Texas isn’t just one of the largest states in the union. It’s also one of the most diverse. The state presents an opportunity for almost any kind of business, provided you find your market and get the right start.
Texas doesn’t impose as many rules on LLCs as some other states, but the process can still be confusing. New owners just trying to get off the ground can waste hours or days just trying to make sense of everything. Before you go wading into that arena, you should know how much the process will cost you, as well as when to spend a bit of extra money to make your life easier.
This article will help you make a budget for starting an LLC in Texas.
- The required costs for every LLC
- Extra costs we recommend you incur
- The different ways you can form your LLC, as well as the pros and cons of each
Total Texas LLC Cost – $300
If you are just looking for the bare minimum amount it takes to file and get started with an LLC in Texas, the answer is very simple because there is only one fee you need to pay.
According to the Texas Secretary of State, it costs $300 to file your certificate of formation. Once that is completed, your LLC exists and can legally do business. However, there are other costs you may want to consider.
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How Much it Costs to Start a Texas LLC
Compared to some other states, Texas has a single filing fee that can get your business started in the state. That doesn’t mean, though, that you can simply pay $300 and you’re done setting up your business. There are several things you should think about now before they become issues in the future.
Filing Fee for Certificate of Formation – $300
A certificate of formation is that legal paper that creates your LLC. Before that paper is filed, your company is just an idea. After, it’s a legal entity that can sign contracts, buy and sell goods, and pay taxes. It’s a short but vital document, so you want to make sure that you get it right.
Texas law sets down a lengthy list of things that need to be in your certificate of formation. Outside of those guidelines, you have a lot of freedom for how you want your LLC’s certificate to read. Most people, however, are just going to want something short and to the point. The state meets this need with a form fill-in-the-blank certificate you can use.
Texas LLCs — Optional Costs to Consider
It pays to plan the creation and early days of your business. As part of that process, you should think beyond the initial cost of forming an LLC, to whether your business will need to spend a bit of extra money. Perhaps you need to get up and running faster than normal, or maybe your business has extra legal needs that require a special contract between the business owners.
Expedited Filing Fees — $25 per document
After you present your certificate of formation to the state for filing, there is usually a processing time of 5-7 business days. Also, keep in mind that, while you can file your certificate via the Internet, filing by mail or fax takes longer. A faxed or mailed certificate can take as long as 40 business days to process.
Some business owners may not mind the delay, but time is money. You may also have customers/clients waiting, or a lease that starts soon.
In that case, it can make sense to pay an extra $25 with your $300 filing fee to get the certificate processed by the end of the next business day if you file online.
A mail or fax certificate that is expedited will usually take around 4-5 business days.
Resident Agent Fee — about $100 per year
Texas doesn’t charge you a separate fee to name a resident agent. Under Texas law, you have to do that as part of your certificate of formation. If you ever change your agent, though, you will have to pay a $15 fee under the Secretary of State’s latest fee schedule.
Many owners are tempted to serve as their companies’ agents. This is usually not a good idea. It involves making your address public and being constantly available just in case someone wants to sue your company.
It’s an easier and cost-efficient plan to hire a Texas registered agent service for your company. These agents usually charge $100 per year and take care of all your company’s registered agent needs. It’s money well spent.
For some of our recommendations, check out our Best Registered Agent Services article.
Operating Agreement — $39 and up
An operating agreement is a contract that sets down the rules of your LLC. It says how the people in charge should do their jobs, when meetings must be held, how members can enter and exit the LLC, and almost any other matter you need to address.
Texas is not among the states that require LLCs to have these contracts, but it’s still a good idea to have one. The purpose of an operating agreement is to figure out in advance what will happen when there is an expected event. What if you have partners who die or quit? What if you find someone who wants to buy into your LLC?
If you don’t have an operating agreement, the answers to those questions will come from Texas statutes. You might not be happy with the results. If you have an operating agreement, though, you dictate everything that happens in advance. It’s an important way to control your LLC and your life.
An LLC is your private document — you don’t file it with the state. Note that you can just include your LLC’s rules in its certificate of formation instead of a separate contract. We don’t recommend this strategy, though.
If you ever change an operating agreement, you can just draft an amendment and be done. If you change your certificate, you’ll have to file an amendment and pay a $150 fee each time.
