A limited liability company (LLC) can provide liability protection and lend credibility to your business. It may even save you money on taxes. But before you start an LLC, it's important to understand LLC startup costs and the LLC formation process. This information will help you decide if an LLC is the right choice for your business.
LLC costs begin with state filing fees, but they can also include fees for professional services, fictitious name registrations, business licenses, an LLC formation company, and a sometimes registered agent fee. These fees can add up to anywhere from a few hundred to a few thousand dollars, depending on the licenses and services you need. Your new LLC may also have to pay ongoing fees for things like license renewals and a registered agent.
The sections below will discuss each of these costs in detail so you have a good idea of what to expect. Of course, your LLC will also have ordinary business expenses for such things as rent, insurance, marketing, inventory, and payroll.
Texas LLC formation and features
An LLC is a type of business entity that's popular with small businesses because of its unique combination of limited liability companies' protection and flexible management and taxation. One of the main reasons for setting up an LLC is that LLC owners (known as members) generally aren't personally liable for LLC debts. Corporations offer this same limited liability protection, but sole proprietorships and general partnerships do not.LLCs can be managed by their members or by one or more managers. The company can have a traditional structure of company officers, or it can have a less formal management structure that reflects the way the business actua
lly operates. While an LLC can continue to be taxed in the same way as a sole proprietorship or partnership, it also has the option to be taxed like a corporation. Corporations, meanwhile, have a more rigid management structure, and they must be taxed as corporations.
To form an LLC in Texas, you'll file paperwork with the Texas Secretary of State and pay a state fee. Every LLC should also have an operating agreement. While the formation process is relatively straightforward, many people use an online formation service to ensure the paperwork is completed and submitted properly.
How much does it cost to start an LLC?
To start an LLC in Texas, you must file a certificate of formation with the Secretary of State. The filing fee for the certificate is $300 as of 2023. The certificate can be submitted by mail or courier, or for faster processing, you can upload it electronically.
Before filing your certificate, you'll need to make sure your LLC name is available for use in Texas. You can do this by searching state business filing records online or contacting the Secretary of State's office for a preliminary determination of name availability. If your LLC name is available, but you aren't ready to file business entity formation paperwork, you can reserve the name for 120 days by filing a name reservation form and paying $40. This ensures another Texas business won't take your chosen name before you have a chance to form an LLC.
In the past, Texas business formation costs sometimes included publishing costs to place a notice in a local newspaper. However, the publication requirement for state fees was repealed in 2003.
In addition to the basic business entity formation costs, you may also pay for a registered agent, negotiating and preparing an operating agreement, and legal and tax advice.
Key takeaways
- The filing fee for a Texas LLC is $300
- The business name reservation fee is $40
- The assumed name or DBA fee is $25
- Registered agent fees will vary depending on who you choose as your registered agent and the types of services your LLC needs.
Registered agent
Every LLC in Texas must name a registered agent who can receive lawsuits and other legal documents on the LLC's behalf. The LLC's registered agent can be an individual Texas resident or a company registered to do business in Texas. The LLC cannot be its own registered agent. The LLC must also have a registered office. The office must be a physical address (not a P.O. box) in Texas, a business address where legal documents can be personally served on the agent during normal business hours.
An LLC business owner or employee can act as an agent as long as they're a Texas resident and available at the office during business hours. If you choose this approach, you won't have any registered agent fees. However, if you don't have someone who can serve as an agent, or if you're concerned about reliability, continuity, or privacy, you can hire a registered agent service.
The cost of registered agent services for an LLC varies, but in general, you can expect to pay between $35 and $300 a year. If you change registered agents after forming your LLC, you must file a change of registered agent or registered office form with the state and pay a $15 filing fee.
Key takeaways
- All Texas LLC s must have a registered agent
- An LLC cannot be its own registered agent
- An LLC member/owner or an LLC employee can be named as a registered agent as long as they are a Texas resident
- Registered agent services can run from $35-$300 per year, but that can vary depending on who you use as your registered agent and the services you need
LLC operating agreement
An operating agreement, also known as a “public information report," is an agreement among the members of the LLC that governs the rights and relationships of members, managers, and officers, as well as other internal affairs of the LLC. An operating agreement covers a broad range of management and operational issues, including the contributions of the members; members' and managers' roles and responsibilities; voting; allocation of profits and losses; and the procedures for admitting new members and dealing with a member's death, divorce, or departure.
