Texas is the second-largest LLC market in the country for a reason beyond its economy: the ongoing costs are among the lowest of any large state. No personal income tax, no annual report fee, and a franchise tax that most small companies file at $0. The trade-off is a higher-than-average formation fee ($300) and a franchise reporting system that confuses founders who expect a simple annual report.
This guide walks the entire Texas process: the pre-filing decisions, the Certificate of Formation itself, what happens after approval, and the franchise tax system that governs every year thereafter. For the state-agnostic fundamentals (what an LLC is, how the liability shield works), start with the national formation cornerstone and What Is an LLC?.
Before You File: Name, Agent, Management
Name. Your name must be distinguishable from every entity registered with the Texas Secretary of State and include "LLC," "L.L.C.," "Limited Liability Company," or "Limited Company." Search the record through SOSDirect ($1 per search) or the Comptroller's free taxable entity search; our Texas business search checks it in seconds. Names implying banking, insurance, or a university need regulatory consent, and "lottery" is prohibited outright. A name can be reserved for 120 days for $40 if you are not ready to file.
Registered agent. Texas requires an agent with a physical street address in Texas (no PO boxes), available during business hours. The agent must consent in writing on Form 401-A, which you keep with company records rather than filing. Serving as your own agent is legal and puts your address on the permanent public record; the trade-offs are covered in Should You Be Your Own Registered Agent? A commercial service runs $100 to $300 per year; File.Business charges $149, first year included with formation.
Management structure. Form 205 asks whether the LLC is member-managed or manager-managed, and requires the names and addresses of the initial governing persons. Single-owner companies almost always choose member-managed. Note the privacy implication: Texas puts governing persons on the public record, and the annual Public Information Report refreshes it every year.
Filing the Certificate of Formation (Form 205)
The Certificate of Formation is Texas's version of Articles of Organization (the difference is naming only; see the comparison). Form 205 asks for: the LLC name, registered agent name and address, governing authority (member-managed or manager-managed, with names), a purpose clause (a general "any lawful purpose" statement is standard), the organizer's name and signature, and an optional delayed effective date up to 90 days out.
File online through SOSDirect or SOSUpload with the $300 fee (credit card payments add a 2.7% convenience charge). Standard processing runs roughly 10 to 15 business days; $25 per document buys expedited handling, typically cutting approval to a few business days. The state returns a stamped certificate and a file number. That stamped certificate plus your EIN is what banks want.
After Approval: the Texas Checklist
Company agreement. Texas calls the operating agreement a company agreement and does not require one, but you want one for the bank, for co-owner protection, and as veil evidence. State-specific template guidance: Texas operating agreement guide.
EIN. Free and instant from the IRS online for applicants with an SSN or ITIN; non-US founders use Form SS-4 by fax. Never pay a standalone "EIN service" for a free government number. Details: the EIN guide; included with File.Business formations.
Sales tax permit. Selling taxable goods or services in Texas requires a free sales tax permit from the Comptroller. Texas sales tax is 6.25% state plus up to 2% local.
Licenses. Texas has no statewide general business license; requirements are industry and city specific. Check both via the license lookup.
Bank account. Open a dedicated account with the stamped certificate, EIN letter, and company agreement, and route every business dollar through it. Commingling is the number one veil-piercing fact pattern.
The Franchise Tax System: Texas's One Recurring Obligation
Texas skips the annual report fee that most states charge and instead requires an annual franchise tax filing with the Comptroller, due May 15 each year (the first one arrives the year after formation). Three facts cover most small LLCs:
First, if annualized revenue is at or below the no-tax-due threshold (about $2.47 million), you owe nothing. Since 2024 you no longer file a No Tax Due Report either, but you still must file the Public Information Report (PIR) listing officers and addresses. Second, above the threshold, tax applies at 0.375% of taxable margin for retail and wholesale businesses and 0.75% for others, with multiple margin calculation methods worth a CPA conversation. Third, skipping the filing entirely is how Texas LLCs die: the Comptroller forfeits the entity's right to transact business, and eventually its charter, after which reinstatement means back reports, penalties, and a tax clearance letter. The concept is explained in franchise tax requirements, and compliance monitoring tracks the deadline automatically.
