Forming a Limited Liability Company (LLC) in The Lone Star State is a popular choice for entrepreneurs and small business owners who want to protect their personal assets and enjoy flexibility in their business operations. LLC formation costs vary from state to state, and it is essential to understand the costs involved in forming and maintaining an LLC in Texas. This article will overview the initial and ongoing costs of establishing and running an LLC in Texas.
If you would like to understand Texas LLC Costs and to know more about how much it costs to form an LLC in Texas, read the whole article until the end.
Webinarcare Editorial Team will help you understand how much an LLC Costs in Texas. You must be guided by all the factors gathered in this article.
Initial LLC Formation Costs
When starting a limited liability company (LLC), knowing the initial costs associated with forming and registering your new business entity is essential. Understanding and preparing for these expenses can help you budget effectively and set your Texas business on a path to success. Some common initial costs associated with forming an LLC include Certificate of Formation filing fees, Registered Agent fees, and additional services, such as business name reservation fees.
Certificate of Formation Filing Fee
The first step in forming an LLC in Texas is to file the Texas Certificate of Formation with the Texas Secretary of State. This document officially creates the LLC and includes essential information about the business, such as its name, address, and Registered Agent.
This document includes essential information about your LLC, such as:
- The name of your LLC
- The address of your LLC’s principal office
- The name and address of your Registered Agent
- The purpose of your LLC (optional in some states)
You can typically file the Certificate of Formation online, by mail, or in person. A filing fee is associated with this process, which costs around $300. You can also file by mailing it to Texas Secretary of State, which is located at Secretary of State, P.O. Box 13697, Austin, TX 78711-3697.
Registered Agent Fee
An LLC in Texas must designate a Registered Agent who will be responsible for receiving legal and government documents on behalf of the business. You can act as your own Registered Agent or appoint someone you know. Professional Registered Agent in Texas typically charge an annual fee ranging from $50 – $200.
In Texas, your Registered Agent must:
- Be a resident of Texas or a business entity authorized to do business in the state.
- Have a physical address in Texas (P.O. boxes are not acceptable)
Choosing a reliable and responsible Registered Agent is essential, as failure to receive and respond to legal documents can seriously affect your business.
You can serve as your own Registered Agent or appoint a friend, family member, or professional Texas Registered Agent Services.
Business Name Reservation Fee
If you have a specific business name in mind and want to ensure it is available when you are ready to file your Certificate of Formation, you can reserve the business name with the Texas Secretary of State.
In Texas, your LLC name must:
- Include the words “Limited Liability Company,” “LLC,” or “L.L.C.”
- Not contain any words or phrases that are prohibited by state law
- Be distinguishable from the names of other businesses registered in the state
However, if you do not wish to file your LLC right away but want to hold the name that you have decided on, then you can reserve your LLC name for 120 days. You must file a name reservation application in the Texas Secretary of State to keep the name.
The online name reservation fee costs around $40, while the mail name reservation fee costs $40.
You can register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). If you have decided to file for a DBA, you can file it in two methods, by mail and in person. for an easier way.
However, before filing Texas DBA, you should know that you need to renew your DBA up to ten years, which costs around Varies by county
Ongoing LLC Costs
After you know the initial costs of forming an LLC in Texas, you should also know the ongoing costs once you have filed for an LLC. Here are the involved costs that you need to know.
Annual Report Filing Fee
To keep your LLC in good standing in Texas, you must file Annual Report with the Texas Secretary of State. The Annual report provides updated information about your LLC, such as changes in address, members, or Registered Agent.
In Texas, the Annual report fee costs around $0 because it is not mandatory which can be paid on 1 year.
Franchise Tax or Annual LLC Tax
Some states require LLCs to pay an annual franchise or LLC tax, separate from the Annual report filing fee. Franchise tax, or annual tax, is a fee imposed by Texas on businesses, including LLCs and Texas Corporations, for the privilege of operating within their jurisdiction. This tax is separate from income taxes and is usually based on factors such as the company’s net worth, assets, capital, or a fixed dollar amount, depending on the Texas’s specific tax regulations.
The franchise tax in Texas costs $400 minimum; varies based on revenue.