Texas law does not explicitly require an operating agreement. Because the operating agreement is not filed with the state, there are no filing costs associated with one.
Business, legal, and tax advice for LLC and operating agreement
State filing fees are only one aspect of Texas LLC startup costs. Many small business owners have additional LLC costs for expert help with legal questions, preparation of LLC documents, tax laws, and tax issues. Here's a breakdown of some of the additional LLC formation costs you might have for professional services:
- Legal advice about entity formation. When you start a business, a limited liability company is just one of your choices. You can also form a corporation, do business as a sole proprietorship or partnership, or choose from a number of more specialized business types. An experienced small business lawyer can help you evaluate your options and choose the business type that's best for your situation. Lawyers usually charge by the hour for this type of service, although they may offer free or low-cost initial consultations. Legal advice is also a component of some online LLC formation service plans.
- Tax advice. Forming a business entity can affect the way your business is taxed, so it's worthwhile to get advice from a business accountant before you establish your business. A tax adviser can also give you tips on deductions and serve as a valuable resource at tax time. Many tax professionals offer free or low-cost consultations.
- Preparing and filing forms. To make sure your certificate of formation is prepared and filed correctly, you may want to use an online LLC formation service. Fees vary depending on the company and the bundle of services you choose. You can also hire a lawyer or, in some cases, an accountant to handle the LLC filing process for you.
- Negotiating and writing an LLC operating agreement. The cost to prepare an operating agreement varies widely. An online formation service may include an operating agreement at no cost as part of their basic LLC formation package. At the other end of the cost spectrum is a custom operating agreement negotiated among the members, with each member represented by their own attorney. The right approach for you will depend on the nature and size of your business, its owners, and your budget.
How much are LLC annual fees and taxes?
LLCs may also have ongoing costs. A Texas LLC's income is subject to federal income tax. Texas also imposes an annual franchise tax on business entities doing business in the state. Here's a breakdown of ongoing costs.
LLC franchise tax
Unlike many states, Texas does not require LLCs to file an annual report or biennial report with the Secretary of State or pay an annual fee. Instead of paying these LLC maintenance costs, Texas LLCs must make annual franchise tax reports with the Office of the Comptroller.
Franchise taxes are based on an LLC's “margin," or its total revenue multiplied by 0.7, or total revenue minus cost of goods sold, compensation, or $1 million. Businesses with revenue of $1.23 million or less and businesses that would owe franchise tax of less than $1,000 do not have to pay franchise tax. For all others, tax rates are .375% for retail and wholesale businesses and .75% for other businesses.
Even though many small businesses won't pay any franchise tax, they still must file a franchise tax report by May 15 of each year. There's no cost to file the annual report now, but there's a $50 penalty for filing it late.
State and federal taxes
An LLC's profits are subject to federal income tax. However, the way they're taxed can vary because the IRS doesn't have a tax category specifically for LLCs. Instead, the IRS automatically treats single-member LLCs as though they were sole proprietorships and multimember LLCs as partnerships. The owners of LLCs taxed in this way have the same tax obligations they would have if they were doing business without an LLC—they'll pay income tax and self-employment taxes.
Some LLCs can instead elect to be taxed as an S corporation by filing a form with the IRS. An S corp is a pass-through tax entity, meaning that LLC profits pass through to the owners, who pay taxes on them at their personal tax rates. Profitable LLCs can sometimes benefit from S corp pass through taxation because of the potential for members to be company employees and save on self-employment taxes. An LLC can also elect to be taxed as a C corp, but this is less typical since C corp owners face "double taxation"—the business is liable for corporate income tax, and the owners are also taxed on dividends.
A small business accountant can go over these options with you and help you determine how your LLC should be taxed and what you might expect to pay based on your revenue and expenses. If you choose corporate taxation, you should expect to pay a tax professional to prepare your return each year.
