How to Start an LLC in Texas

Texas is consistently ranked among the top states for business formation. With a population exceeding 30 million and a gross state product that rivals many countries, the Lone Star State offers entrepreneurs a massive market and a supportive business environment.

Key advantages of forming a Texas LLC include:

• No state income tax: Texas does not impose a personal income tax, which means LLC members who live in Texas keep more of their pass-through income.
• Favorable franchise tax threshold: Texas LLCs with total revenue below $2.47 million (as of our last review) owe no franchise tax. Many small businesses fall below this threshold.
• No annual report: Unlike many states, Texas does not require an annual report filing, reducing your ongoing compliance burden.
• Strong legal protections: Texas provides solid personal liability protection for LLC members and has well-established business law.

While Texas has no state income tax, it does impose a franchise tax (also called a margin tax) on most businesses, including LLCs. However, there is a generous "no tax due" threshold.

As of our most recent review, Texas LLCs with total revenue at or below $2.47 million owe no franchise tax. You must still file a franchise tax report each year (due May 15), but if you are below the threshold, you simply file a "no tax due" report.

For LLCs above the threshold, the tax rate is generally 0.375% for retail and wholesale businesses and 0.75% for other businesses, calculated on the LLC's taxable margin. You can calculate your taxable margin using one of four methods: total revenue minus cost of goods sold, total revenue minus compensation, 70% of total revenue, or total revenue minus $1 million.

Your first franchise tax report is due May 15 of the year following the calendar year in which your LLC was formed. For example, if you form your LLC in August 2026, your first franchise tax report is due May 15, 2027.

Franchise tax thresholds and rates can change. Verify the current figures with the Texas Comptroller website.

Understanding the full cost of forming and maintaining a Texas LLC helps you budget accurately. Here is a breakdown of the common fees you can expect:

Using an LLC formation service typically costs between $0 and $299 on top of the state filing fee. Many services include registered agent coverage in their packages, which can save you money in the long run compared to hiring an agent separately.

One of the biggest advantages of forming an LLC in Texas is the favorable tax environment. Here is what you need to know about each type of tax that may apply to your Texas LLC:

Federal Income Tax

By default, a single-member Texas LLC is treated as a disregarded entity for federal tax purposes, meaning income passes through to your personal tax return (Schedule C of Form 1040). A multi-member LLC is treated as a partnership and files Form 1065. Members report their share of profits on their personal returns. Alternatively, you can elect to have your LLC taxed as an S-Corp or C-Corp by filing the appropriate IRS forms if it benefits your tax situation.

Self-Employment Tax

LLC members who actively participate in the business typically owe self-employment tax (Social Security and Medicare) at a rate of 15.3% on net earnings. This applies regardless of which state you form in. If your LLC generates substantial income, electing S-Corp taxation can potentially reduce self-employment taxes by allowing you to pay yourself a reasonable salary and take remaining profits as distributions.

Sales and Use Tax

Texas imposes a 6.25% state sales tax on most tangible personal property and some services. Local jurisdictions may add up to 2% on top of that, bringing the combined rate to a maximum of 8.25%. If your LLC sells taxable goods or services, you must register for a sales tax permit with the Texas Comptroller, collect sales tax from customers, and remit it to the state on the required schedule (monthly, quarterly, or annually depending on your volume).

Property Tax

If your LLC owns real property or tangible business personal property (equipment, inventory, furniture), you may owe property taxes to your local county appraisal district. Texas has no state property tax, but local rates can be significant. Make sure to render (report) your business personal property to your county by April 15 each year.

If your LLC was formed in another state but you conduct business in Texas, you must register as a foreign LLC with the Texas Secretary of State. "Foreign" in this context simply means out-of-state, not international.

To register a foreign LLC in Texas, you file an Application for Registration (Form 304) with the Secretary of State. The filing fee is $750, which is significantly higher than the domestic formation fee. You will also need a registered agent with a physical address in Texas.

Activities that generally require foreign LLC registration include maintaining an office or employees in Texas, holding regular business meetings in the state, owning property in Texas, or entering into contracts that will be performed within the state.

Conducting business in Texas without registering as a foreign LLC can result in penalties, inability to use Texas courts to enforce contracts, and accrual of back fees.

The timeline for forming a Texas LLC depends primarily on how you choose to file:

• Online filing (SOSDirect): Typically processed within two to three business days. This is the fastest method for most filers.
• Mail filing: Processing times can range from one to three weeks, depending on the volume of filings the Secretary of State's office is handling.
• Using a formation service: Professional services such as ZenBusiness or Northwest Registered Agent typically submit filings within one business day of placing your order and can offer expedited processing.

