Form the LLC: $300, one afternoon, and your name comes off the subcontract

You are running a Texas contracting business right now, and there is a fair chance you filed nothing to start it. That is how a sole proprietorship works. The day you took money for work, the state treated the matter as settled.

Texas is unusually generous to that arrangement. No state license for general contracting, framing, concrete, roofing, drywall or painting. No personal income tax. No annual return keeping a sole proprietor alive. The structure you fell into by accident costs nothing to start and nothing to keep.

It also puts your personal name on the signature line of every subcontract you sign, and that is where it stops being cheap.

Here is the decision with real numbers on both sides and a straight recommendation rather than a survey: if you sign subcontracts, hire help, or work above ground level, form the LLC. Three hundred dollars and an afternoon. The rest of this page is what changes, what it costs to keep, and the two things people wrongly brace for that do not happen at all.

The structure you are already in, and what it actually costs

A sole proprietorship in Texas is not a filing. It is a description of what you are doing. There is no formation document, no registered agent, no state fee, and no annual report. If you trade under a name other than your own, Business and Commerce Code Ch.71 has you record an Assumed Name Certificate with the county clerk in each county where you do business, at whatever that clerk charges to record it. That is the whole administrative burden.

The price of all that convenience is one sentence of contract law: you and the business are the same legal person. When you sign a subcontract, the party on that contract is a human being with a driver's license, not a company. Every obligation in it, including the indemnity clause the general contractor's attorney wrote, attaches to you by name.

That matters more in Texas than in most states, because Texas hands you a second choice other states make for you. A private employer here can decline workers compensation. Do that and Labor Code s.406.033 strips the three defenses an employer would otherwise raise in a suit brought by an injured employee: contributory negligence, assumption of risk, and the fellow servant rule. So an injured helper sues, you cannot argue they were careless, and there is no entity between the judgment and the person who signed. The comp decision and the entity decision are the same decision looked at twice, which is why the comp math belongs beside this one.

Side by side, with the real numbers

Read the bottom four rows together. The LLC costs $300 once, adds one annual filing that usually costs nothing, changes your tax return not at all, and changes the way your paperwork reads to a buyer completely.

The filing itself is one form. Certificate of Formation, Form 205, under the Business Organizations Code, submitted to the Secretary of State through the SOSDirect portal. The fee is $300, and paying by card online adds the statutory 2.7% convenience fee, so $308.10 leaves your account. You give the company name, a registered agent with a physical Texas street address who has consented to act, which can be you at your own address, the governing authority, and the purpose. Approval commonly comes back the same day or the next. If you plan to trade under anything other than the exact name on that certificate, the Assumed Name Certificate, Form 503, is another $25 at the same office.

On a jobsite the liability arrives with a name on it

Construction risk is not an abstraction you insure against out of caution. It is a torch detail on a low slope roof, a supply line that lets go over a long weekend above a finished floor, a scaffold plank, a trench, a helper on a ladder holding something heavy in one hand.

When one of those goes wrong, the claim goes to whoever signed. A sole proprietor's exposure is not capped by the size of the job or the size of the business, and a judgment carrying your personal name follows you past the job, past the business, and into the credit report and the prequalification form of the next thing you try to start. An LLC keeps that claim on the company that took the work.

After the filing, two things stay in your own hands, and both are worth doing well. The first is how you sign. The separation is exactly as good as the signature block, so contracts, quotes, purchase orders, the certificate of insurance and the bank account all go in the company's exact legal name, with your own name underneath it as a member or manager rather than as the party. The second is the personal guarantee. A supplier opening a credit line or a surety writing a bond will often ask you to put your name back on the obligation by hand. That line comes out more often than people ask, and it is worth asking again at renewal once there is a payment history behind you.

The entity and the policy are one wall, not two

The LLC decides who the claim lands on. General liability insurance decides who writes the check. A commercial GC's onboarding packet asks for both, on the same day, in the same email.

