Choosing and forming the right entity is one of the first legal decisions a Texas business owner makes, and it shapes liability protection, taxes, governance, and how easily the business can bring in partners or be sold later. A Texas entity formation attorney helps you compare a limited liability company, a corporation, and the various partnership forms under the Texas Business Organizations Code, prepare the certificate of formation for the Texas Secretary of State, and set up the internal documents and tax registrations that keep the entity in good standing after it is filed.
Holmes Law is the practice of Michael Holmes, an attorney licensed in Texas who works with business owners remotely throughout the state. This page explains how Texas entity formation works, what the state requires at filing and every year after, and where Texas rules differ from what owners may have read about Delaware, California, or other states. It is general information rather than legal advice, and it is part of Holmes Law’s broader Texas business law practice.
The Texas Business Organizations Code
Texas consolidated nearly all of its entity statutes into a single code, the Texas Business Organizations Code (often abbreviated TBOC or BOC), which has governed every Texas entity since January 1, 2010. Title 1 contains rules that apply to all entities, such as filing procedures, registered agents, mergers and conversions, and winding up. Later titles contain the entity-specific rules: Title 2, Chapter 21 for for-profit corporations; Title 3, Chapter 101 for limited liability companies; Title 4 for partnerships, including general partnerships under Chapter 152 and limited partnerships under Chapter 153; and Title 7 for professional entities.
Because the rules for all entity types sit in one code, Texas lawyers and courts frequently borrow concepts across forms. The corporate veil-piercing statute in Section 21.223, for example, is expressly applied to LLCs by Section 101.002. That cross-referencing is helpful, but it also means that a formation decision should be made with the whole code in view, not just the chapter for the entity you think you want.
Choosing Between an LLC, a Corporation, and a Partnership
There is no single correct entity for every Texas business. The choice turns on how many owners there are, how they expect to share profits and control, how the business will be taxed, whether outside investors are expected, and how the owners intend to exit.
Limited Liability Company
The LLC is the most common choice for Texas small and mid-sized businesses. Its members are generally not personally liable for the company’s debts, and its internal affairs are governed primarily by a company agreement, which Texas law gives wide latitude. An LLC may be managed by its members or by one or more managers; the certificate of formation must state whether the company will have managers, and Section 101.251 makes either the managers or the members the governing authority accordingly. Federal tax treatment is flexible: a single-member LLC is disregarded by default, a multi-member LLC is taxed as a partnership by default, and either can elect to be taxed as a corporation or as an S corporation.
Corporation
A Texas for-profit corporation is governed by a board of directors elected by shareholders, with officers handling daily operations. Corporations are familiar to institutional investors and lenders, have well-developed rules for issuing different classes of stock, and are often the preferred vehicle when a company expects venture financing or equity compensation for employees. Texas also allows a close corporation under Subchapter O of Chapter 21, which lets a small group of shareholders run the company under a shareholders’ agreement rather than a traditional board. Recent amendments to the TBOC in 2025 added options, such as a codified business judgment rule, that are aimed mainly at larger and publicly listed corporations, but they have signaled the state’s interest in attracting corporate charters.
General and Limited Partnerships
A general partnership can arise without any filing at all whenever two or more people carry on a business for profit as co-owners, and each general partner can be personally liable for partnership obligations. That is why many Texas owners who think they simply “went into business together” discover they formed a partnership by default. A limited partnership, formed by filing a certificate of formation, has at least one general partner with management authority and one or more limited partners whose liability is generally limited to their investment. Limited partnerships remain common in Texas for real estate holding, oil and gas ventures, and family wealth planning, often with an LLC serving as the general partner. A general or limited partnership can also register as a limited liability partnership, which shields partners from certain partnership obligations.
Filing the Certificate of Formation
A Texas LLC, corporation, or limited partnership comes into existence when the Texas Secretary of State files its certificate of formation. Filings can be submitted online through SOSDirect or by mail. The Secretary of State publishes promulgated forms, such as Form 205 for an LLC and Form 201 for a for-profit corporation, although a custom certificate that satisfies the statute is also accepted. The Secretary of State’s instructions list the filing fee for an LLC certificate of formation as $300.
At a minimum, the certificate of formation must include the entity’s name, its type, its purpose, the registered agent and registered office, and the organizer. An LLC’s certificate must also state whether it will be managed by managers or by its members and list the initial managers or members. A corporation’s certificate must state the number of authorized shares and name the initial directors. Optional provisions that are often worth including are limitations on director or manager liability, indemnification provisions, and, for LLCs that will use them, the series provisions discussed below.
Names and Assumed Names
The entity name must be distinguishable from other names on file with the Secretary of State and must include an appropriate designator, such as “Limited Liability Company,” “LLC,” “Corporation,” “Inc.,” or “Limited Partnership.” A name that is merely available on the state’s records is not necessarily free of trademark conflicts, so it is prudent to search federal and state trademark records and common-law uses before committing to a brand. If the business will operate under a name other than its legal name, Chapter 71 of the Texas Business and Commerce Code requires an assumed name certificate, which an entity files with the Secretary of State.