Texas-Specific Mistakes
Why it happensTexas genuinely has no annual report fee, and founders stop listening there.
ConsequenceMissed May 15 franchise/PIR filing, forfeiture of the right to do business, then charter forfeiture.
PreventionCalendar May 15 the day the LLC is approved, every year, $0 owed or not.
Why it happensThe consent is not filed with the state, so it feels optional.
ConsequenceAn agent who never consented can disclaim the role; service-of-process failures follow.
PreventionGet the signed consent at formation and keep it with the company agreement.
Why it happensThe state approved the name, so it must be safe.
ConsequenceA USPTO or common-law trademark claim forces a rebrand after you have built the name.
PreventionRun the USPTO search too; see trademarking your name.
Why it happensStartup-forum defaults applied to a Texas-based business.
ConsequenceForeign registration in Texas ($750, more than forming here) plus two states of paperwork forever.
PreventionOperate in Texas, form in Texas, unless institutional investors dictate otherwise.
Three Texas Formations in Practice
Files Form 205 through SOSDirect on a Tuesday with the $25 expedite, is approved Friday, gets the EIN the same afternoon, and opens the bank account Monday with the stamped certificate and company agreement.
Outcome: The expedite was worth it for a contract start date; standard speed would have added a week.
Files Form 205, registers for a sales tax permit with the Comptroller before opening, and adopts a company agreement with a buyout formula. First franchise report the following May files at $0 owed with the PIR.
Outcome: Registering for sales tax before the first sale avoided the Comptroller penalty letters that surprise retail founders.
An Austin agency formed in Delaware years ago pays $300 Delaware tax plus Texas foreign registration and two agents. It converts to a Texas LLC, keeping its EIN and contracts.
Outcome: The dual-state structure had bought nothing since day one. Conversion ended the surcharge without disrupting the business.
$300 once, May 15 forever
Texas front-loads the cost: a $300 formation fee, then no annual report fee and no state income tax. The entire ongoing game is the May 15 franchise filing, which most small LLCs complete at $0 owed. File it every year and a Texas LLC is one of the cheapest entities in the country to keep alive.
Frequently asked questions
How much does it cost to start an LLC in Texas?
The Certificate of Formation costs $300, filed with the Texas Secretary of State. Texas then charges no annual report fee: the recurring obligation is the franchise tax report due each May 15, which most small LLCs file at $0 owed. Add $100 to $300 per year if you use a commercial registered agent.
How long does it take to form an LLC in Texas?
Online filings through SOSDirect or SOSUpload are typically processed in about 10 to 15 business days at standard speed. Texas sells expedited processing for $25 per document, which moves approval to the front of the queue, usually within a few business days. Mail filings take several weeks.
Does Texas have an annual report for LLCs?
Not a traditional one. Instead, every Texas LLC files an annual franchise tax report with the Comptroller by May 15, including a Public Information Report. LLCs under the no-tax-due revenue threshold (about $2.47 million) owe nothing but must still file. Missing it leads to forfeiture of the entity's charter.
Does Texas have a state income tax on LLCs?
No. Texas has no personal income tax, so pass-through LLC profits face only federal tax at the owner level. The franchise tax applies at the entity level but only above the no-tax-due threshold, making Texas one of the most tax-friendly states to run an LLC that actually operates there.
Can I be my own registered agent in Texas?
Yes, if you are a Texas resident with a physical street address in the state and available during business hours. The agent must consent in writing (Form 401-A, kept with your records, not filed). Your address becomes part of the public record; weigh that against the cost of a commercial service.
What is the difference between Form 205 and Articles of Organization?
Same document, Texas name. Most states call the LLC formation document Articles of Organization; Texas calls it the Certificate of Formation, and Form 205 is the version for LLCs. It asks for the company name, registered agent, governing structure, purpose, organizer, and effective date.
Do I need an operating agreement in Texas?
Texas law does not require one, but every Texas LLC should have one: banks ask for it, it fixes ownership percentages and exit rules, and it is your strongest evidence of entity separateness in a dispute. Texas calls it a company agreement. See the Texas operating agreement guide.
Form your Texas LLC with the state fee at cost.
Name check against the Texas record, Certificate of Formation prepared and filed, operating agreement, EIN, and a year of registered agent service. The $300 state fee is passed through with no markup.