At the federal government state level, Texas does not have a personal income tax. It also does not levy a corporate income tax apart from the annual franchise tax.
Filing fees for out-of-state LLCs
If you form an LLC in another state and expand into Texas, you'll need to register as a foreign LLC within 90 days of beginning to conduct business in the state. To do this, file an Application for Registration of a Foreign Limited Liability Company. The fee for foreign registrations is $750.
Like domestic Texas LLCs, foreign LLCs that conduct business in Texas must have a Texas registered agent. Since foreign LLCs are likely headquartered elsewhere, it's more likely that a foreign LLC has business office and will need to hire a registered agent service to fill this important role.
Filing fee for fictitious business names
If an LLC regularly does business under a name other than its official business name, it must file an Assumed Name Certificate with the Texas Secretary of State. The certificate lists the fictitious name and the identity of the entity that registered the name. A fictitious business name filing notifies the public that the LLC is doing business under a different name, but it does not give the LLC any exclusive rights to use the fictitious name.
A foreign LLC whose official LLC name isn't available for use in Texas can register a fictitious business name and use that name to register the LLC to do business in Texas. An LLC that does business under its official LLC name does not need an assumed name registration because it does not use a fictitious name.
The filing fee for an assumed name certificate is $25. If your business uses more than one assumed name, you must file a separate certificate for each. Fictitious name filings last for up to 10 years. Consult with an attorney if you aren't sure whether you need to file an assumed name certificate.
How much does it cost? LLC filing fees compared
If you're considering forming an LLC in Texas, you may want to know how the cost to start an LLC stacks up against the cost to start another type of business. You may also wonder whether it would be less expensive to form an LLC in another state. This section will address both those issues.
Texas imposes the same $300 initial state filing fee whether you're setting up an LLC or a corporation. If you hire a registered agent, the fees will be the same for corporations as for LLCs. If you do business as a sole proprietorship or general partnership, you won't pay state filing fees or registered agent fees, but you may have to pay your county for an assumed name certificate. It's important to remember that while corporations and LLCs offer their owners limited liability, sole proprietorships, and general partnerships do not.
The initial Texas LLC filing fee of $300 is one of the highest in the country. But unlike many states, Texas does not require an annual report or biennial report or charge LLC maintenance costs.
Some states, like Wyoming, New Mexico, and Nevada, advertise themselves as business-friendly and actively seek out new LLC formations. While these states offer a few features that other states do not, you probably won't save money by forming an LLC there.
If you form an LLC out of state, you'll need a registered agent in that state. Unless you know someone who can do the job, you'll have to pay a registered agent service between about $35 and $300 a year. You may also have to file annual reports and pay annual fees. In addition, if you start an LLC in another state and do business in Texas, you'll need to register in Texas as a foreign business and pay the $750 registration fee. So regardless of the initial LLC filing fees, if you're based in Texas, the overall cost to start an LLC in another state will usually be higher than setting your business up in Texas.
Other costs for an LLC to conduct business in Texas
Filing fees are just the beginning of LLC startup costs. Here are some of the other fees and costs small business owners can expect in the early days of an LLC's existence
- Federal Employer Identification Number. All LLCs with employees or more than one member must get a tax ID number from the IRS. Similar to a personal Social Security number, the EIN identifies a business for tax purposes. You'll need it for setting up bank and tax accounts. The Employer Identification Number, also known as a federal tax ID number, is available at no charge on the IRS website. It's also a component of some online formation service packages.
- Business bank account. LLC owners have limited personal liability for business debts. To maintain that liability protection, LLC finances must be kept separate from the members' personal ones. That makes a business bank account essential for any LLC. Bank accounts are free to establish, but you may have monthly fees or costs for things like business checks.
- Business licenses. Texas doesn't require LLCs to have a general state business license. However, depending on your business, you may need federal or state licenses or permits. The Texas Business License and Permit Guide is a comprehensive listing of these licenses, with links to websites where you can obtain more information. Some localities have their own business license requirements. Fees and application procedures for licenses vary, and there may also be ongoing business license renewal fees.
How much is the LLC fee in Texas?
Filling fees for a certificate of formation to establish an LLC in Texas are $300. Texas does not have an ongoing annual fee for LLCs, but it does levy a franchise tax on LLCs with revenue of $1.23 million or more.
