Texas in July 2016: what the formation actually costs
A $300 filing fee, a franchise tax that most small LLCs don't owe, and two different agencies you have to keep straight
Contents 4 sections
Texas LLC costs $300 to form and, for most small operators, nothing further until the franchise-tax return comes due the following May. The state files quickly — three to five business days online is typical — and the paperwork is short. The part that trips people up is not the formation; it is the split between the two agencies that run the entity after it exists.
This guide is for someone forming in Texas in July 2016. It assumes you know why you want an LLC and skips the history lesson.
The mechanics
You file a Certificate of Formation, Form 205, with the Texas Secretary of State. It asks for the LLC's name, whether it is member-managed or manager-managed, the name and Texas address of the registered agent, the governing persons, the organizer's signature, and an effective date. You can file by mail, by fax, or through SOSDirect, the state's online portal. The filing fee is $300, and SOSDirect adds a small credit-card convenience charge that most filers absorb without noticing.
Online filings through SOSDirect typically come back in three to five business days. Mail filings take longer — generally two to three weeks — and fax sits somewhere in between. Texas does not sell a tiered expediting menu the way Delaware does; a $25 expedite fee moves a paper filing up the queue, but online is usually faster on its own.
The name must be distinguishable on the records of the Secretary of State and must include "Limited Liability Company," "LLC," or an accepted variant. The registered agent must have a physical Texas address — not a P.O. box — and must consent in writing to the appointment. The Secretary of State does not require the consent form to be filed, but it must exist and be producible.
After the Certificate is stamped, you still need two things the state does not hand you. You need an EIN from the IRS, which takes about ten minutes online. And you need a company agreement — Texas's term for what most states call an operating agreement — which the statute expects but does not require you to file. A single-member LLC with no company agreement is not void, but it is harder to defend in a piercing suit, and the agreement is the document that tells your bank how to treat signatures.
Maintenance is split between two agencies
This is the part that matters. Texas does not run its LLCs the way Delaware does. Two separate agencies hold pieces of the ongoing obligation, and missing either one causes trouble.
The Texas Comptroller of Public Accounts, not the Secretary of State, administers the franchise tax. Every Texas LLC owes an annual franchise report, regardless of whether it owes franchise tax. The report is due May 15 each year for the prior calendar year. For 2016 reports, the no-tax-due threshold is $1,110,000 in annualized total revenue. If your LLC grossed less than that, you file a No Tax Due Report (Form 05-163) and owe nothing. If you grossed more, you file a Long Form or EZ computation and pay the tax, which runs at 0.75% of margin for most businesses and 0.375% for retail and wholesale.
Alongside the franchise report, every Texas LLC files a Public Information Report, Form 05-102, also due May 15. It lists the governing persons and the principal office address. The franchise report and the PIR travel together; the Comptroller treats them as one filing for compliance purposes. Miss either, and the Comptroller will eventually forfeit the LLC's right to transact business in Texas, which costs about $75 to undo plus the original filings.
The Secretary of State, separately, does not require an annual report from LLCs. This confuses filers arriving from states that do. In Texas, you will not see a yearly notice from the Secretary of State; you will see one from the Comptroller. The notice usually arrives as a postcard reminding you of the May 15 deadline and pointing at Webfile, the Comptroller's online system. It does not look urgent. It is.
The registered-agent market
Every Texas LLC needs a registered agent with a physical Texas address. The market is crowded and mostly reasonable. Commodity providers run around $50 to $125 a year; the established commercial agents — CT, CSC, Cogency, Northwest — charge more and do more. A Texas resident can serve as their own registered agent, and many single-member LLCs do, using a home address. That works until the home moves, the process server shows up at dinner, or the address ends up in a public-records search that the owner would rather not have happened.
For an operating business with employees or customers, pay a commercial agent. For a passive holding LLC with no foot traffic, self-appointment is defensible, provided the address is current and someone checks the mail.
Who this state actually makes sense for
Texas is the default answer for businesses physically operating in Texas, and it is a serviceable answer for a narrower set of out-of-state uses.
The first group is the obvious one: Texas residents running Texas businesses. Forming anywhere else means foreign-qualifying back into Texas, which duplicates the filing fee, duplicates the registered-agent expense, and leaves you dealing with two states' compliance calendars for no benefit. If the business is here, form here.
The second group is non-resident owners of Texas real estate. The franchise-tax threshold is forgiving enough that a rental LLC holding one or two properties almost always files No Tax Due, and Texas has no personal income tax to complicate the K-1 story. For out-of-state owners who want the property in a Texas entity — because the property, the tenants, and any eventual suit all live in Texas — a Texas LLC is clean.
Texas does not make sense for the person shopping for a cheap formation state. The $300 fee is mid-pack on its own, but the real point is that forming in Texas does not relieve you of forming where your business actually operates. A California consultant who forms a Texas LLC to save money will still need to foreign-qualify in California, pay California's $800 minimum tax, and file California returns. They will have paid $300 to Texas for nothing except a second set of paperwork.
The franchise tax deserves a last word. The $1.11 million threshold sounds generous in the abstract, and for most small LLCs it is. But the return is still required below the threshold — a No Tax Due Report is a return — and the Comptroller treats a missed May 15 filing the same whether you owed tax or didn't. The fee is not the problem in Texas. The calendar is.
If you are forming this quarter and the business is operational in Texas, file the Certificate this week, calendar May 15 in perpetuity, and pick a registered agent you will not have to think about again.