Texas boasts the country’s third-lowest business costs and second largest population. With many fast-growing metropolitan areas, the state provides a superb customer base for those who want to start a new business there.
Additionally, Texas supports small businesses by offering low business licensing fees, affordable commercial real estate, and little red tape. New businesses establish themselves with minimum out-of-pocket investment.
How to Start a Business in Texas:
1. Determine your business structure.
When starting a business, one of the most important decisions that you make will be choosing the type of legal structure for your company. Your choice will impact your taxes, filing requirements, personal liability and your ability to raise funds.
A Limited Liability Company (LLC) is the most popular because of minimal paperwork, flexibility, tax benefits, and simple implementation process. LLC business owners are not obligated to file a corporate tax return.
A sole proprietorship is the simplest structure and usually involves an individual who is solely responsible for the enterprise.
A partnership is suitable for businesses with two or more owners.
A corporation is a standalone entity with shareholders.
2. Write a business plan.
Business plans fall into one of two common categories: traditional or lean startup.
The traditional plan is very detailed, takes more time to write and is quite comprehensive while the lean startup plan is high-level and fast to write.
A strong business plan can help you to get funding and make the process of opening a new business easier.
3. Sign up for business banking.
Your business and personal finances must be kept separate to maintain accurate records. Also, with a business bank account, you can get statements and access products that would not be available to you as an individual.
4. Seek startup capital and/or loans.
Three common ways of getting business loans are commercial loans, business lines of credit and small business loans.
5. Decide on a business name and make sure it is available.
Make a list of the names that you like and perform a Google search to find any conflicts with other Texas business names.
Do a trademark search. Once this is done, you will need to do a trademark search to ensure that the business name you chose has not already been trademarked. You can perform the trademark search at the U.S. Patent and Trademark Office and the Trademark Electronic Search System. These databases have a comprehensive list of business names that are registered together with their classification.
Check the Texas State Database. After you have confirmed that your business name is not trademarked, check the Texas Comptroller or SOSDirect websites to ensure that your business name is not the same or similar to another corporation registered in Texas.
Register your business name. If you are satisfied that your business name is available, you can register it on the U.S. Patent and Trademark Office website.
Once you have found a suitable name, make sure to register the matching web domain and social media handles.
6. Request an Employer Identification Number (EIN).
Every business needs to have an EIN. Registering for an EIN is easy. Go to the IRS website. You can complete the application online, and save your EIN confirmation notice once you receive a number from the IRS.
7. Acquire business licenses and permits.
Texas does not impose any requirements for businesses to have a general business license. Your business may, however, require a specific license or permit depending on the type of business that you open. You can refer to the Texas Department of Licensing and Regulation to see if your business requires a specific license or permit.
There are various costs associated with businesses obtaining filings and trademarks necessary for their business to operate legally in Texas. You can find a comprehensive list of these costs on the Texas Secretary of State's website.
8. Hire employees.
Texas law requires employers doing business in the state report new hires within 20 days. Employers must also report the rehire of any former employee (TX Family Code Sec. 234.101et seq.). Violations of the law may result in the assessment of fines against the employer.
The Texas Employment Discrimination Law prohibits discrimination on the basis of race, color, disability, religion, sex (including pregnancy, childbirth, and related medical conditions), national origin, or age (40 years or older). The law applies to all public employers and to private employers with 15 or more employees.
9. Check your business employer requirements.
Business employer requirements are specific to the type of business that you are starting and include various labor, safety and tax obligations that need to be met.
If you are starting a business in Texas, you will need to take note of the following important items:
Texas doesn’t require most private businesses to have workers’ compensation insurance.
Commercial property insurance is highly recommended as it ensures that your on-premises property will be insured.
Health insurance isn’t a requirement for small businesses in Texas, but those who do offer it need to make it available to all employees who work 30 hours or more per week.
Texas Workforce Solutions
Texas Workforce Solutions is an organization that provides support services and administers unemployment benefits and tax programs for businesses in Texas. They offer the following solutions for small businesses in Texas:
- Skills for Small Business provides training funds for businesses with less than 100 employees.
- Skills Development Funds are customized training programs for specific business needs.
- The Work Opportunity Tax Credit Progam offers a tax credit reducing the federal tax liability of employers.
