If you’re starting a business in the state of Texas, forming a Limited Liability Company (LLC) might be the smartest legal move you’ll ever make. It’s one of the most flexible, affordable, and protective structures available to entrepreneurs, freelancers, and small business owners — especially in a business-friendly state like Texas. But too often, business owners file their paperwork without fully understanding the legal implications, tax responsibilities, or long-term consequences.
As a Houston business attorney, I’ve helped everyone from solo consultants to real estate investors and online sellers form LLCs that not only comply with Texas law — but also protect their personal assets, establish credibility, and avoid future liability.
This guide will walk you through exactly how to form an LLC in Texas — step-by-step — the right way. You’ll learn what the Secretary of State expects, what most DIY filers overlook, and how a properly formed LLC can give you long-term peace of mind. Whether you’re at the beginning of your business journey or realizing you need to “clean up” a past filing, you’re in the right place.
What is an LLC (and Why It Matters in Texas)
A Limited Liability Company, or LLC, is a hybrid business entity that combines the simplicity of a sole proprietorship with the legal protections typically associated with corporations. Forming an LLC in Texas allows you to operate your business with a clear legal boundary between your personal and business assets. This means that if your business is sued, your personal property — home, bank accounts, and vehicles — is generally protected from judgments, provided the LLC has been properly structured and maintained.
This separation between you and the business is known as a “liability shield,” and it’s one of the biggest reasons entrepreneurs choose to form an LLC rather than operate as a sole proprietorship or general partnership. In Texas, a sole proprietor has no legal distinction from their business. If something goes wrong — a breach of contract, a customer injury, a lawsuit — your personal assets could be seized to cover business debts. An LLC helps prevent that.
It’s also worth noting that LLCs offer incredible flexibility when it comes to taxation. By default, a single-member LLC is taxed as a sole proprietorship (through Schedule C on your personal tax return), and multi-member LLCs are taxed as partnerships. However, you can also elect to have your LLC taxed as an S corporation or even a C corporation depending on your income and goals. This opens up potential savings on self-employment taxes and long-term growth strategies.
In a state like Texas, renowned for its business-friendly climate and no personal income tax, an LLC is an especially attractive option. Texas makes it relatively simple to establish your company legally — but that doesn’t mean there aren’t traps for the unwary. Forming an LLC provides real protection only if you follow the appropriate legal steps and stay compliant with ongoing state requirements.
That’s why understanding both the “how” and “why” of LLC formation in Texas is so critical. It’s not just a formality — it’s the legal foundation of your entire business.
Step-by-Step Guide: How to Form an LLC in Texas
Now that we’ve clarified why forming an LLC matters, let’s walk through the actual process of doing it right — from choosing the perfect business name to filing the final forms with the state.
Step 1: Choose a Name for Your LLC
Your LLC’s name isn’t just a brand — it’s a legal identity. In Texas, your business name must include “Limited Liability Company” or one of its abbreviations (LLC or L.L.C.). This designation signals to the public, banks, and clients that your business is formally registered and offers limited liability protection. Beyond the legal suffix, though, your name must also be unique and distinguishable from any other business entity already registered in the state.
You can check LLC name availability using the Texas Secretary of State’s name database. It’s important to make this your first step because filing your Certificate of Formation with a duplicate name will result in a rejection — delaying your launch and possibly causing you to miss important filing deadlines. If your desired name is available, you may choose to reserve it for up to 120 days for a $40 fee using Form 501.
Choosing the right name also means avoiding names that are misleading, overly similar to government entities, or suggest professions that require specific licensing (like “Doctor” or “Lawyer”) unless those credentials apply specifically to your LLC members. Be strategic — your LLC name should reflect your mission and stand out, but it also needs to pass Texas’ legal requirements.
In my Houston-based law practice, I’ve reviewed and submitted countless LLC filings, and I can’t count how many have stalled simply because the client missed a small detail in the naming process. When in doubt, we always suggest doing a comprehensive name search and even checking for the availability of a matching web domain or trademark.
🛠️ Action Step: Use the Texas SOS Direct portal to check your preferred name, and verify domain availability so you’re ready to build your brand presence online.
Step 2: Appoint a Registered Agent
Once you’ve chosen your LLC name and confirmed its availability, the next major legal requirement is appointing a Registered Agent. In Texas, every LLC must designate a registered agent when filing its Certificate of Formation. This individual or business entity is responsible for accepting official government documents and legal correspondence on behalf of your business — including tax notices, annual franchise tax forms, and potential legal service of process (such as lawsuits).
