Introduction
Starting a business in Texas is an exciting venture, and forming a Limited Liability Company (LLC) is one of the most popular ways to protect your personal assets while running your company. However, before diving in, it’s essential to understand the costs involved in forming an LLC in Texas. From state filing fees to optional expenses like legal assistance or registered agent services, the total cost can vary depending on your needs. In this guide, we’ll break down all the expenses you can expect so you can budget accordingly and make informed decisions for your business.
Basic Costs to Form an LLC in Texas
The primary expense when forming an LLC in Texas is the state filing fee. The Texas Secretary of State requires a $300 filing fee for the Certificate of Formation—LLC (Form 205). This is a mandatory cost that must be paid when submitting your paperwork to officially create your LLC. The filing can be done online, by mail, or in person, but the fee remains the same regardless of the method you choose.
In addition to the state filing fee, some LLCs may need to pay for a name reservation before submitting their formation documents. While not required, reserving your business name ensures no one else can claim it while you prepare your LLC paperwork. The name reservation fee in Texas is $40, and it holds the name for 120 days. If you’re ready to file immediately, you can skip this step and save the extra cost.
Optional Costs to Consider
Beyond the mandatory state fees, there are several optional expenses that can enhance your LLC’s operations and compliance. One common optional cost is hiring a registered agent. Texas law requires every LLC to have a registered agent who accepts legal documents on behalf of the business. You can act as your own registered agent, but many business owners prefer to hire a professional service to maintain privacy and ensure compliance. Registered agent services in Texas typically range from $100 to $300 per year.
Another optional expense is obtaining an Employer Identification Number (EIN) from the IRS. While this is free if you apply directly through the IRS website, some business owners choose to use third-party services for convenience, which may charge between $50 and $100. An EIN is necessary if your LLC has employees or plans to open a business bank account.
Legal and Professional Fees
While it’s possible to form an LLC in Texas without legal assistance, some entrepreneurs prefer to hire a business attorney or use an online legal service to ensure everything is done correctly. Attorney fees can vary widely, ranging from $500 to $2,000 or more, depending on complexity. Online LLC formation services, on the other hand, often charge between $50 and $300 plus state fees for handling the paperwork on your behalf.
If your business operates in a specialized industry or has complex ownership structures, consulting a legal or tax professional may be worth the investment to avoid costly mistakes. Additionally, some LLCs may need to draft an operating agreement, which outlines ownership and operational procedures. While Texas doesn’t require an operating agreement, having one can prevent future disputes. Legal templates or attorney-drafted agreements can cost between $100 and $500.
Ongoing Costs for Texas LLCs
Forming an LLC isn’t just about the initial fees—there are ongoing costs to keep your business in good standing. Texas does not require annual reports for LLCs, but there is a yearly franchise tax for most businesses. If your LLC generates more than $2,470,000 in annual revenue, you’ll need to file a Franchise Tax Report and pay a franchise tax, which is typically 0.375% for retail businesses and 0.75% for other businesses. Smaller LLCs may still need to file a “no tax due” report, which is free.
Another recurring expense is the registered agent fee if you’ve hired a professional service. Additionally, some LLCs may choose to pay for business insurance, accounting services, or software subscriptions to manage finances and compliance. These costs vary depending on your business needs but should be factored into your annual budget.
Local and Industry-Specific Fees
Depending on where your LLC operates, you may need to pay local business licenses or permits. For example, some cities or counties in Texas require a general business license, which can cost between $50 and $500. Certain industries, such as food service or healthcare, may also require specialized permits or inspections, adding to your startup costs.
If your LLC uses a fictitious name (DBA or “Doing Business As”), you’ll need to file an Assumed Name Certificate with the county clerk’s office where your business is located. The filing fee varies by county but is usually around $25 to $50. This step is only necessary if you’re operating under a name different from your LLC’s legal name.
Ways to Save Money When Forming an LLC in Texas
While some costs are unavoidable, there are ways to minimize expenses when forming your LLC. One of the easiest ways to save money is by filing the Certificate of Formation yourself instead of using a third-party service. The Texas Secretary of State provides clear instructions, and the process is straightforward for most small businesses.
Another cost-saving measure is acting as your own registered agent instead of hiring a service. However, keep in mind that this means your address will be publicly listed, which may not be ideal for privacy-conscious business owners. Additionally, using free IRS resources to obtain your EIN and drafting a basic operating agreement using online templates can help reduce legal fees.
Conclusion
Forming an LLC in Texas involves several costs, from the mandatory $300 state filing fee to optional expenses like registered agent services or legal assistance. While the initial investment may seem daunting, the liability protection and flexibility of an LLC make it a worthwhile choice for many business owners. By understanding all potential fees—both upfront and ongoing—you can budget effectively and avoid surprises down the road. Whether you choose a DIY approach or hire professionals, planning ahead will ensure a smooth and cost-effective LLC formation process in the Lone Star State.