Registered Agent and Registered Office
Every Texas entity and every registered foreign entity must continuously maintain a registered agent and a registered office in Texas under Chapter 5 of the TBOC. The registered agent is the person or company authorized to receive service of process, government notices, and other legal papers on the entity’s behalf. The agent may be an individual Texas resident or an organization authorized to do business in Texas, and the registered office must be a physical street address in Texas, not merely a mailbox. According to the Secretary of State’s instructions, an LLC cannot act as its own registered agent. Texas law also requires that the person named as registered agent consent to serve before the entity designates them.
Many owners use a commercial registered agent service, which helps protect privacy and makes sure that a lawsuit or tax notice is not missed when the owner moves or travels.
Series LLCs and Professional Entities
Series LLCs
Texas is one of the states that authorize series LLCs. Under Sections 101.601 through 101.622 of the TBOC, a company agreement can establish one or more series of members, managed interests, or assets, and each series can have its own members, managers, business purpose, and assets. If the statutory requirements are met, including separate records, separate accounting for each series’ assets, and notice of the limitation on liabilities in the certificate of formation, the debts of one series are enforceable only against that series’ assets. Series LLCs are popular with real estate investors who hold several properties. They also carry open questions, including how courts in states without series statutes will treat them, how lenders and title insurers will underwrite them, and how the franchise tax and federal tax rules apply to each series. A series LLC is a tool worth evaluating, not a default.
Professional Entities
Licensed professionals who provide services requiring a state license, such as physicians, dentists, accountants, architects, engineers, and attorneys, generally form a professional entity under Title 7 of the TBOC. The options include a professional limited liability company (PLLC), a professional corporation (PC), and a professional association (PA). Ownership is typically restricted to people licensed in the relevant profession, and the licensing board’s own rules can add further limits. A professional entity protects owners from ordinary business debts and from the malpractice of other professionals in the firm, but it does not protect a professional from liability for his or her own professional errors.
Foreign Registration: Doing Business in Texas
A company formed in another state that transacts business in Texas must register with the Texas Secretary of State under Chapter 9 of the TBOC before doing so. Registration involves appointing a Texas registered agent and filing an application for registration, such as Form 304 for a foreign LLC. The statute lists activities that do not by themselves constitute transacting business, such as maintaining a bank account or holding meetings, but operating a location, employing people in Texas, or regularly performing services in the state usually requires registration.
The consequences of skipping registration are significant. An unregistered foreign entity may not maintain an action or proceeding in a Texas court until it registers, and it can be liable for fees and penalties for the period it transacted business without registration. Owners who formed in Delaware or Nevada on the assumption that doing so avoids Texas requirements are often surprised to learn that a business operating in Texas must register here and file Texas franchise tax reports regardless of where it was formed.
Texas Franchise Tax and Annual Reporting
Texas does not have a personal income tax and does not require most entities to file an annual report with the Secretary of State. Instead, the key annual obligation runs to the Texas Comptroller of Public Accounts under the franchise tax, Chapter 171 of the Texas Tax Code. The franchise tax is a privilege tax imposed on each taxable entity formed in Texas or doing business in Texas. Taxable entities include corporations, LLCs, limited partnerships, limited liability partnerships, professional associations, and business trusts. Sole proprietorships and general partnerships owned directly and entirely by natural persons are not taxable entities, and certain passive entities are excluded.
The Comptroller’s published figures for 2026 reports are:
- A no tax due threshold of $2,650,000 in annualized total revenue.
- A tax rate of 0.375% for qualifying retailers and wholesalers and 0.75% for other entities, applied to taxable margin.
- An EZ computation option at a rate of 0.331% for entities with total revenue below $20 million.
Annual reports are due May 15. Beginning with the 2024 report year, the Comptroller discontinued the separate No Tax Due Report; an entity at or below the threshold still files its Public Information Report (for corporations and LLCs) or Ownership Information Report (for other entity types). These informational filings list officers, directors, managers, and certain owners, and they are how Texas keeps its record of who runs each entity current.
Failure to file franchise tax reports or pay the tax leads to penalties and, eventually, forfeiture of the entity’s right to transact business and of its existence. Forfeiture has real consequences: the entity may lose the right to sue or defend in Texas courts, and Tax Code provisions can make officers and directors personally liable for certain debts incurred after the forfeiture. Reinstatement is possible but requires bringing reports and payments current.
S Corporation Elections and Other Tax Considerations
An S corporation election is a federal tax choice, not a separate kind of Texas entity. Both a corporation and an LLC that elects to be taxed as a corporation can file IRS Form 2553 to be taxed as an S corporation, provided they satisfy the federal requirements, including limits on the number and type of shareholders and the single-class-of-stock rule. The election can reduce self-employment tax for owners who work in the business and take reasonable compensation, but it adds payroll compliance and restricts flexibility in allocating profits.
