How to Form an LLC in Texas: Complete 2026 Guide with Costs

Texas is one of the best states in the country to start and run a business. No state income tax, a massive and growing economy, a business-friendly legal environment, and straightforward LLC formation requirements make Texas an attractive home for entrepreneurs of all kinds. Whether you are a freelancer in Austin, a contractor in Houston, or an online business owner anywhere in the Lone Star State, forming a Texas LLC is a smart move and the process is simpler than most people expect.

This guide walks you through every step of forming a Texas LLC in 2026, covers every cost you will encounter from formation through ongoing compliance, and explains the Texas franchise tax in plain language so there are no surprises when your first May filing deadline arrives.

Quick Summary: Forming a Texas LLC costs $300 to file your Certificate of Formation with the Texas Secretary of State. Texas has no annual report requirement for LLCs but does require an annual franchise tax report due May 15 each year. Most small LLCs pay no franchise tax due to the revenue exemption threshold. Processing time is typically 3 to 5 business days online.

Table of Contents

1. Why Texas Is a Great State to Form an LLC
2. Complete Cost Breakdown: Texas LLC Formation
3. Step-by-Step: How to Form an LLC in Texas
4. The Certificate of Formation: What to Know
5. Registered Agent Requirements in Texas
6. Texas Franchise Tax: What Every LLC Owner Needs to Know
7. Operating Agreement in Texas
8. After Formation: Ongoing Texas LLC Compliance
9. Texas vs California: Why Texas Wins for Most Small Businesses
10. Frequently Asked Questions

Why Texas Is a Great State to Form an LLC

Texas consistently ranks among the top states in the country for business formation and economic growth. Here is what makes it stand out from a business owner's perspective:

Texas Business Advantage	Details
No state income tax	Texas has no personal income tax. Your LLC profits are only taxed at the federal level for income tax purposes, which significantly reduces your overall tax burden compared to high-tax states like California and New York.
No annual report filing	Unlike most states, Texas does not require LLCs to file a traditional annual report. You do have a franchise tax report obligation but no separate information update filing each year.
Business-friendly legal environment	Texas courts are generally considered business-friendly and the state's LLC statutes provide solid liability protection and operational flexibility.
Large and growing economy	Texas has the second largest economy in the United States and is consistently one of the top states for business relocation and growth across industries.
Straightforward LLC laws	The Texas Business Organizations Code governs LLCs with clear, practical rules that give LLC owners significant flexibility in how they structure and run their businesses.
Low franchise tax for most small businesses	Most small LLCs owe zero Texas franchise tax due to the revenue exemption threshold (more on this below). Only businesses with significant revenue pay meaningful franchise taxes in Texas.

Complete Cost Breakdown: Texas LLC Formation

Texas LLC Costs: Year 1 and Ongoing

One-Time Formation Costs

Certificate of Formation filing fee (Form 205) $300

Name reservation (optional, 120 days) $40

Operating agreement (DIY template) $0

EIN from IRS $0

Ongoing Annual Costs

Registered agent service (annual) $49 to $300

Texas franchise tax (most small LLCs owe $0) $0 to varies

Franchise tax report filing (annual, even if $0 owed) Free to file

Estimated Total Year 1 $349 to $649

Estimated Ongoing Annual Cost $49 to $300 (mostly registered agent)

Texas vs California on Cost: Texas is dramatically cheaper to maintain an LLC in compared to California. While California costs at least $800 per year in franchise tax alone, most Texas LLCs under the revenue threshold pay zero franchise tax. The primary ongoing cost for most Texas LLC owners is simply the registered agent service fee.