You can write the contract yourself, but unless you are a lawyer or know what it’s supposed to have, a DIY job is not the best idea.
A lawyer would likely charge you an hourly fee to draft an agreement. While that agreement would likely be a good one, that could also run you at least a few hundred dollars. (A top-notch contract attorney in top urban markets could cost you over $1000!)
You can have a good agreement drafted, though, for as little as $39 if you use a business formation service, as discussed below.
DBA fee — $25 + local fees for each county where you do business
The legal name of your LLC may not be quite what you wanted. Or maybe you’d like to put something shorter on the sign outside your shop. In either case, you’ll need an assumed name (also known as a DBA or “doing business as” name).
DBAs are a common way to set yourself apart from competitors and make your brand stand out. In Texas, you have to file a DBA form both with the Secretary of State and with the county clerk of each county where your LLC does business. The Secretary of State will charge you $25 to file a DBA certificate. (You can find a form certificate here.)
The paper you have to file with the county clerk will differ depending upon where your LLC is based, but the extra cost is not that great.
In Dallas County, for example, the cost is $24 plus 50 cents for each business owner after the first. In Harris County, where Houston is, you can pay $17 plus 50 cents for each owner after the first.
Name Reservation Fee — $40
Maybe you have your business plan and the perfect name, but you’re not quite ready to start yet. If you want to make sure that a certain name is still available, you can file a name reservation request with the Secretary of State for $40.
Remember that if you want this expedited for some reason, you will have to pay the $25 expedite fee.
Domain Name — about $20 per year
Your LLC can’t afford not to have a presence on the Internet. The first step in creating a website is to get your own domain name. While this might have been expensive in the past, it is now quite affordable.
We recommend you secure your domain name as soon as possible, even if you don’t have immediate plans for your website to go live.
For example, a competitor could buy your ideal domain and its variations to block you from using them. Even worse, domain squatters sift through newly registered LLCs and will buy their domains only to relist them with huge markups.
In general, a domain ending in .com will be more expensive than a .net or .info domain, and some names will likely be taken, meaning you will have to do some searching (and maybe compromising).
A domain name from GoDaddy.com or a similar registrar may cost you between $20 and $50 per year, with regular specials and sales where you can get substantial discounts.
Registering with the State Tax Office Online — Free
All businesses should register online with the Texas Comptroller’s Office so that they can pay the necessary taxes, like sales and use tax and employer taxes. While some lower-earning businesses can elect not to use online filing and payment, registration is free.
Because the comptroller collects over 60 different kinds of taxes, this website is an excellent resource to make sure you don’t miss anything when tax time rolls around.
Getting an Employer Identification Number (“EIN”) — Free
An EIN is a number created and assigned by the IRS to a business for paying taxes. (Think of an EIN as a social security number for a business.) Some LLCs need them and some don’t.
Regardless of whether the IRS says you need one, we recommend that you get an EIN. Many banks won’t allow your company to open an account unless they’ve got one. Having an EIN can also simplify the process of getting credit.
You can apply online and get an EIN for free in minutes, or you can apply for one through the mail or fax. Whatever you do, don’t pay someone else to get an EIN for you. It’s too easy to pay someone else to do it unless it is part of a broader service package.
Read More: How to Get an Employer Identification Number in Texas
Foreign LLC Qualification Fees — about $100 per extra state
Your goal, of course, is to run a successful business. When that happens, you may want to open new locations. If you want to open in another state, you’ll have to pay that state for the privilege of doing business there. You won’t have to re-form your business, but you will have to register and pay some extra fees.
The exact fees will depend on where you are registering. As a rule of thumb, expect to pay about $100 in filing fees to register your LLC in another state.
Some businesses will need special licenses to operate. The variety of regulated businesses — everything from barbering to the practice of law — is large, and the annual fees can run in the hundreds of dollars. Check with the Texas Department of Licensing and Regulation for more information.
Writing Formation Costs Off
The formation costs we are talking about are a necessary part of starting your Texas LLC. For that reason, they can usually be deducted from your taxes as business startup costs.
The IRS has a lot of guidance on this matter, and you should compare your specific costs to the materials on the IRS website.