After your Certificate of Formation is approved, you can immediately proceed with obtaining your EIN, opening a bank account, and beginning business operations. The EIN process through the IRS website is instant during business hours.

Avoid these frequent errors that new LLC owners make in Texas:

• Forgetting the franchise tax report: Even if your LLC owes no tax, you must still file the annual franchise tax report by May 15. Failure to file can result in penalties and eventually forfeiture of your LLC's right to do business in Texas.
• Skipping the operating agreement: While not legally required, operating without one exposes you to default state rules that may not suit your business. It also weakens your liability protection. Read our operating agreement guide for details.
• Mixing personal and business finances: Commingling funds is one of the fastest ways to lose your LLC's liability protection through what is called "piercing the corporate veil."
• Not checking name availability first: Filing a Certificate of Formation with a name that is already in use will result in rejection and delay.
• Choosing the wrong management structure: Texas allows member-managed and manager-managed LLCs. The choice affects who can sign contracts and make decisions for the LLC. Consider your needs carefully before filing.
• Neglecting local permits: Many Texas cities and counties require separate business permits or licenses. Check with your local municipality before starting operations.
• Using a P.O. Box for the registered agent: Texas requires a physical street address for the registered agent. A P.O. Box will cause your filing to be rejected.

Texas has a diverse economy, and certain industries have specific requirements or advantages when forming an LLC:

• Oil and gas: Texas is the largest oil-producing state. LLCs in this sector should be aware of the Texas Railroad Commission regulations, severance taxes on production, and specific environmental compliance requirements.
• Real estate: Many Texas real estate investors use LLCs to hold properties for liability protection. Each property can be held in a separate LLC (known as a series LLC strategy). Texas allows Series LLCs, which let you create separate "cells" under one umbrella LLC.
• Technology: Texas, particularly the Austin area, has become a major technology hub. Tech startups forming LLCs should consider intellectual property protections and whether a future conversion to a corporation might be needed for venture capital funding.
• Food and beverage: Restaurants, food trucks, and beverage companies must obtain health permits and food handler certifications in addition to their LLC formation. The Texas Department of State Health Services oversees food establishment licensing.
• Construction: Contractors in Texas may need to register with local licensing boards. While Texas does not have a state-level general contractor license, many cities and counties require their own permits and licenses.
• Professional services: Certain professions in Texas (such as attorneys, architects, and engineers) cannot form a standard LLC but must instead form a Professional LLC (PLLC) with the Texas Secretary of State.

Once your LLC is officially formed, take these additional steps to set your business up for success:

• Open a business bank account: Keep personal and business finances separate to maintain your liability protection. Most banks require your Certificate of Formation, EIN confirmation letter, and a photo ID.
• Obtain necessary licenses and permits: Check with your city and county for local business license requirements. Some industries require state-level licenses as well.
• File your franchise tax report: Even if you owe no tax, you must file an annual report with the Texas Comptroller by May 15.
• Get a sales tax permit: If you plan to sell taxable goods or services, register with the Texas Comptroller for a sales tax permit before making your first sale.
• Create your operating agreement: Finalize and sign your LLC operating agreement with all members.
• Consider business insurance: General liability insurance, professional liability insurance, or other coverage depending on your industry.
• Set up accounting and bookkeeping: Use accounting software or hire a bookkeeper to track income, expenses, and maintain clean financial records from day one.
• Keep records: Maintain detailed records of financial transactions, member meetings, and major business decisions.
• Register your DBA if needed: If you plan to operate under a name different from your official LLC name, file an assumed name certificate with the county clerk in each county where you do business.
• Build business credit: Open a business credit card, establish vendor accounts that report to credit bureaus, and keep your business finances in good standing to build a strong credit profile for your LLC.

Advantages

• No personal state income tax means more take-home profit for LLC members.
• No annual report filing requirement (only the franchise tax report).
• Generous franchise tax threshold means most small LLCs pay zero state business tax.
• Strong economy and large consumer market across multiple industries.
• Series LLC option available for real estate investors and multi-venture entrepreneurs.
• Business-friendly court system and established case law for LLCs.

Disadvantages

• The $300 filing fee is higher than many other states.
• The franchise tax, while often zero for small businesses, adds complexity with annual filing requirements.
• The $750 foreign LLC registration fee is one of the highest in the country.
• Texas does not have as strong privacy protections as states like Delaware, Wyoming, or New Mexico.
• Property taxes are among the highest in the nation, which impacts LLCs that own real estate or significant business personal property.