You can technically serve as your own registered agent — and many new business owners try this initially. However, this decision comes with a few important drawbacks you should consider before adding your personal name and address to public records. First, a registered agent must be available during normal business hours, every weekday. That means no long vacations, no inconsistent office hours, and no missed deliveries. Second, your registered agent’s address becomes part of the public record, which can lead to unwanted solicitations or compromised privacy.
That’s why many of our clients — especially those who work from home, travel, or run their business while holding a full-time job — choose to use a professional registered agent service or have our law office serve as their registered agent. This ensures important legal notifications are received, organized, and responded to promptly. It also helps preserve your personal privacy and keep business operations running smoothly if your physical availability changes.
More importantly, using a dependable registered agent service can help you stay compliant. If the Secretary of State or IRS tries to send you a notice and it’s returned undelivered or ignored, your LLC could fall into noncompliance or even be administratively dissolved. That would strip away your liability protections until the situation is corrected — a risk no small business should take.
🛠️ Action Step: Decide whether you want to appoint yourself, a trusted contact, or a professional service as your registered agent. If you need ongoing compliance help, we offer affordable registered agent options — just give our office a call to ask about availability and how we can help.
Starting a business in Texas?
Before you file that LLC, read this.
I break down: ✅ Legal steps ✅ Costly mistakes to avoid ✅ What online services don’t tell you
Step-by-step from a Houston business attorney:
🔗 https://t.co/1nIHZxyQ6W#TexasLLC #BusinessLaw #HoustonAttorney pic.twitter.com/QJkv7v5ipz— Houston Business Law (@businesslaw713) July 7, 2025
Step 3: File the Certificate of Formation (Form 205)
Filing the Certificate of Formation (Form 205) is the official step to legally create your LLC in Texas. This document outlines critical details about your business, such as its name, registered agent, management structure, and purpose. While submitting Form 205 might seem straightforward, accuracy here is nonnegotiable — even minor mistakes can delay approval or create compliance issues down the line.
You can file Form 205 online through the Texas Secretary of State’s SOSDirect portal or by mailing a printed copy to their office. While online filing typically results in faster processing (usually 5–7 business days), mailed submissions may take longer. Every LLC formation requires payment of a state filing fee. While fees vary depending on your business needs and processing speed, we work with clients to ensure their filing aligns with their budget and timeline.
To complete Form 205, you’ll need to provide:
- Your LLC’s exact name (including the proper suffix like “LLC” or “Limited Liability Company”)
- The name and physical Texas address of your registered agent
- A brief statement of purpose (e.g., “to engage in any lawful business activity”)
- Management structure (member-managed or manager-managed)*
- Duration of the LLC (if not perpetual, though most opt for perpetual existence)
*Most small businesses choose a member-managed LLC, where ownership (members) handle daily operations. Manager-managed LLCs are typically used when non-member professionals or investors oversee business activities.
One common pitfall I see in DIY filings is misunderstanding the “purpose” clause. While Texas allows broad language, businesses in highly regulated industries like healthcare, finance, or real estate may need to specify their scope to comply with licensing rules. Another frequent error is submitting incomplete registered agent details — especially forgetting to include a physical street address (P.O. boxes are not accepted).
🛠️ Action Step: Double-check your Form 205 for typos, ensure your registered agent’s information is current, and confirm your filing method aligns with your timeline. If you’re unsure about structuring management roles or drafting the purpose statement, our team offers customized filing support — just contact our office to discuss options.
Step 4: Draft an Operating Agreement
While Texas law doesn’t technically require an Operating Agreement, skipping this crucial document is like building a house without interior walls — everything might look fine from the outside, but you’re missing vital internal structure. Your Operating Agreement serves as your LLC’s constitution, defining how your business runs, how decisions are made, and what happens if conflicts arise.
Even for single-member LLCs, a well-drafted Operating Agreement proves you’re running a legitimate, separate business entity. This becomes critical if you ever face legal challenges or IRS scrutiny. Courts often look to LLC Operating Agreements as evidence that you’re maintaining proper separation between personal and business affairs — a key factor in preserving your liability protection.