How much does it cost to file a C corp in Texas?
It costs $300 to file a certificate of formation for a for-profit corporation in Texas. If you form a corporation, it will automatically be considered a C corp for federal tax purposes. An LLC can also elect to be taxed as a C corporation by filing a form with the IRS. There is no cost to file this form.
A C corp files a corporate tax return and pays taxes at the corporate level. Shareholders also pay personal income tax on corporate distributions. C corp taxation can be complex, and some small businesses find they can minimize their tax burden with pass-through tax entities such as an S corp. For these reasons, it's important to budget for professional accounting advice and tax preparation if you're considering a C corp.
Is an LLC worth it in Texas?
Whether an LLC is worth it will depend on your business. The initial formation cost is $300, there's no annual report fee, and many small businesses aren't liable for franchise taxes. This makes an LLC an affordable way to get enhanced liability protection. And an LLC doesn't require sweeping changes to your business structure or operations: If you're already doing business as a sole proprietorship or partnership, your management structure and tax status can stay the same as they've always been.
As you consider forming an LLC, here are some questions to ask yourself:
- Is there a risk your business could someday be unable to meet its financial obligations? If your business is a sole proprietorship or partnership, business creditors can pursue you personally. If you form an LLC, they can only pursue the money held by the business.
- Do you have business partners? If you co-own your business with others, you have a greater liability risk than if you were a sole proprietor. This is because you can be held personally liable for wrongdoing by a business partner, even if it was unauthorized. For this reason, most business lawyers recommend an LLC or corporation for a multi-owner business.
- Do you have employees? An LLC helps you minimize the risk of personal liability if your business is sued for the actions of someone in your workforce.
- Do you make more money in your business than you'd make working for someone else? Some LLC owners can reduce their self-employment (Medicare and Social Security) taxes by electing S corp taxation and paying payroll taxes only on their reasonable salary. This is a complex topic, so consult with a tax professional before considering an S corp election.
- Do you plan to seek outside investors? If you're looking for venture capital, or if you want to give a stake in the company to people who helped during the startup phase, you may be better off forming a corporation. A business attorney can advise you.
- Do you have a small, solo business that has little income, no employees, and little risk of indebtedness or lawsuits? You may not really need an LLC right now, but you can still set one up.
Since forming an LLC is a personal decision that can be influenced by many factors, it's best to get professional advice. A consultation with an accountant or business attorney can save you money in the long run and help you set your business up for success.
How long does an LLC last in Texas?
When filing a certificate of formation for an LLC, you can specify a specific duration for the business. Otherwise, a Texas LLC continues to exist until it is terminated.
An LLC can be terminated voluntarily by first following the procedures outlined in the operating agreement or state law for winding down the company's business. Next, you must obtain a Certificate of Account Status for Dissolution/Termination from the Comptroller's Office, verifying that all taxes have been paid. Finally, you must file a Certificate of Termination of a Domestic Entity with the Secretary of State. The fee for filing the certificate is $40.
The state may also involuntarily terminate an LLC's registration. For example, state law requires LLCs to maintain a registered agent within the state. If an LLC doesn't do this, the Texas Secretary of State may involuntarily terminate a domestic LLC or revoke the registration of a foreign LLC.
Summary
In conclusion, understanding the costs involved in forming and maintaining an LLC is crucial for a smooth start and ongoing success. Keep in mind the factors that contribute to cost discrepancies across states and explore ways to reduce costs, such as serving as your own registered agent or using online services. By staying informed and weighing the pros and cons of each option, you can make the best decision for your business and its future growth.
Frequently asked questions
How much is Texas LLC filing fee?
The filing fee to form an LLC in Texas is $300. If you need a certified copy of the certificate of formation, there is a $30 fee, and if you need a certificate of status, there is a $5 fee. You don't have to pay any monthly or annual fees to maintain your Texas LLC.
Is LLC worth it in Texas?
LLC formation in Texas provides asset protection for its owners, making it a great way to keep your personal assets secure. It also offers other financial and tax benefits, making it a worthwhile option to consider.