For Texas purposes, the S election does not change franchise tax treatment. An S corporation or an LLC taxed as an S corporation is still a taxable entity for franchise tax. Owners who move from states such as California, which imposes its own entity-level taxes and minimum taxes, often find the Texas structure simpler because there is no state personal income tax on the flow-through income, but the franchise tax still has to be calculated and reported every year.
Other formation-stage registrations can include an IRS employer identification number, a Texas sales and use tax permit from the Comptroller if the business sells taxable goods or services, and a Texas Workforce Commission unemployment tax account once the business has employees. Local permits and occupational licenses depend on the industry and the city or county.
After Filing: Governing Documents and Formalities
A certificate of formation creates the entity, but it says very little about how the owners will actually work together. For an LLC, the company agreement fills that gap; for a corporation, the bylaws and often a shareholders’ agreement do. Texas default rules can produce results owners never intended, such as equal voting based on profit interests, or limits on a member’s ability to withdraw and get paid out. Holmes Law’s page on Texas operating and shareholder agreements explains those defaults and how to override them, and the page on Texas buy-sell agreements covers what happens when an owner dies, divorces, becomes disabled, or leaves.
Other early steps typically include:
- Issuing membership interests or shares and documenting each owner’s capital contribution in writing, which matters because Section 101.151 makes an LLC member’s promise to contribute enforceable only if it is in writing and signed.
- Opening a separate bank account and keeping business and personal funds apart.
- Signing contracts in the entity’s name, with the signer’s title, so counterparties know they are dealing with the entity. The page on Texas business contracts covers contract formation and signature issues.
- Adopting organizational consents that approve the governing documents, appoint officers, and authorize the bank account.
Texas law is comparatively protective of owners against veil-piercing claims. For contract claims, Section 21.223 generally requires proof that the owner used the entity to perpetrate an actual fraud primarily for the owner’s direct personal benefit, and a failure to observe corporate formalities is not by itself a basis for owner liability. That protection is valuable, but it is not a reason to ignore separateness; commingled funds and undocumented transactions still create risk in tort claims, tax disputes, and bankruptcy.
Entity Formation and Estate Planning
An ownership interest in a closely held business is often one of the most valuable assets an owner has, and it passes under the owner’s will or trust like any other asset. For many Texas owners, it makes sense to hold the interest in a revocable living trust so that the business can continue without waiting for probate, and the company agreement should be drafted to permit that transfer. Married owners should also remember that Texas is a community property state: an interest acquired during marriage is presumptively community property, which affects both estate planning and what happens in a divorce. Holmes Law’s Texas estate planning practice coordinates entity documents with wills and trusts so the two do not contradict each other.
Frequently Asked Questions
Do I need a lawyer to form a Texas LLC?
Texas does not require a lawyer to file a certificate of formation, and many owners file the Secretary of State’s form themselves. The value of working with a Texas entity formation attorney lies less in the filing than in choosing the right structure, drafting the company agreement, addressing tax elections, and avoiding default rules that do not fit the owners’ deal.
Does a Texas LLC have to file an annual report?
Texas does not require a separate annual report with the Secretary of State for LLCs. The recurring filing is the franchise tax report or Public Information Report with the Comptroller, due May 15. An LLC below the no tax due threshold still files its Public Information Report.
Should I form in Delaware or Nevada instead of Texas?
For a business that operates mainly in Texas, forming elsewhere usually adds cost without avoiding Texas requirements, because the out-of-state entity must still register in Texas, maintain a Texas registered agent, and file Texas franchise tax reports. Companies raising institutional capital sometimes choose Delaware for investor familiarity, and that decision is worth discussing on its own facts.
Can one person form a Texas corporation or LLC?
Yes. A single individual can be the sole member and manager of an LLC, or the sole shareholder, director, and officer of a corporation. Single-owner entities still benefit from written governing documents that address what happens if the owner dies or becomes incapacitated.
Is a series LLC right for my rental properties?
It can be, but it is not automatic. A series LLC can reduce the number of separate entities you maintain, while raising questions with lenders, title companies, and courts outside Texas. Separate LLCs, or a holding company with subsidiaries, remain common alternatives.
What happens if my entity forfeits its charter for missing franchise tax filings?
A forfeited entity loses the right to transact business and to sue or defend in Texas courts, and officers and directors can face personal liability for certain debts incurred after forfeiture. Reinstatement generally requires filing all delinquent reports, paying any tax, penalties, and interest, and filing reinstatement documents.
Speak With a Texas Entity Formation Attorney
Forming a business in Texas is straightforward on paper, but the decisions made at formation about entity type, management, tax elections, and ownership documents follow the business for years. Holmes Law helps Texas owners choose a structure, file the certificate of formation, and put the company agreement or bylaws in place, all through a remote practice that works on your schedule. To discuss your plans with a Texas entity formation attorney, contact Holmes Law.