More information about Texas Workforce Solutions can be found on twc.texas.gov.
The Texas Unemployment Compensation Act requires businesses with employees to contribute towards unemployment tax. Employers need to register with the Texas Workforce Commission within 10 days of becoming liable for the state’s unemployment tax.
Business Inventory Tax
If your business owns fixed assets, you may be required to pay a business inventory tax to your local county appraisal district. You should consider investing in an effective inventory and asset management system that can accurately calculate your investment on equipment and machinery.
Entities legally recognized as businesses in Texas are subject to the franchise tax, a "privilege tax" for doing business in the state. Only sole proprietorships and partnerships owned by individuals are exempt. Read our article on franchise tax for more information.
Texas Business Formation and Registration Fees:
Certificate of formation for a Texas entity.
Certificate of formation for a Texas professional association or limited partnership.
Certificate of formation for a Texas nonprofit corporation or cooperative association.
Registration or renewal as a Texas limited liability partnership.
$200.00 per partner
Foreign entity application for registration.
Foreign nonprofit corporation, cooperative association, or credit union application for registration.
Foreign limited liability partnership application for registration or renewal.
$200.00 per partner in Texas, but not less than $200 nor more than $750.00
Name registration or renewal for foreign entity not qualified to transact business in Texas.
Withdrawal of name registration of foreign entity not qualified to transact business in Texas.
A comprehensive list of fees to start a business in Texas can be found on the Texas Secretary of State's website.
The Bottom Line:
Starting a business in Texas is hard work. Success will only come if you are willing to commit to your idea and put in the effort that it takes to bring it into reality.
If you follow the nine steps listed above and carefully plan your course as you go, you'll be well on your way to being the proud owner of a thriving small business. Make the most of all of the resources that are available to you along the way and never lose sight of the purpose that inspired you to take the plunge and become an entrepreneur.
Other How to Articles for the Region:
How do I obtain a business license in Texas?
Not all businesses in Texas are required to have a general business license. Your business may, however, require a specific license or permit depending on the type of business that you open. You can refer to the Texas Department of Licensing and Regulation website to see if your business requires a specific business license.
How do I start a business in Texas with no money?
- Use services to generate cash flow and fund a product-based business.
- Get creative to discover funding sources.
- Grind it out and look for business, even if you don't get paid for it.
- Use your current resources in different ways to generate income.
- Get a loan or a line of credit to help with the early stages of your business.
- Locate an accelerator if you are able to hit the market swiftly.
- Crowdfund and allow the public to invest a small percentage of money in return for a future buy-in.
- Use a business incubator to provide funding designed specifically to financially assist a startup company.
How do I form an LLC in Texas?
How much is a business license in Texas?
Not all businesses in Texas require a business license. Your business may need a specific license or permit, and costs will vary depending on the type of business that you open.
How do I register my small business in Texas?
You can register your business on the SOSDirect website.
What are the best banks for small businesses in Texas?
How much does it cost to start a business in Texas?
Costs vary depending on the type of business. A certificate of formation for a Texas for-profit corporation has a $300.00 filing fee. Non-profit corporations pay a $25.00 fee. Additional costs to incorporate a business in Texas depend on several factors, such as type of company status as a professional occupation, or states as a foreign entity.
How do I register a business in Texas?
Sole proprietorships and partnerships need to register with the county clerk’s office. If you decide to incorporate, you can register via SOSDirect. You can check with the Texas Department of Licensing and Regulation to see if your business requires a specific license or permit. You can refer to the Texas Business Licenses and Permits Guide to view the complete list of all business types together with contact information for those departments that can assist with permits and licenses.
How can I protect the name and logo of my business in Texas?
The easiest way is to register your business name on the U.S. Patent and Trademark Office website. Prior to registration, remember to check the Trademark Electronic Search System and the Texas Comptroller or the SOSDirect websites to confirm that your business name is not already registered by another company.
Do I need workers' compensation for my new business in Texas?
Most private businesses in Texas are not required to have workers’ compensation insurance. An annual notice must be filed with the Texas Department of Insurance specifying that information.
Does my business in Texas need to contribute to health insurance?
Health insurance isn’t a requirement for small businesses in Texas, but those businesses that offer it need to make it available to all employees who work 30 hours or more per week.