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Last Updated on November 16, 2021

How to Start a Business in Texas

The Lone Star State is a fantastic place to do business. With the top economic growth rate in the nation, plus the 2nd-fastest population growth and 2nd-largest state economy, there are many reasons that Texas is a business-friendly state. 

Do you dream of running your own business in Texas? This guide will help you get started. We’ll explain step-by-step how to start a business in Texas, from the initial brainstorming phase all the way through the day-to-day operations of your new company.

First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:

  • What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
  • What business does your community need? Have you talked to people to find out?
  • What are you interested in? Can you combine any of your passions with a business idea?
  • Is this going to be a full time business, or more of a side hustle?

These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.

Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:

Select a business name

Naming your company is the first concrete step to take. And it’s a very important step — you want to find a name that is relevant to your industry, suitable for your business, and memorable for your customers. Take your time and come up with several options that you like.

Next, it’s time to see if the names are available. Texas requires each new business to use a business name that is unique from other names already in use in the state. You can conduct a business entity search online to confirm whether or not a name is already in use. 

Texas has other business name rules, in addition to the unique name requirement. Some important rules to consider include:

  • Names for LLCs need to contain “limited liability company”, or select approved abbreviations such as “LLC” or “L.L.C.”
  • Names for corporations need to contain “corporation”, “incorporated”, or select approved abbreviations such as “corp” or “inc”
  • The use of certain words or phrases is restricted, and some financial terms require written permission to use
  • Check out the full Texas business name rules here, and a useful guide here

When you find the name that you’d like to use and have confirmed that it’s available, what’s next? You can either move on to the next steps in this article, or you can reserve the business name for a period of 120 days. This prevents anyone else from registering the name, giving you some time to think about it. 

Texas trade names

When searching for a name, it’s helpful to keep in mind the potential to use trade names, otherwise known as assumed names or DBAs. Basically, once your business is registered, you can opt to register assumed names if you so choose. You can then use these assumed names to do business with, in addition to your legal business entity name. For instance, an LLC named “Precision Electronics, LLC” could register the trade name of “Dallas Home Audio”, and could then legally do business under either name. 

Register a domain name

Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering. 

You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative. 

Complete market research

Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee. 

Select a business location

Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business. 

Create a business plan

You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:

  • Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
  • Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
  • Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
  • Staff & partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses? 

If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans. 

Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.

Sole proprietorship

Sole props are single-person operations. Examples include freelancers, gig economy workers, and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.

The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you. 

Partnership

A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection. 

Limited Liability Company (LLC)

A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy. 

LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship. 

Corporation

A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise. 

Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation. 

Nonprofit

A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed. 

Next up, it’s time to actually register your business as a legal business entity. This process is handled by the Texas Secretary of State, either online through the SOSDirect portal or through the mail. You will need to file some paperwork, pay filing fees, and complete other necessary steps outlined below.

If you prefer to pay a bit more to save time and hassle, using a paid business formation service is a good alternative. Companies like Northwest Registered Agent, ZenBusiness, and Incfile offer an easy way to get your business registered fast, and they walk you through each step of the process. It’s optional to use these services, but well worth the cost for most entrepreneurs.

If you’d rather do everything on your own, the basic steps include: 

  1. Naming your company
  2. Choosing a registered agent (this individual or company is tasked with receiving legal documents on behalf of the business). You can be your own registered agent, appoint an employee, or use a service
  3. Filing paperwork with the state
  4. Registering for state franchise and excise taxes 
  5. Obtaining business licenses and permits if necessary 
  6. Applying for an EIN from the IRS

However, keep in mind that the individual steps you need to take will vary a bit depending on the type of business entity you plan to form. More details below. 

Form a Texas sole proprietorship

Follow these steps:

  1. Decide if you will operate under your own legal name, or use a trade name
  2. If you decide to use something other than your legal name, you will need to register a trade name/DBA 
  3. Apply for a business license and/or other necessary permits from local governments (city/county), as needed
  4. More information here

Form a Texas LLC

Follow these steps:

  1. Name your new LLC (see notes above)
  2. Choose a Texas Registered Agent (or use a service such as Northwest Registered Agent). Your Registered Agent will receive legal documents on behalf of the company.
  3. File the LLC Certificate of Formation online or by mail, and pay the $300 filing fee
  4. Draft an LLC operating agreement
  5. Apply for an EIN with the IRS

Form a Texas corporation

Follow these steps:

  1. Decide on your desired corporate tax structure (S corp or C corp) 
  2. Name your new corporation 
  3. Choose a Registered Agent for your business (or use a service)
  4. Hold an organizational meeting and appoint directors
  5. File the TX Certificate of Formation for a corporation online or by mail, along with the $300 filing fee
  6. Apply for an EIN from the IRS

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Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses

The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.

There are different requirements at each level of government:

  • Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
  • State: Texas may require additional permits and/or licenses in order to operate legally in the state. Explore the Texas.gov website for more information.
  • Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details. 

At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick. 

For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.

For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.

If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.

  • Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
  • Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business. 

Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:

  • Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
  • Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards. 
  • Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help. 
  • Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started. 

In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele. 

The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly. 

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Building a strong team is essential to the success of your business. Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).  

The EIN is a federal requirement, but there are also state-level requirements for employers. 

One requirement is to report new hires to the Texas Workforce Commission within 20 days of the initial hire date. You will need to submit a report each time you hire a new employee.

You will also need to register for and pay employer taxes, including state unemployment insurance tax. There will likely be other reporting requirements as well; check with your CPA for details.  

Finally, this is the time to set up a payroll system to ensure that federal and state payroll taxes are collected accurately (and your employees are paid on time). You can do this yourself, but it’s much easier to use a payroll service. 

Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.

Still have questions about running a business in Texas? Here are some answers to frequently asked questions.

What are some business resources in Texas?

Perhaps the best resource for Texas entrepreneurs is the Texas Small Business Development Center (SBDC). The SBDC provides many free services, including business consultation, coaching, and more, and they can also help connect you to other resources in the state. The Texas Governer’s Small Business Resource Portal is another good option that provides information on everything from federal taxes to funding sources and more. 

What is the minimum wage in Texas?

The Texas minimum wage is $7.25 per hour, which is the same as the wage outlined in the federal Fair Labor Standards Act. There are exceptions for workers who earn tips, who can be paid less ($2.13 per hour) as long as their total earnings (wages + tips) equal the $7.25 federal minimum wage.

Keep in mind that it is possible for cities or counties to establish their own minimum wage laws, which may exceed the Texas minimum wage. Check with city/county officials to ensure that you are complying with all applicable labor laws in your area.

What business taxes does Texas have?

There are several business taxes that firms in Texas may need to pay. 

Any company selling taxable goods or services will be subject to the Texas sales tax (6.25% on the state level, plus up to 2% on the local level). 

Companies with employees will need to pay unemployment insurance tax and other employer taxes. And most firms will be subject to Franchise Tax, the state’s primary business tax requirement. 

There may be other tax requirements. See the Texas Comptroller website for more information.

How do I dissolve an LLC or Corporation in Texas?

To close a Texas business, you’ll need to complete various steps. You will need to file voluntary dissolution paperwork with the state, obtain a tax clearance letter, file any outstanding reports, send final paychecks to your employees, and more. See this guide for more details.

Closing a TX business can be a complex process, and it’s important to do everything correctly. For this reason, it’s beneficial to work with a CPA or tax attorney.

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