For multi-member LLCs, this document becomes even more vital. It should clearly outline:
- Ownership percentages and voting rights
- How profits and losses are distributed
- Procedures for admitting new members
- Member roles and responsibilities
- Buy-sell provisions (what happens if someone wants out)
- Dissolution procedures
- Dispute resolution methods
Consider this real-world scenario I’ve encountered: Two friends start an LLC with a handshake deal, splitting everything “50-50.” Six months later, one partner works full-time while the other only handles weekend shifts. Without an Operating Agreement specifying compensation structures or work expectations, what started as an exciting venture often ends in costly litigation.
In my practice, I’ve seen how customized Operating Agreements can prevent common business disputes and protect owners’ interests. For instance, real estate investment LLCs might need special provisions about property management decisions, while consulting firms might focus on non-compete clauses and client relationship ownership.
🛠️ Action Step: Don’t rely on generic templates. Your Operating Agreement should reflect your specific business needs and goals. Our firm offers comprehensive Operating Agreement drafting services tailored to your industry and situation — reach out to learn about our custom documentation packages.
Step 5: Get an EIN from the IRS
An Employer Identification Number (EIN) acts as your business’s Social Security number for tax purposes. While “employer” is in the name, don’t let that mislead you — most LLCs need an EIN whether they have employees or not. This unique nine-digit number helps maintain the separation between your personal and business finances, a crucial aspect of preserving your liability protection.
Beyond basic tax filing, your EIN enables essential business operations. You’ll need it to:
- Open a business bank account
- Apply for business licenses
- File state and federal tax returns
- Handle payroll if you hire employees
- Work with vendors and contractors
- Apply for business credit
Many single-member LLC owners assume they can simply use their Social Security number instead of an EIN. While this is technically possible in some cases, it’s generally not advisable. Using your SSN blurs the line between personal and business identity — exactly what your LLC formation aimed to prevent. Additionally, sharing your SSN with vendors or clients increases your personal identity theft risk.
The IRS provides a straightforward online application process for obtaining your EIN. However, timing and accuracy matter. For instance, if you’re converting from a sole proprietorship or changing your LLC’s tax classification (like electing S-corporation status), the process requires additional steps and careful consideration of tax implications.
🛠️ Action Step: While obtaining an EIN is free through the IRS, consider having your legal team handle this as part of your complete LLC formation package. This ensures proper timing with your other filings and appropriate tax classification choices from the start.
Step 6: Open a Business Bank Account
Establishing a dedicated business bank account isn’t just a good practice — it’s essential for maintaining your LLC’s liability protection. In legal terms, this separation between personal and business finances is called “maintaining corporate formalities,” and it’s one of the first things courts examine if your LLC’s liability shield is ever challenged.
Think of your business bank account as a financial firewall. When you mix personal and business transactions (known as “commingling funds”), you risk “piercing the corporate veil” — a legal term for when courts disregard your LLC’s liability protection and hold you personally responsible for business debts or legal judgments. I’ve seen countless small business owners compromise their liability protection simply by using their personal account for business expenses or vice versa.
To open your business account, you’ll typically need:
- Your LLC’s Certificate of Formation
- Operating Agreement
- EIN documentation
- Valid government-issued ID
- Initial deposit (varies by bank)
Consider your banking needs carefully. While local banks might offer personalized service, national banks often provide more robust online banking features and wider ATM networks. Some factors to evaluate include:
- Monthly maintenance fees and minimum balance requirements
- Transaction limits and processing fees
- Integration with accounting software
- Mobile banking capabilities
- Business credit card options
- Merchant services for accepting payments
🛠️ Action Step: Before opening your account, develop a clear system for tracking business expenses and maintaining financial records. Our office can recommend business-friendly banks and help establish proper bookkeeping procedures to protect your liability shield.
Step 7: Get Required Licenses & File Franchise Tax Reports
Understanding Texas licensing requirements and tax obligations is crucial for maintaining your LLC’s good standing. While Texas is business-friendly, it maintains strict compliance requirements that vary by industry and location. Missing these obligations can result in penalties, fines, or even forced closure of your business.
Texas doesn’t have a general “business license” requirement, but many industries require specific permits or licenses. For example, food service businesses need health permits, contractors often require special licenses, and professional service providers might need industry-specific certifications. Additionally, local municipalities may have their own licensing requirements — what’s required in Houston might differ from Dallas or Austin.