Step-by-Step: How to Form an LLC in Texas

• 1
  Choose Your Texas LLC Name
  Your LLC name must include "Limited Liability Company," "L.L.C.," or "LLC" at the end. The name must be distinguishable from all other registered business names in Texas. You can check name availability free using the Texas Secretary of State's SOS Direct online search tool at direct.sos.state.tx.us. Texas also prohibits certain restricted words in LLC names without special approval, including words suggesting governmental affiliation or licensed professions like "attorney," "bank," or "insurance." If you want to lock in your name before filing, a name reservation costs $40 and holds it for 120 days.
• 2
  Designate Your Registered Agent
  Texas law requires every LLC to have a registered agent with a physical address in Texas. The agent must be available at that address during normal business hours to receive legal documents. You can serve as your own registered agent if you have a Texas street address and are available during business hours. However, most home-based business owners and online entrepreneurs choose a professional registered agent service to keep their home address off public filings and ensure reliable document handling.
• 3
  File the Certificate of Formation (Form 205)
  The Certificate of Formation is the document that officially creates your Texas LLC. It is filed with the Texas Secretary of State using Form 205. You can file online through the SOSUpload system or SOS Direct portal, by mail, or in person at the Secretary of State's office in Austin. The filing fee is $300 regardless of which method you use. Online filings are processed within 3 to 5 business days under standard processing. Expedited 24-hour processing is available for an additional $25 fee, making it one of the most affordable expedite options in the country.
• 4
  Create Your Operating Agreement
  Texas does not legally require an operating agreement for LLCs but every Texas LLC should have one. Without it, your LLC is governed by the default rules of the Texas Business Organizations Code, which may not reflect your intentions on critical matters like profit distribution, management authority, and what happens if you want to dissolve the LLC or bring in a partner. For a single-member LLC, a straightforward template-based agreement is sufficient. For multi-member LLCs, having an attorney review the document before signing is worth the cost.
• 5
  Obtain Your EIN from the IRS
  After your Certificate of Formation is approved and you have your LLC's official formation date, apply for your EIN through IRS.gov. The online application takes about 10 minutes and you receive your EIN instantly. Your EIN is required to open a business bank account, file Texas and federal taxes, and process payroll if you have employees. This service is always free directly from the IRS.
• 6
  Open a Business Bank Account
  Once you have your Certificate of Formation and EIN, open a dedicated business bank account for your Texas LLC. Bring your Certificate of Formation, EIN confirmation letter, operating agreement, and a government-issued photo ID. Keeping your business and personal finances completely separate is essential for maintaining your liability protection and simplifying your tax filing every year. Mercury, Relay, and Novo are excellent no-fee online options. Chase Business Complete Banking is a strong traditional bank choice with extensive Texas branch coverage.
• 7
  Register for Texas State Taxes
  If your LLC will sell taxable goods or services in Texas, register for a Texas Sales and Use Tax Permit through the Texas Comptroller of Public Accounts at comptroller.texas.gov. The registration is free. If you will have employees, register with the Texas Workforce Commission for unemployment insurance tax purposes. Single-member LLC owners with no employees who are not collecting sales tax may not need to register separately, but you must still file a franchise tax report annually regardless of revenue.
• 8
  Obtain Required Business Licenses and Permits
  Texas does not have a general state business license, but depending on your industry and location you may need specific professional licenses, municipal business permits, or county registrations. Use the Texas Department of Licensing and Regulation website and your city or county government website to identify any permits specific to your business activity. Common examples include contractor licenses, food handler permits, professional licenses for accountants and healthcare providers, and home occupation permits from your municipality.

The Certificate of Formation: What to Know

The Certificate of Formation (Form 205) is the official document that creates your Texas LLC. It is simpler than many states' formation documents and typically takes under 15 minutes to complete. Here is what it asks for:

Field	What to Enter	Notes
Article 1: Entity name	Your LLC's full legal name including the LLC suffix	Must be distinguishable from all existing Texas entities
Article 2: Registered agent	Name and physical Texas street address of your registered agent	P.O. Boxes not accepted
Article 3: Governing authority	Whether the LLC is managed by members or managers	Most small LLCs choose member-managed
Article 4: Organizer information	Name and address of the person filing the Certificate	The organizer does not have to be a member or owner
Article 5: Effectiveness	When the filing takes effect (usually immediately)	Can be set for a future date up to 90 days out
Supplemental provisions	Any additional provisions you want to include (optional)	Most LLCs leave this blank
Signature	Organizer's signature and date	Only the organizer needs to sign, not all members

Notice that unlike some states, Texas does not ask for member names and addresses in the Certificate of Formation. This means member information is not part of your public filing, which provides an added layer of privacy compared to states that require this information in formation documents.

Texas Privacy Advantage: Because Texas does not require member names in the Certificate of Formation, your ownership information stays off the public record. This makes Texas a reasonably privacy-friendly state for LLC formation without needing to go to Wyoming for that benefit.

Registered Agent Requirements in Texas

Texas requires every LLC to maintain a registered agent with a physical Texas street address at all times. The registered agent must be available during normal business hours to receive legal documents and official government notices.

Your options are the same as in most states:

• Serve as your own registered agent: Free but requires a Texas address and your personal presence at that address during business hours. Your address becomes part of your public Certificate of Formation filing.
• Use a trusted individual in Texas: Any Texas resident aged 18 or older with a Texas street address can serve as your registered agent.
• Use a professional registered agent service: Services like Northwest Registered Agent, Bizee, and ZenBusiness operate in Texas and handle all document receipt and forwarding for $49 to $150 per year. Recommended for home-based businesses, online entrepreneurs, and anyone who values privacy.

If your registered agent moves, resigns, or becomes unavailable, you must file a Statement of Change of Registered Agent (Form 401) with the Texas Secretary of State and pay a $15 filing fee. Operating without a current, valid registered agent puts your LLC at risk of administrative action.

