Entrepreneurship is exciting—the thrill of developing a winning product or service, bringing that idea to life, and making life better for your clients—it’s fun. But unfortunately, it’s not free. Long story short: starting a business has a price tag. LLCs are no exception.
If you’re hoping to start an LLC in Texas, you’ll quickly learn that you’ll have a pretty long list of fees for forms, licenses, and applications that you’ll need to get started. Some of those are optional fees, and some are unavoidable. In this guide, we’ll walk you through all the costs you can expect when starting a Texas LLC. By the end, you’ll have a clear picture of how your new business will impact your wallet.
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What’s the least amount I have to pay to form an LLC in Texas?
If you’re crunching the numbers before diving right in, good on you! Planning ahead is a surefire way to start your business off on the right foot. But let’s make one thing clear: the phrase “cost to start an LLC” is a bit deceptive. That’s because you don’t want to get stuck focusing on the “day one” expenses of business.
That’s right—when budgeting for start-up costs, you need to account for the costs you’ll pay today and the costs you’ll pay a year or two down the road.
So let’s talk start-up costs and ongoing costs for your Texas LLC. But to keep things simple, here we’ll cover the non-negotiable costs. Later on, we’ll talk about services that are nice to have (but you can live without if you have to).
TX LLC Start-up costs
There are two primary start-up costs in Texas. The most important one (and most substantial one, really) is the Certificate of Formation. The fee is $300 (plus a 2.7% convenience fee if you pay by card). You can’t avoid this cost, though. After all, the Certificate is what officially forms your business in the state. Without it, you’re not a recognized business.
A lot of Texas LLCs will also need to get licenses in order to run a compliant business. Texas doesn’t have a statewide general business license, and in general, its cities and counties don’t require them, either. That said, many different trades—barbers, dietitians, midwives, and more—have to obtain occupational or professional licenses. You can find them at the Texas Department of Licensing & Regulation.
Unfortunately, we can’t provide a comprehensive list of price tags for these licenses, but you can reasonably expect to pay an application fee when you get one.
Ongoing costs for an LLC in TX
If your business lasts (and we’re confident it will), then you’ll have several ongoing costs. These include license renewals, annual reports, and taxes. Let’s dig into those prices and fees.
License renewals
Thankfully, you don’t have to worry about renewing a state general business license, but you might have to renew your professional or occupational permits. Each Texas licensing board has its own policies for renewals, though, so we can’t really list them here. This guide would be tedious if we did. When you obtain your licenses, we recommend taking note of the renewal requirements for your industry so none of the fees surprise you.
Annual taxes
In Texas, one of the biggest annual costs you’ll have will be taxes. That said, the state business taxes are a bit unique. That’s because Texas doesn’t have a traditional income tax for corporations or individuals. Instead, Texas charges a franchise tax. Technically, not all businesses are subject to it; only businesses that pass the tax-due threshold of $1,300,000 will need to pay the tax. The current rate is 0.75% of your taxable margin. For a fuller look at who is subject to the tax as well as how to pay it, we recommend checking out the Comptroller of Texas.
Many businesses in Texas will also need to collect and pay the state sales tax (a 6.25% rate plus any local fees). To compliantly handle this tax, you’ll need to get a sales tax permit. Thankfully, there is no cost for the application.
There’s also a wide variety of miscellaneous business taxes that might apply to your LLC: cement production, crude oil, and oyster sales are just a few examples. But we won’t dig into all the nitty-gritty details here. If you think a miscellaneous tax might apply to you, we recommend checking out the Texas Comptroller of Public Accounts.
Annual report
Most states require LLCs to file some version of an “annual report,” or a document that informs the state about the current standing of your business. This document is usually required in addition to annual tax reports, since it usually includes information about your business address, members, your registered agent, and so on.
In Texas, this annual report process is a bit unique because it’s directly tied to the annual franchise tax. As a result, there’s no “filing fee” for the report (but you still have to pay any franchise tax due). It’s due each year by May 15. You can learn more about the reporting process and file your report here.
What are the discretionary costs to form a Texas LLC?
When you’re starting your business, your budget is usually pretty tight. Prioritizing costs can get tricky. The costs we listed above are unavoidable. Well, technically, you can avoid them, but you’ll be heavily penalized if you do. And there’s not much point to spending all that money on starting a business only to knowingly let it be dissolved because you didn’t pay your ongoing costs.
But if you can help it, doing the “bare minimum” is probably not the best way to start your business. There are plenty of discretionary costs you can pay for certain services that make life easier. Here, we’ll dig into those costs—and why you might consider paying them.
1. Name reservation application
Naming things can be a bit tricky; after all, sometimes inspiration is a little lacking! And since Texas doesn’t allow you to use a name that someone else has already claimed, you have to work even harder to pick one that’s unique, memorable, and just right for your business.
It’s a multi-step process, really: you have to brainstorm name ideas, choose just the right words, meet state name requirements, and of course, ensure that the name isn’t already in use (you can check using a Name Availability Search).
If you’re like a lot of people, you probably want to ensure that your hard work doesn’t go to waste once you’ve created the perfect name. So you have to lay claim to your new business name. You can do so either by filing your Certificate of Formation, or by filing an Application for Reservation or Renewal of Reservation of an Entity Name. You should only file this form if you’re not yet ready to file your Certificate. Otherwise, you’d be wasting your hard-earned cash. Texas requires a $40 fee for an Application for Reservation, but it protects your name for 120 days. If you need even more time than that, you can re-reserve for another $40.