The Texas Franchise Tax is another critical compliance area that catches many new LLC owners off guard. Don’t let the name fool you — this isn’t just for franchises. Most Texas LLCs must file annual franchise tax reports, even if they owe no tax. The reporting requirement alone keeps your LLC in good standing with the state. Missing these filings can result in fines and eventually lead to your LLC being involuntarily dissolved.
Key compliance areas to monitor include:
- Industry-specific licenses and permits
- Local business permits
- Annual franchise tax reports
- Sales tax permits (if selling taxable goods/services)
- Professional licenses
- Ongoing reporting requirements
Your business structure might also affect which licenses you need. For instance, professional LLCs (PLLCs) often have additional requirements beyond standard LLCs. Regular review of your compliance obligations helps prevent costly oversights and maintains your liability protection.
🛠️ Action Step: Consider enrolling in our compliance monitoring service. We track your filing deadlines, maintain your corporate records, and alert you to new requirements that affect your business. Contact our office for details about our annual maintenance packages.
Texas LLC Formation Checklist Free PDF Download
📥 Download the full Texas LLC Formation Checklist (PDF)
Common Mistakes to Avoid When Forming a Texas LLC
Forming an LLC in Texas is a powerful step toward legally protecting your business — but only if it’s done correctly from the beginning. Over the years, I’ve worked with countless clients who thought they had formed their Texas LLC properly, only to discover critical errors that left their personal assets exposed or jeopardized their tax standing. Understanding the most common mistakes can help you avoid legal and financial pitfalls down the road.
One of the biggest mistakes is financial commingling — using the same bank account for personal and business expenses. You might think it’s harmless to pay a phone bill or lunch tab from your business debit card, but when you blur the line between business and personal funds, you start to unravel the LLC’s most important benefit: limited liability. Courts look at whether you’re treating the LLC as a real business. Using separate accounts, keeping clean books, and documenting transactions is essential.
Another widespread issue is failing to file Texas Franchise Tax Reports, especially when the LLC isn’t generating income yet. Many business owners assume no activity means no reporting requirement — but this misconception has cost people their LLC status. If you don’t file the required “No Tax Due” report (or the appropriate franchise tax return) annually, the State of Texas can forfeit your LLC’s right to operate and dissolve your entity. Reactivating an administratively dissolved LLC can be expensive and time-consuming — and worse, you may lose your liability protection in the meantime.
Then there’s the Operating Agreement myth — the assumption that it’s optional or unnecessary, especially for single-member LLCs. This mistake creates serious issues when you’re applying for funding, bringing on investors, or facing disputes. Texas doesn’t require you to file an Operating Agreement with the state, but it does expect that one exists. Lenders, courts, and even the IRS often request it to confirm your business’s legitimacy and internal procedures.
Misspellings and mismatched information on the Certificate of Formation also rank high on the mistake list. Using an unapproved business name or incorrectly completing the section on registered agents can lead to rejection or filing delays. Worse, if you accidentally assign the wrong management structure (e.g., listing your LLC as manager-managed instead of member-managed), the process to correct it often involves costly amendments.
🛠️ Action Step: If you’ve already formed your LLC but aren’t fully confident it was done correctly, we offer an LLC compliance check to review your documents, structure, and filings. Our legal team can identify areas of risk and help ensure your protections are in place for the long term. Call now to request your compliance review.
Summary: Build It Right. Protect It for Life.
Forming an LLC in Texas is more than just filling out a form — it’s a legal and financial foundation for your business’s future. When done correctly, an LLC provides personal asset protection, tax flexibility, and a more professional brand image. But it only delivers those benefits if you take the time to structure it properly and stay compliant year after year.
From choosing a legally sound name and appointing a reliable registered agent, to filing an accurate Certificate of Formation and drafting a strong Operating Agreement — each step contributes to the integrity and longevity of your company. It’s tempting to cut corners by using cookie-cutter templates or online services, but those options don’t come with personalized legal guidance or long-term strategic planning. That’s where working with a Houston business attorney gives you the advantage.
As an attorney who’s also a small business owner, I understand the unique pressures you face: tight budgets, high stakes, and the overwhelming amount of legal red tape. That’s exactly why we’ve designed affordable, comprehensive LLC formation packages — created specifically for professionals, entrepreneurs, and small business owners in Texas.
🛠️ Action Step: Whether you’re starting fresh or fixing a broken formation, schedule a free consultation with our office today. Let’s make sure your LLC is built right from Day 1 — so it protects you for years to come.