Keep in mind that, in most cases, an LLC is taxed as a pass-through entity. In other words, your income and deductions will go on your personal taxes, rather than a separate income tax for the LLC. The IRS, for example, allows LLC owners to deduct $5,000 of their business startup expenses in the first year.
Martin forms an LLC in Dallas called Pony Express Delivery Service LLC. Though he would like to hire delivery people, he doesn’t have the budget for that his first year, so he handles all the business, including deliveries, himself. He is the sole owner of the company.
Because the companies that use Martin’s messenger service are courts and law firms, he needs to get started right away, so he uses the expedited service option to get up and running. He also wants to use the name “Martin’s Pony Express” in advertisements, so he also needs to apply for a DBA.
His formation costs are as follows:
- Texas LLC Certificate of Formation: $300
- Expedite fees: $25
- LLC Operating agreement draft: $50
- Resident agent fees: $100
- DBA fee (state fee + Dallas County fee): $49
- Web domain costs: $50
For income tax purposes, the IRS will tax Martin directly. (The state of Texas doesn’t tax individuals on their income.) Martin instead will receive income from the LLC, and from that, he will pay his personal federal income taxes. Thus, Martin will report both his income and deductions for the business on a Schedule C to his federal tax return.
The total amount of Martin’s deduction in this example is $574. Before the deduction, his total taxable income for the year was $40,700. After the deduction, the taxable income went down to $40,126. This takes Martin from the 22% tax bracket to the 12% tax bracket for 2023. While it's important to note that this won't equal a 10% decrease of all his taxes across the board, Martin was able to use his business costs to save $86.38 on his taxes.
Keep in mind that if Martin had more than $5,000 in expenses, he would likely be able to claim those, but not all in the first year. Instead, he would have to break out his deduction over multiple tax years.
Cheapest Way to Start an LLC in Texas
Now that you know the basics, you might be wondering how to put it all together and start your company for the least amount possible. While everyone’s situation is different, these will likely be your main options.
Formation Service – $39 + state fees
A business formation service is a popular and inexpensive way for new LLC owners to get started.
These companies are dedicated to helping entrepreneurs bring their visions to life. They have not only the knowledge of all the state laws you need to know, but also forms, documents, and procedures to make your life as easy as possible.
Formation services are quick and complete ways to handle formation needs for most LLCs.
- They’re easy. In most cases, a formation service will have helped hundreds of people through the exact process you are struggling with now. They have all the documents, information, and expertise you need right on hand.
- They don’t cost much. Because formation services have such a large volume of business, they don’t have to charge their clients that much money.
- They’re reliable. All of the formation services’ products and procedures have been tested hundreds of times over in the real world. That kind of experience should give you peace of mind and confidence going forward.
- They’re fast. Formation services have seen almost every business formation situation already. Chances are, they have many solutions for you that are ready right now before you even know you need them.
While formation services can be great for most people, they are not always the best choice. Some cons for these services are:
- They’re not the best solution for complex LLCs. If you are forming a complicated company or one in a heavily regulated industry, you will have concerns that probably need more focused expertise in that area of business.
- Even if a formation service is a good fit, you can expect upselling. Formation services have to make money too, and some of them may pressure you to buy formation products you don’t need. Even when you are using a formation service, you need to be a smart and informed consumer.
Using a professional LLC formation service can be a great way to set up a business. Check out our Best LLC formation services article for some of our suggestions.
Attorneys are licensed, reliable, and powerful resources for business formation. They are also quite expensive. Let’s go back to our example of Martin’s Pony Express. For him to get an experienced business law attorney in Dallas, he could end up paying $500 an hour for the lawyer to form a limited liability company for him. (Note that this would be on top of the formation fees above!)
On the other hand, Martin could probably rest easy knowing that his attorney was very thorough and careful in setting everything up.
Despite the expense, sometimes hiring a lawyer is the best choice.
- Lawyers help you manage risk. If you are starting a business with complicated legal issues, hiring a lawyer would be the best choice. For example, let’s say Martin wanted to open a store that sold firearms or other dangerous weapons. The state has specific requirements for those kinds of businesses that a lawyer could help with.
- Lawyers offer more customization when you need it. Do you need specific things put in an operating agreement? Is your company going to have a unique ownership structure? You may need an attorney to make sure these issues are handled properly.