2. Obtaining an Assumed Name
Wait—didn’t we just cover business names? Yes. But there’s a distinction: your business name, which you’ll write in on your Certificate of Formation, is the legal name of your business. An assumed name, sometimes called a DBA or trade name, is like a nickname for your business. For example, your legal name might Joseph Smith, but your friends call you Joe for short. Joe is a perfectly valid name, but you can’t put it on legal paperwork. You’d have to legally change your name to do so.
An Assumed Name acts kind of like a nickname for your business; some LLCs and corporations also use Assumed Names to establish new product lines or new “businesses” under the LLC “parent company.” But regardless of why you use an Assumed Name, if it differs from your legal name, you need to register it before you can use it.
Quick note: registering an Assumed Name in Texas does not prevent other people from using it; the registration simply establishes a legal record of who’s doing business under that name. Only the legal names of LLCs, corporations, and nonprofits are protected for exclusive use.
In Texas, LLCs are required to register an Assumed Name with the Secretary of State by using an Assumed Name Certificate. There’s a $25 fee, but the registration is good for 10 years. After that, you’ll need to renew. For more information on this registration, check out our guide to Assumed Names in Texas.
3. LLC formation services
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Paperwork is a massive hassle. And unless you’re starting an LLC to help other Texans with their paperwork, odds are you don’t want to deal with much paperwork yourself.
The bad news? Paperwork is an unavoidable part of starting a Texas LLC: the Certificate of Formation, the annual franchise tax reports, license applications—the list goes on and on. The good news? You can hire an LLC formation service to do the pesky paperwork for you.
Of course, there’s some cost involved. And while there are a lot of great LLC formation services, they aren’t all created equal. And they all have different price points.
Many LLC formation services offer a wide variety of options, with ZenBusiness offering packages starting at $0 + state fee. You can also take a look at other well known services like LegalZoom, Northwest, and Incfile that have other types of pros.
These services are completely optional; you can DIY your Texas LLC formation. But many entrepreneurs find the time saved is worth the money. If you do opt to hire a service, please make sure you take the time to understand what you’re buying.
4. TX Registered agent services
Texas law clearly states that every LLC must designate a registered agent to act as a middleman between your business and the state. Long story short, the registered agent accepts service of process (and any other official communication from the state) on your behalf.
Technically, this is another thing you can DIY; Texas allows you to serve as your own registered agent. However, in our opinion, it’s worth the expense to hire a registered agent.
Why? For starters, a registered agent’s address becomes part of the public record; anyone in the state can find that address. That leads to spam mail (sometimes worse). Plus, a registered agent must be present at the registered address during all standard business hours. If you serve as your own, you’d be tied down to your location constantly. A registered agent service prevents those annoyances. A service will also help you keep track of annual filing requirements, license renewals, and more.
These services typically charge an annual fee. For example, annual fees for our top 4 Texas registered agent services range from $99 to $299 per year depending on the service you choose. That said, some offer the first year free if you use them as an LLC formation service.
Quick Note: If you need to later down the line, you can always change your registered agent.
5. Expedited filing fees
In Texas, it usually takes 5-7 business days (upon receipt) for the Secretary of State to process your Certificate of Formation. Granted, that time can vary based on order volume, time of year, and so on. But they’ll usually approve or reject your Certificate of Formation within a week.
If that sounds like too long to wait, Texas allows you to expedite your form for a $25 fee. Expedited orders are usually processed by the end of the first business day after they’re received. Since the expediting fee isn’t unreasonable, it may be worth the extra expense to expedite your filings, but patience works, too. You can let your budget and your timetable be the deciding factors.
6. Business attorneys
Starting a business is a complicated process. And it’s a legal one. We do our best to make the process seem less daunting with guides like this one. But at the end of the day, we can’t write a guide that would cover every single question every business will ever face. That’s because your business is unique.
Business attorneys, however, can talk you through all the nuances of forming and running your business. In many cases, the advice of an attorney can save you thousands by helping you avoid expensive legal mistakes.
However, the upfront costs of hiring a business attorney can be pretty pricey. For example, many attorneys charge per hour, with rates ranging between $150-$350. Others offer “LLC formation packages” for flat rates that fall between $500-$2000. And of course, those fees vary based on the attorney’s experience, location, and so on.
If you’d like to hire one, we recommend checking out sites like Avvo.com. Their database is nearly comprehensive, so it’s a great way to search Texas business lawyers. You can also narrow results by location, cost, overall satisfaction rating, and more. It’s the best place to look to find the right legal consultation for your business.
Conclusion
Long story short: starting a Texas LLC can be a pretty pricey endeavor. If you look at each cost separately, it doesn’t seem too bad (perhaps with the exception of the $300 Certificate of Formation fee). But when you add them all up or tack on some additional services, the total price tag grows pretty quickly. Thankfully, since you’ve read this guide, you know what you’re up against.
And sometimes, knowing is half the battle—and now you’re armed with all the information you need to budget the start-up costs so you can start your Texas LLC off on the right foot. We wish you and your new business the best!