Forming an LLC in Texas: Fees, Franchise Tax, and When Texas Beats Delaware

A founder I talked to last year formed a Delaware LLC for his Austin-based catering business. He paid $90 to Delaware, then $300 to register as a foreign entity in Texas, then $300 a year to maintain that foreign registration. Two states, two registered agents, two sets of filings. All to run one taco catering operation that never touched Delaware.

If you live in Texas, operate in Texas, and have no near-term plans to raise institutional venture capital, forming a Texas LLC is almost always the cleaner move. Here is exactly what that looks like.

The $300 Filing Fee and What You Actually File

To form a Texas LLC, you file a Certificate of Formation with the Texas Secretary of State. The state filing fee is $300. That is not a typo, and it is not refundable if you make a mistake.

You can file online through the SOSDirect portal or mail in Form 205. Online is faster. Processing typically takes two to three business days for standard filings. If you need same-day processing, Texas offers expedited service for an extra $25.

The Certificate of Formation is short. You need a company name, a registered agent with a Texas street address, the organizer's name and signature, and whether the LLC is member-managed or manager-managed. That last detail matters: if you pick manager-managed and forget to name a manager, or vice versa, fix it before you submit.

Picking a Registered Agent in Texas

Every Texas LLC must maintain a registered agent with a physical Texas street address. A PO box does not count. The agent receives legal documents and official state mail on your behalf.

You can serve as your own registered agent if you have a Texas street address and you are willing to be available during normal business hours. Most founders use a professional registered agent service instead. The typical cost runs $50 to $150 a year.

Two things to know here. First, if your registered agent moves or closes and you do not update the state, you can miss lawsuits and lose your good standing without knowing it. Second, your registered agent's address becomes public record. If you work from home and do not want your home address in the state database, a professional agent solves that problem cleanly.

The Texas Franchise Tax: Real Numbers, Not Scary Ones

This is where Texas gets a reputation it does not entirely deserve.

Texas imposes a franchise tax on most LLCs doing business in the state. The word "franchise" confuses people. It does not mean you are running a franchise. It just means the tax Texas charges for the privilege of doing business there.

The good news is the no-tax-due threshold. For 2024, businesses with total annual revenue under $2.47 million owe zero franchise tax. You still have to file. But you file a No Tax Due report and pay nothing.

Above that threshold, most LLCs fall under the E-Z Computation method. That rate is 0.331% of total revenue (not profit). A business with $5 million in revenue would owe roughly $16,550. The standard rate for most businesses is 0.75% of taxable margin, but that calculation involves subtracting either cost of goods sold or compensation, so effective rates are usually lower than the headline number.

Sole proprietorships and general partnerships are exempt. Single-member LLCs taxed as disregarded entities are not exempt. If you form a Texas LLC, you are in the franchise tax system.

The PIR and OIR: Two Filings Most Founders Confuse

Texas has two annual report-style filings, and mixing them up is a real source of missed deadlines.

The Public Information Report (PIR) is filed alongside your franchise tax report every year. It lists the names and addresses of your managers or members. It is not optional even if you owe no tax. Due date: May 15 each year. The penalty for non-filing is a $50 late fee, and Texas will eventually forfeit your LLC's right to do business in the state if you keep ignoring it.

The Ownership Information Report (OIR) is for LLCs that are not required to file a PIR. Practically speaking, most operating LLCs file the PIR, not the OIR. The OIR is used by entities like holding companies that are not subject to franchise tax at all. If you are running an active business, assume you are filing the PIR.

Both reports are filed through the Texas Comptroller's office, not the Secretary of State. That distinction trips up a lot of founders who assume all filings go to the same place.

The Operating Agreement: Texas Defaults Are Reasonable, But Write Your Own

Texas does not legally require a written operating agreement. But you should have one anyway.

Without one, your LLC is governed by the Texas Business Organizations Code defaults. Those defaults are actually fairly founder-friendly compared to some states. Profits and losses split by ownership percentage, voting by majority interest, and so on. But the defaults do not cover situations like what happens when a co-founder wants to leave, or how you handle a buyout, or whether a member can compete with the company.

Write the operating agreement before you need it, not after a dispute starts.

When Texas Beats Delaware for an Operating LLC

The Delaware comparison comes up constantly, so here is the direct version.

Delaware makes sense if you are raising venture capital from institutional investors who require it, or if you are building toward an IPO. Delaware's Court of Chancery is specialized, its case law is extensive, and most VC term sheets assume Delaware.

For everything else, Texas is usually better if you are actually operating in Texas. Here is why.

First, the double-registration problem. If you form in Delaware and operate in Texas, you register as a foreign entity in Texas. That means two $300 fees (Delaware's formation fee is $90, but foreign qualification in Texas is $750 for corps and $750 for LLCs, actually, let's be precise: foreign LLC registration in Texas costs $750). You maintain two registered agents. You file in two states.

Second, Delaware charges an $300 annual franchise tax on LLCs (a flat fee), plus a $50 registered agent fee at minimum. Texas charges nothing if you are under the $2.47 million revenue threshold. For an early-stage business, Texas is cheaper.

Third, Texas courts are perfectly capable of handling standard business disputes. The Delaware Court of Chancery advantage is real but mostly relevant for complex shareholder disputes, M&A transactions, and governance fights between large companies.

If your business is a Texas LLC running a real operation, serving Texas customers, and not chasing institutional venture money in the next 12 months, form in Texas.

Getting an EIN After Formation

Once your Certificate of Formation is approved, you need an Employer Identification Number from the IRS before you can open a business bank account or hire employees. The EIN is free and applied for on Form SS-4. If you have a Social Security Number, you can get the EIN online in minutes. Non-US founders without an SSN apply by fax or mail, which takes four to six weeks.

Do not skip this step and try to use your personal SSN for business banking. Banks will flag it, and you lose the liability separation that made forming an LLC worthwhile in the first place.

Total First-Year Cost, Realistically

Here is what you are actually spending:

• Certificate of Formation: $300
• Registered agent (if using a service): $50 to $150
• Operating agreement (DIY or attorney-drafted): $0 to $1,500
• EIN: $0
• Franchise tax (if under $2.47M revenue): $0
• PIR filing: $0 (no filing fee, just the report)

All in, most early-stage Texas LLCs spend $350 to $500 in year one. That is competitive with Wyoming and cheaper than the Delaware-plus-Texas-foreign-registration path.

What to Do Next

If you have decided Texas is the right state, the actual formation is not complicated. You need a name, a registered agent, and $300. The franchise tax and PIR requirements are manageable once you know they exist.

Your next steps are straightforward: confirm your LLC name is available on the SOSDirect name search, get a registered agent lined up, and file your Certificate of Formation. You can work through that yourself, use Tierro's formation service to handle the paperwork and registered agent setup, or check our pricing page if you want to see what's included before you commit.