For most people, getting an attorney comes with considerable downsides that outweigh any benefits.
- Lawyers cost more than any other option. The price tag alone should convince you that if you don’t need a lawyer, it’s not worth hiring one.
- Finding a lawyer takes a long time. Getting a lawyer who specializes in what you need, costs what you’re willing to pay, and can work with you well is a tall order.
- Lawyers also take longer to form a business than a formation service. Because lawyers are also very caring people, they will generally take much longer to form your company than non-lawyers would. Fortunately, most people don’t need a lawyer. In 90% of cases, a formation service will do just fine.
Do it Yourself
Many people, after searching the Internet for the information they need, decide to try forming their new LLCs themselves. This process can give you a lot of personal expertise, but remember that time is money. If you are spending hours on your business formation, that’s time you’re not spending on the substance of your business.
In most instances, then, it is more cost-effective to pay a formation service $39, with confidence that everything has been done correctly, rather than try to reinvent the wheel yourself.
- Personal knowledge. A DIY business owner will learn a lot about the process while forming their own business, and they probably will retain that knowledge for years to come.
- It costs less upfront. If you don’t figure out the value of your time, a DIY solution is the cheapest option.
- You’re losing money when you consider how much time it takes to DIY. If you figure out that your time is worth $30 per hour, and you take 20 hours to complete your business formation, you have essentially spent $600 on business formation.
- There’s the risk of making a mistake. DIY business owners can easily make a mistake with all the paperwork that then costs them more time and money.
- It’s a headache. State workers are very helpful, capable people. But they will also tell you that the laws and rules governing business formation are not easy, and they follow those rules for a living. It’s going to be even harder for you.
Annual Texas LLC Fees: How Much Will it Cost to Maintain your LLC?
Even after you’ve formed the company, there are annual costs for which you will have to budget. These include both government fees and amounts paid to third parties, like:
- Local Business License, depending on exact location: $40-$50
- Registered agent fee: $100
- Domain name: $20
Also, keep in mind that any small business should have an accountant. Costs for accounts vary significantly, but you should spend an average of $2,000 to $3,000 per year on an accountant in most cases.
Unlike other states, Texas does not have an annual report requirement for LLCs. You will, however, have to file annual reports with the comptroller regarding the calculation and payment of the Texas LLC franchise tax, discussed below.
How Much are LLC Taxes in Texas
Texas doesn’t impose an income tax on individuals or LLCs. Therefore, as the owner of a Texas business, that is one less thing to worry about.
LLCs are subject, though, to a franchise tax. A franchise tax has to be specifically calculated with the comptroller’s office, so you should get in touch with that office for further information. You will have to file annual reports with the comptroller’s office so that your franchise tax can be accurately calculated and paid.
Texas LLC Formation Costs Quick Links
- Dallas County Clerk — DBA Information
- Harris County Clerk — DBA Information
- IRS Employer Identification Number Application
- IRS Information Regarding Federal Tax Treatment of LLCs
- SOSUpload System for Business Filings
- Texas Comptroller — Franchise Tax Information
- Texas Comptroller — Online Tax Registration Application
- Texas Department of Licensing and Regulation
- Texas Secretary of State— Business Start-Up Information
- Texas Secretary of State — Employer and Tax Information
- Texas Secretary of State — Filing FAQs
- Texas Secretary of State — Form DBA Certificate
- Texas Secretary of State — Fee Schedule
- Texas Secretary of State — Name Filings FAQs
Texas LLC Formation Costs FAQs
How much does it cost to start an LLC in Texas?
The bare minimum you will spend is $300 for your LLC’s certificate of formation.
What is the cheapest way to start an LLC in Texas?
A do-it-yourself approach will have the lowest price tag, but it isn’t the cheapest in terms of your time. The best balance of price and time, for most people, is to use a formation service.
Do I need to hire an attorney to form an LLC in Texas?
No. Most people will not need to invest the considerable expense and time of hiring a lawyer. A formation service or DIY approach will work for most business owners.
Can I pay to form an LLC more quickly in Texas?
Yes. Formation services will generally complete formation tasks faster than business owners acting on their own. You can also pay the state to expedite the processing of your Texas certificate of formation once you have prepared and filed it.