Texas LLC Taxes To Be Paid
The State of Texas is one of those rarest states in the United States that does not levy any personal income tax on businesses. However, the business LLCs must file other taxes with the State authorities.
Texas Sales Tax
A sales tax is a government-imposed tax on the sale of goods and services. It is generally added to the price of a product or service at the point of sale and paid by the consumer. The tax is collected by the retailer or service provider, who then remits the collected tax amount to the relevant government authority. In Texas, the sales tax rate is 6.25%.
Texas State Income Tax
Considering other taxes in Texas, you should pay for the state income tax, which costs Texas has no state corporate income tax.
Texas LLC Federal Self-Employment Tax
Federal self-employment tax rates are the same across all states. Self-employment taxes are imposed on self-employed individuals or members of a Limited Liability Company (LLC) taxed as a sole proprietorship or partnership.
The self-employment tax consists of the Social Security tax and the Medicare tax. As of 2021, the self-employment tax rate is 15.3%, which consists of:
- Social Security Tax: 12.4% (applied to the first $142,800 of net self-employment income in 2021)
- Medicare Tax: 2.9% (applied to all net self-employment income)
Please note that these rates are subject to change, so it’s essential to consult the IRS website or a tax professional for the most up-to-date information. Additionally, some self-employed individuals may be eligible for deductions, which can reduce their taxable income and the amount of self-employment tax they owe.
Texas Property Tax
The property tax is fixed at 1.81% of industrial, commercial, residential, agricultural, and all other properties.
Business Licenses and Permits
Depending on the nature of your Texas business and the location of your operations, you may need to obtain a Business License and permits. The costs of these licenses and permits will vary based on your specific business and location. In Texas, the business license ranges from $50 – $300. However, research the requirements for your LLC in Texas and budget for these expenses accordingly.
Optional LLC Costs
Here are the optional costs you must consider if you will form an operating agreement or hire a professional service.
Although not required by law in Texas, it is highly recommended that LLCs draft an operating agreement. This document outlines the LLC’s ownership structure, management, and operating procedures. Hiring a Business Attorney to draft an operating agreement can cost anywhere from $500 to $2,000, or you can use online resources and templates to create one yourself.
However, if you are wondering how to create an operating agreement, you can check out the Operating Agreement to know and understand how it works.
You may hire professionals such as attorneys, Texas Accountants, or business consultants to help you establish and run your Texas LLC. These services can provide valuable expertise and guidance but come at an additional cost. Consider the potential benefits and weigh them against the costs when hiring professional assistance.
Can I Set Up an LLC For Free?
It’s impossible to set up an LLC entirely for free, as state filing fees and other costs are associated with establishing an LLC. Each state has its own fees for filing the Certificate of Formation, the primary document required for forming an LLC. These fees typically range from $50 to $500, depending on the state.
However, you can save money by handling the formation process instead of hiring a professional service. Here are some steps to help you minimize the cost of setting up an LLC:
- Choose your LLC’s name and check for availability in your state. This can generally be done through the Secretary of State’s website.
- Prepare and file the Certificate of Formation yourself. Texas offer an online filing option or downloadable forms on their websites. By completing this process independently, you can avoid paying additional fees for a professional service.
- Act as your own Registered Agent if permitted within Texas. Texas allows the business owner to serve as the Registered Agent, saving you the cost of hiring a professional registered agent service.
- Create your own Operating Agreement using online resources and templates. Although not required in every state, an Operating Agreement is highly recommended to outline your LLC’s ownership structure and management. By drafting this document yourself, you can save on legal fees.
- Research and apply for any required licenses and permits on your own. Depending on your business type and location, you may need specific permits or licenses. These costs can vary, but handling the application process yourself can save you the expense of hiring a professional service.
While you can’t set up an LLC for free, taking a do-it-yourself approach and minimizing the use of professional services can help you save money during the formation process. However, handling these tasks requires time and effort, and there may be additional legal or financial risks if mistakes occur.
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Forming and maintaining an LLC in Texas involves various costs, including initial filing fees, ongoing annual report fees, and taxes. Understanding and planning for these costs is essential when establishing your LLC. Additionally, consider any optional expenses, such as hiring professional services or drafting an operating agreement, to ensure the success and longevity of your LLC in Texas.