC is essential. Primarily, an LLC helps limit your liability. For instance, imagine running a pizza business using a family recipe, but one day a mishap occurs, and customers fall ill. If your business is registered as an LLC, your personal assets—like your house, car, or savings—are better protected from lawsuits.
While this protection is beneficial, it's not a catch-all solution. Professionals like doctors or dentists, who are at a high risk of being sued, may require additional measures.
Regarding taxes, LLCs are "pass-through entities," meaning the business itself doesn’t pay income tax. Instead, revenue is reported on your personal income tax return. Although an LLC won’t offer sneaky tax savings, it ensures your business structure is sound.
Ways to Form an LLC
There are two main approaches to forming an LLC:
- DIY Method: A free, five-step process.
- Paid Service: Using an LLC formation service for a smoother experience. Check the video description for recommended services.
Pros and Cons of a Texas LLC
Pros
- LLCs can have single or multiple members.
- Profit distribution among members is more straightforward compared to corporations.
- The transfer or sale process involves minimal paperwork.
- The state fee is $300, which is average across the U.S.
- LLCs don’t require annual meetings or detailed meeting minutes.
Cons
- LLC owners must pay sales tax and Texas Franchise Tax.
- Owners are personally liable for debts, loans, or illegal activities if proper separation between personal and business activities isn’t maintained.
- LLCs cannot issue stock, making it harder to raise capital compared to corporations.
Three Crucial Things to Know
Before starting your LLC, keep these key points in mind:
- Include "LLC" in Your Company Name: The full name or abbreviation must appear in your company name.
- Ensure Name Availability: Check for existing companies with similar names using the Texas Taxable Entity Search. If available, you can reserve your name for $40 for 120 days.
- Appoint a Registered Agent: This person or service receives legal correspondence on behalf of your LLC. They must have a physical Texas address and cannot use a P.O. box. While you can serve as your own agent, hiring a professional service is often more convenient.