Texas Franchise Tax: What Every LLC Owner Needs to Know

The Texas franchise tax is the most misunderstood aspect of running a Texas LLC. Most new business owners hear "franchise tax" and assume it means a significant ongoing expense. For the vast majority of small Texas LLCs, the opposite is true: you file the report every year but owe nothing.

The Revenue Exemption Threshold

Texas exempts businesses with annual total revenue at or below a specific threshold from paying franchise tax. For 2026, that threshold is $2.47 million in total annualized revenue. If your Texas LLC's total revenue from all sources is under $2.47 million, you owe zero franchise tax for that year.

You still must file the Annual Franchise Tax Report, but you file the "No Tax Due" version (Form 05-163), which takes about 5 minutes and costs nothing to submit. This is one of the most business-friendly franchise tax policies in the country.

When You Do Owe Franchise Tax

If your LLC's total revenue exceeds $2.47 million, the franchise tax applies. Texas uses two calculation methods and you pay whichever results in a lower tax:

Calculation Method	Rate	Applied To
E-Z Computation (for revenue under $20 million)	0.331%	Total revenue minus cost of goods sold or compensation (whichever is greater)
Standard margin method	0.75% (most businesses) or 0.375% (qualifying wholesale/retail)	Taxable margin (revenue minus greatest of: cost of goods sold, compensation, 30% of revenue, or $1 million)
Retail and wholesale businesses	0.375%	Reduced rate for qualifying retail and wholesale businesses

The effective franchise tax rate for Texas businesses is significantly lower than the headline numbers suggest once you apply the allowable deductions. A business with $3 million in revenue and $2 million in compensation costs would have a taxable margin of roughly $1 million and owe about $7,500 at the 0.75% rate. That is a small fraction of what a comparable California LLC would owe in combined franchise tax and income taxes.

Franchise Tax Report Deadline

The Texas franchise tax report is due May 15 each year. This is a fixed date, not based on your LLC's formation anniversary. Your LLC's first franchise tax report covers the period from formation through December 31 of that year and is due May 15 of the following year.

File Even If You Owe Nothing: Texas requires every LLC to file a franchise tax report annually, even if the LLC had zero revenue and owes no tax. Failing to file results in penalties starting at 5% of the tax due (with a $50 minimum), and continued non-filing can lead to the Texas Comptroller forfeiting your LLC's right to do business in Texas. Always file the report by May 15 even when no tax is owed.

Operating Agreement in Texas

Texas does not legally require LLCs to have a written operating agreement, but the Texas Business Organizations Code strongly implies the value of having one. Without an operating agreement, every aspect of your LLC's internal governance falls back on the default provisions in the Texas BOC, which are written for a generic LLC situation rather than your specific business.

Here are the most important things a Texas LLC operating agreement should address:

• Ownership percentages and each member's initial capital contribution
• How the LLC is managed (member-managed or manager-managed) and the scope of management authority
• How profits and losses are allocated among members
• When and how distributions are made to members
• What percentage of member votes are required for major decisions
• What happens when a member wants to transfer their ownership interest
• Buy-sell provisions covering what happens when a member dies, divorces, or becomes incapacitated
• How the LLC can be dissolved and how remaining assets are distributed

For a single-member Texas LLC, your operating agreement is primarily a document that confirms your sole ownership, your management authority, and your succession plan. For a multi-member LLC, it is one of the most important documents your business will ever have. See our complete guide on LLC operating agreements for a full section-by-section breakdown and template outline.

After Formation: Ongoing Texas LLC Compliance

Texas has a relatively light ongoing compliance burden compared to most states. Here is everything you need to stay on top of annually:

Compliance Requirement	Frequency	Due Date	Cost
Annual Franchise Tax Report (No Tax Due)	Annual	May 15 each year	Free to file if no tax owed
Annual Franchise Tax Payment (if revenue over $2.47M)	Annual	May 15 each year	Based on taxable margin calculation
Texas Annual Report	None required	N/A	$0
Registered Agent Service Renewal	Annual	Based on service agreement	$49 to $300
Sales and Use Tax Return (if collecting sales tax)	Monthly, quarterly, or annual (based on volume)	Assigned by Texas Comptroller	No fee to file
Business License Renewals (if applicable)	Varies by license type	Varies	Varies by license

Texas Franchise Tax Report: How to File

File your annual franchise tax report through the Texas Comptroller's WebFile system at comptroller.texas.gov. If your revenue is below the $2.47 million threshold, select "No Tax Due Report" (Form 05-163). The system will ask for your LLC's total revenue and confirm that you owe no tax. The whole process takes about 5 minutes and you receive immediate confirmation. Create a WebFile account the day your LLC is formed so you are ready when May 15 rolls around each year.

