California and Texas are two of the largest and most populated states with a population of 39.51 million inhabitants and 29 million inhabitants, respectively. Thus, it is natural for people to desire to start companies and businesses in these states. While sole proprietorships and partnerships are effective businesses, a Limited Liability Company (LLC) is highly effective because the company exists separately from its owners meaning the owners are not responsible for debts incurred by the business. However, different states have different rules and provisions. Here are the differences between starting an LLC in California and starting an LLC in Texas
California: To start an LLC in California, you must first choose a company name that is unique. The California BPC defines unique as “a name that cannot be the same as, or too similar to, an existing name in the California Secretary of State records, and it cannot be misleading to the public”. Once the name has been confirmed with the California Secretary of State Office, the next step is to file Articles of Organization with the state office which costs $70. Here is where you will describe the company’s purpose, management, and provide the address of the business.
After filing Articles of Organization, California states requires you to choose a registered agent who agrees to accept the liabilities of the company if the LLC undergoes a lawsuit. These agents must live in California and must be listed in the Articles of Organization. Essentially, this step ensures the owner of the LLC does not assume the liabilities involved with the company. Afterward, the LLC must file a “Statement of Information” report every two years which, again, includes the location of the company (address and mailing address), the business activity provided by the LLC (what is the purpose of your company?), and the agreement to pay California tax obligations. These obligations include an Annual Minimum Tax of $800 and if the company has a net income of $250,000, they must pay additional fees which vary based on the company’s annual income. Once the LLC has agreed to these fines, terms, and conditions, the LLC can be officially established.
Texas: The steps towards establishing an LLC are similar to that of California, but with a few differences. The first step involves filing Form 205 which is where you will supply the Texas Secretary of State with the business name. Unlike California’s Articles of Organization, this form does not focus on the management or purpose of the company and is much shorter. As such, the filing fee is also less expendable: about $45. However, it can take up to 3 weeks or even longer until the Secretary of State confirms the company name.
Once they confirm the name, however, the next step is to hire a registered agent. This step is similar to the steps in California, except the agent does not have to strictly reside in Texas. However, they must have some association with the Texas local government, whether through business agreements or other identification. The state of Texas is also more flexible with registered agents in that they offer alternative options such as an attorney which is generally less expensive and also increases the business’s security. However, this process may take longer as multiple searches and agreements need to be conducted depending on the attorney’s rules and regulations. Only after these steps have been conducted will the Texas Secretary of State ask about the purpose of the company.
After describing the purpose and management, you will also agree to pay the company taxes throughout the fiscal year. Unlike California, Texas includes a State Franchise Tax which, according to the Texas Secretary of State, is calculated in one of these ways: “Total Revenue minus 70” or “Total revenue minus cost of goods sold” or “Total Revenue minus compensation”. For entities with revenues over $1,110,000, the calculation is “Total revenue minus 1 million”.Upon filing this paperwork and waiting for confirmation by the Secretary of State, you will be considered an LLC Company.
While a highly populated state may lead to a higher business revenue for a business, it is important to note the steps towards establishing these businesses, especially for an LLC. Depending on your preferences, you may desire to establish your business in either California or Texas, knowing that their methods vary. If you’re looking for a tentatively more expensive yet quicker method, you may desire to establish an LLC in California. If you’re looking for a slightly longer but tentatively cheaper method, Texas may be the state for you. Perspective, confidence, and passion are the key virtues to having a successful business and, hopefully, a successful future.