The order runs one way only: you cannot get a certificate of insurance naming a company that does not exist. Form the entity first, then bind the policy in the entity's exact legal name, then hand the certificate over. The state's own idea of adequate cover sits at $300,000 per occurrence, $600,000 aggregate and $300,000 products and completed operations, which is the limit 16 TAC 73.40(a) writes into the electrical contractor license. Commercial GCs routinely ask above it, plus additional insured status and a waiver of subrogation.

What gets a certificate bounced is smaller than the limits and usually the same defect: the named insured does not match the entity on the subcontract word for word. That is a much easier problem when there is an entity to match. The rest of what a project manager checks is in certificates of insurance for Texas contractors.

The franchise tax filing is what keeps your right to sue

The LLC picks up one obligation a sole proprietor does not have. It costs nothing, it takes about a quarter of an hour, and it is the filing that keeps your company able to walk into a Texas courthouse and collect.

A contracting business under $2.65 million in revenue owes the Texas Comptroller nothing and files anyway. That free filing is the thing holding the rest of it up. Let it lapse and the entity forfeits its right to transact business: under Tax Code s.171.252 a forfeited entity is denied the right to sue or defend in a court of this state, and under s.171.255 each director or officer picks up personal liability for the debts the entity takes on while it sits forfeited. One form in May keeps both of those off the table.

Read that twice, because of when you find out. The day it matters is the day a general contractor has stopped paying, your lien affidavit is on file with the county clerk, and you are trying to enforce it. A free filing on 15 May is what keeps that door open. Put it on the calendar the same week you form the company, alongside the notice dates the Texas lien deadline calculator counts for you, and it stays a calendar entry instead of a discovery. The franchise tax report in plain terms walks the actual form.

The federal return stays exactly where it is

This is the part people brace for and it does not arrive. A single member LLC with no election filed is a disregarded entity for federal income tax. The IRS looks straight through it to you. Your business income goes on Schedule C of your 1040 and your self-employment tax on Schedule SE, exactly as it did the year before you formed anything. The LLC files no separate federal income tax return.

So the tax bill does not move, your accountant's fee does not jump, and the paperwork on 15 April looks identical. Two footnotes worth knowing: once you hire, payroll runs under the LLC's own EIN because a disregarded entity is treated as separate for employment tax purposes, and an LLC with two or more members defaults to partnership treatment on Form 1065 with a K-1 to each member instead.

Sales tax is unchanged by the entity too. The permit, the lump sum versus separated contract election, and the resale certificate all work the same either way. That is sales tax for Texas contractors, and it moves more money than the entity choice does.

Why a GC and an insurer read the entity differently

Nothing in Texas law requires a general contractor to prefer an LLC. The preference is procedural, which makes it harder to argue with.

Look at a W-9. A sole proprietor writes an individual name on line 1 and the business name on line 2, and payment goes out against a personal SSN or EIN. An LLC writes the legal entity name on line 1. An accounts payable clerk setting up a new vendor reads the first as a person and the second as a company, and a prequalification reviewer working through a stack does the same. Some general contractors will not carry an individual on a project insurance schedule at all.

The pattern shows up wherever a buyer has a process instead of a relationship. Bonding, commercial insurance appetite, larger private clients, and the vendor onboarding portal at any GC big enough to have one are all built around entity names, formation documents and EINs. Being a company is not proof that you are good. It is what lets somebody who has not met you finish the form.

The call

Form the LLC if any of these are true: you sign written subcontracts, you pay anyone else to work, you work above the ground, or you want commercial work rather than cash homeowner jobs. Any one of those four is enough on its own, and $300 is the cheapest line item in the business.

Stay a sole proprietor a while longer if you are doing occasional handyman work under your own name for homeowners who pay on the day, with no crew and no written contract. Then form the entity before the first subcontract, not after it, because the protection runs forward from the filing date rather than backwards over work already signed.

Either way, do the assumed name certificate before you open the bank account. The bank matches the name on the check to the name on the file, and getting that order wrong sends you back to the clerk before the account will open.

File Form 205 today, get the EIN while the confirmation is in flight, and open the bank account tomorrow. Start your business runs the formation and everything that hangs off it, and the Texas setup guide has the rest of the week laid out in order.