Texas vs California: Why Texas Wins for Most Small Businesses

Since many business owners move from California to Texas or debate which state is better for their LLC, here is a direct side-by-side comparison:

Texas LLC

• $300 one-time formation fee
• No state personal income tax
• No annual report requirement
• Franchise tax: $0 for most small businesses
• Franchise tax report: free to file
• Ongoing cost: mostly just registered agent ($49 to $300/year)
• Member names NOT required in formation documents
• No S-Corp penalty at state level
• Fast online filing, 3 to 5 days standard

California LLC

• $70 formation fee (lower upfront)
• State income tax up to 13.3%
• Biennial Statement of Information required ($20)
• $800 minimum franchise tax every year (from year 2)
• Additional LLC fee if revenue over $250K
• Ongoing cost: $800 to $1,100+ minimum per year
• Strict operating agreement requirement
• S-Corp election adds 1.5% additional tax
• Standard processing can take weeks

For a small LLC earning $80,000 in net profit, the combined state-level cost difference over five years can easily exceed $4,000 in California versus Texas, not counting the personal income tax savings from living in a no-income-tax state. This is one reason Texas continues to attract business owners relocating from California in large numbers every year.

Ready to Form Your Texas LLC?

Use our complete library of guides to get your Texas LLC formed the right way, stay compliant with Texas franchise tax requirements, and protect your business with the right documents from day one.

Browse All LLC Guides

Related Guides Worth Reading

• How to Form an LLC in the USA: Complete Step-by-Step Guide (2026)
• How to Form an LLC in California: Costs, Steps and Requirements (2026)
• Best States to Form an LLC in 2026: Wyoming vs Delaware vs Nevada
• What Is a Registered Agent? Do You Really Need One for Your LLC?
• LLC Operating Agreement: What Every Single-Member LLC Needs in 2026

Official Texas Resources

• Texas Secretary of State: Limited Liability Companies
• Texas Comptroller: Franchise Tax Overview
• Texas SOS Direct: Business Name Search and Filing Portal

Frequently Asked Questions

How much does it cost to form an LLC in Texas?

The Texas Certificate of Formation filing fee is $300. This is a one-time cost paid to the Texas Secretary of State. Optional name reservation costs $40 for 120 days. With a registered agent service, your total first-year cost typically runs $349 to $649. After year one, the main ongoing cost for most small LLCs is the registered agent service at $49 to $300 per year. Most small Texas LLCs pay zero franchise tax due to the $2.47 million revenue exemption threshold.

Does Texas require an annual report for LLCs?

No. Texas does not require LLCs to file a traditional annual report with business information updates. However, Texas does require all LLCs to file an Annual Franchise Tax Report by May 15 each year regardless of revenue. If your LLC's total revenue is under the $2.47 million exemption threshold, you file the free No Tax Due version of the report. Filing is mandatory even if no tax is owed.

What is the Texas franchise tax for LLCs?

The Texas franchise tax is a state-level business tax that applies to LLCs with annual total revenue over $2.47 million (2026 threshold). If your LLC is under this threshold, you file the No Tax Due report and owe nothing. Above the threshold, the tax is calculated on your taxable margin at rates ranging from 0.331% (E-Z computation method) to 0.75% (standard margin method). Texas uses the lower of two calculation methods, and the effective rate is often much lower than the headline percentage once deductions are applied.

How long does it take to form an LLC in Texas?

Online filings through the Texas Secretary of State's SOSUpload system are processed within 3 to 5 business days under standard processing. Expedited 24-hour processing is available for an additional $25 fee, making it one of the most affordable expedite options in the country. Mail-in filings take longer and are generally not recommended unless necessary.

Does Texas have a state income tax on LLC profits?

No. Texas has no state personal income tax. LLC profits passed through to the owner are not subject to any Texas personal income tax. This is one of the most significant financial advantages of running a business in Texas compared to high-tax states. Your LLC profits are taxed at the federal level through your personal return but Texas collects no additional state income tax on those earnings.

Can I be my own registered agent in Texas?

Yes, as long as you have a physical Texas street address and are available at that address during normal business hours. Your address will appear on your public Certificate of Formation. Most home-based business owners choose a professional registered agent service instead to keep their home address off public records and ensure reliable document handling. Services typically cost $49 to $150 per year in Texas and are deductible as a business expense.

Does Texas require an operating agreement for LLCs?

No. Texas does not legally require LLCs to have a written operating agreement. However, having one is strongly recommended for every Texas LLC. Without it, the default rules of the Texas Business Organizations Code govern your LLC in all situations the agreement would have addressed. Banks also routinely ask for your operating agreement when you open a business account, and not having one can delay the process.

What is the Texas franchise tax report deadline?

The Texas Annual Franchise Tax Report is due May 15 each year for all LLCs regardless of revenue level. Your first report covers the period from your LLC's formation date through December 31 of that year and is due May 15 of the following calendar year. File through the Texas Comptroller's WebFile system at comptroller.texas.gov. Filing is free. Penalties for late filing start at 5% of tax owed with a $50 minimum.