How to Form an LLC in Texas

A Texas LLC is a limited liability company formed under Texas state law. It separates your personal finances from your business — so if the business is sued or can't pay its debts, your personal assets generally aren't on the hook. You get that protection without the complexity of a corporation.

Texas LLCs are taxed as pass-through entities by default. Profits flow to the members' personal tax returns, so the business itself doesn't pay federal income tax. Texas also has no state income tax, which means your LLC's earnings aren't taxed at the state level either — a real advantage compared to states like California.

Most Texas LLCs are also subject to the state franchise tax, but businesses with annual revenue below $1.18M (as of 2024) owe no tax — they still need to file a report, but the tax liability is zero. That threshold covers a large share of small businesses.

Forming a Texas LLC takes 6 steps: choose a name, appoint a registered agent, file your Certificate of Formation with the Texas Secretary of State, create an operating agreement, get an Employer Identification Number (EIN) from the IRS, and open a business bank account. Most people complete the process in under 2 weeks.

**Step 1: Choose your LLC name.** Your name must include 'Limited Liability Company,' 'Limited Company,' or an abbreviation like 'LLC' or 'L.L.C.' It also needs to be distinguishable from every other entity already on file with the Texas Secretary of State. Check availability through the SOSDirect name search tool before you commit. If you're not ready to file, you can reserve a name for 120 days by filing Form 501 and paying the reservation fee.

**Step 2: Appoint a registered agent.** Every Texas LLC needs a registered agent — a person or business with a physical Texas address who's available during business hours to receive legal documents on your behalf. You can serve as your own registered agent, but many business owners use a registered agent service to keep their personal address off public records.

**Step 3: File your Certificate of Formation.** This is the official formation document for a Texas LLC. File Form 205 with the Texas Secretary of State online through SOSDirect or by mail. The filing fee is $300. Online filings typically process in 3–5 business days; mail filings can take up to 10 business days.

**Step 4: Create an operating agreement.** Texas doesn't legally require an operating agreement, but you should have one. It defines how your LLC is managed, how profits are split, and what happens if a member leaves. Without one, Texas default rules govern your LLC — and those defaults may not match what you actually want.

**Step 5: Get an EIN.** An Employer Identification Number (EIN) is a 9-digit tax ID assigned by the IRS. You'll need one to open a business bank account, hire employees, and file taxes. Apply for an EIN free at irs.gov — the online process gives you your number immediately.

**Step 6: Open a business bank account.** Keep your business finances separate from your personal finances from day one. Mixing the two can undermine your liability protection — a court could decide your LLC isn't really a separate entity, and your personal finances become fair game. You'll need your Certificate of Formation, EIN, and a government-issued ID to open the account.

The base cost to form a Texas LLC is $300 — that's the state filing fee for your Certificate of Formation. There's no publication requirement in Texas, so you won't face the extra costs that states like New York impose. Beyond the formation fee, your main ongoing cost is the annual franchise tax report.

Texas doesn't charge an annual report fee for LLCs, but you do need to file a franchise tax report each year by May 15. If your LLC earns less than $1.18M in annual revenue, you owe no franchise tax — but you still need to file the report. LLCs above that threshold pay 0.375% (retail and wholesale) or 0.75% (all other businesses) on taxable margin.

Optional costs include a registered agent service (typically $100–$300 per year), name reservation ($40 if you need it), and any business licenses or permits required for your industry. Texas doesn't have a blanket state business license, but some industries — things like food service, construction, or healthcare — require state-level permits through the Texas Department of Licensing and Regulation.

Texas LLCs don't file an annual report, but they do have ongoing compliance requirements. The most important is the franchise tax report, due May 15 each year. Even if your LLC owes no tax, you still need to file. Missing the deadline can result in penalties and, eventually, the state forfeiting your LLC's right to do business in Texas.

You also need to keep your registered agent information current with the Texas Secretary of State. If your registered agent changes, file an update promptly — legal documents sent to an outdated address can create real problems if you don't receive them.

Beyond state requirements, keep your business and personal finances separate, maintain your operating agreement, and stay current on any industry-specific licenses or permits. Texas is one of the more business-friendly states for ongoing compliance — no annual report fee, no state income tax — but the franchise tax filing is the one requirement that catches people off guard.

For most entrepreneurs in Texas, forming an LLC is worth it. The $300 filing fee buys you liability protection that separates your personal finances from your business obligations. If your business is sued or can't pay a vendor, your personal savings and property generally stay protected — that's the core value of the LLC structure.

Texas adds a few advantages on top of the standard LLC benefits. No state income tax means your LLC's pass-through income isn't taxed at the state level. No annual report requirement means one less recurring filing. And the franchise tax threshold is high enough that most small businesses owe nothing.

The main trade-off is the $300 upfront cost and the annual franchise tax report obligation. If you're running a very small side business with minimal liability exposure, a sole proprietorship has no formation cost — but it also offers no liability protection. For anyone taking on clients, signing contracts, or hiring help, the LLC structure is worth the investment.