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Are you looking to form a business in Texas? If so, you'll need to make sure you've taken care of all the basic tasks of starting your business. Your business starts with an idea and can evolve into a profitable company. But you'll need to first comply with Texas's business laws and requirements. Here are the key steps to starting your own business in Texas.
Start by researching your business idea. Ask yourself questions such as:
Write a business plan to help you map out your vision and answer some of these questions. You should be planning for the short and long terms. You'll need to be able to start your business and keep it running.
As you evaluate your business idea, consider your funding options. Be prepared to apply for a business loan, pitch to investors, or reach out to family members. Check out our section on business financing, loans, and capital for ideas and guidance on financing your small business.
Once you've settled on an idea, you'll need to start building your business. You'll need to decide how you want to structure your business. You can form one of the following business entities:
You can also form a limited partnership, a partnership where some partners have limited liability. Texas recognizes both professional corporations and professional LLCs, business structures reserved for licensed professionals.
Each business entity has its advantages and disadvantages. You should choose one that fits your business goals. For example, if you want personal protection from your business debts, consider forming an LLC or corporation. If you want a business that doesn't require you to file paperwork or pay ongoing maintenance fees, think about starting a sole proprietorship or general partnership.
Some businesses are organized as S corporations . An S corporation is a tax entity, not a legal entity. Different types of businesses, such as LLCs and corporations, can elect to be taxed as S corporations but they legally remain corporations or LLCs .
The business name you choose will be the name that appears on your signs, advertisements, merchandise, and in countless other places. From a business perspective, this step can be just as important as filing legal paperwork for your business.
You should pick a name that uniquely identifies your business. Texas law requires that your name be distinguishable —that is, different enough—from any business name that's already on file with the Texas Secretary of State (SOS). You can see which business names are already taken by searching for businesses on Texas's SOSDirect website.
Entity name designators: Laws around Texas business names require you to include certain words that identify your business's structure (like including a word such as "LLC" for LLCs or "incorporated" for corporations). See our articles on how to form a corporation and LLC in Texas for more information.
Reserving your business name: You can reserve an available name for 120 days by filing an Application for Reservation or Renewal of Reservation of an Entity Name form by mail or online with the Texas SOS.
Filing an assumed name certificate: If you plan to do business using a name that's different from your legal name, then you must register that name—called an "assumed name," "trade name," or "DBA" (short for "doing business as"). Sole proprietors and general partnerships that use business names that don't include their personal names must file an assumed name certificate with their county clerk. A corporation, LLC, or other incorporated entity using a name that's different from what's filed in its formation documents must file an assumed name certificate (Form 503) with the SOS.
If you plan to do business online, you might want to register your business name as a domain name. In addition, to avoid trademark infringement issues, you should do a federal and state trademark search to make sure the name you want to use isn't the same as or too similar to a name already in use.
See the Texas name filing FAQ webpage for answers to frequently asked questions about Texas business names and for links to the forms your business might need.
You can register your business online using SOSDirect or by mailing the appropriate formation document to the SOS. You can find the organizational documents under the business and nonprofit forms section of the SOS website. Some business types don't require you to file any paperwork.
Here's how to form each type of business:
You can't form an S corporation with the state. Instead, some business entities can elect S corporation tax status. After you form your corporation or other applicable business with the SOS, you can file IRS Form 2553, Election by a Small Business Corporation, with the IRS to elect S corporation tax status.
Almost all businesses will need to apply for at least one license, permit, or registration. You can find more detailed information in our article on Texas business licenses.
Tax registration. If you'll be selling goods in Texas, you must apply for a sales tax permit with the Comptroller of Public Accounts (CPA). More generally, most businesses should register with the CPA to pay the state franchise tax and other business taxes.
Employer identification number (EIN). If your business has employees or is taxed separately from you, you must obtain an EIN from the IRS. Even if you're not required to get an EIN, there are often business reasons for doing so. For instance, banks often require an EIN to open an account in the business's name and other companies you do business with could require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There's no filing fee.
Regulatory licenses and permits. These licenses cover areas such as health and safety, the environment, building and construction, and specific industries or services. Regulatory licenses and permits frequently are issued by state agencies. You can find guidance on state licenses and permits from the SOS Guides and Resources webpage. Many business licenses and permits in Texas are issued at the city or county level. For information about these local licenses and permits, check the websites for any cities or counties where you will do business.
Professional and occupational licenses. The Texas Department of Licensing and Regulation handles licensing for certain specialized professions and industries. You can also visit the occupational and professional licenses section of the Texas state website to apply for or renew your license.
You'll need to pick a location for your business and check local zoning regulations. Consider the needs of your customers, and whether you have the kind of business that could benefit from foot or highway traffic.
Before you commit to a location, take time to calculate the costs of running your business in the desired spot, including rent and utilities. Refer back to your business plan to evaluate whether you can afford your desired location during your company's early months. If you lease a commercial space, make sure you negotiate terms that'll work for your business in the long term.
It's important to verify that the spot is zoned for your type of business. You might find zoning regulations for your town or city by reviewing your local ordinances and contacting your town's zoning or planning department.
One alternative to opening your business at a new location is running your company out of your home. If you decide to run a home-based business, again check your local zoning laws. You should also review your lease (if you rent your home) and homeowners association rules (if applicable) — either of which might ban some or all home businesses.
Because Texas doesn't have a personal or corporate income tax, owners of some forms of business will not owe state tax on their business income. However, Texas does impose a franchise tax on most business types, including corporations, LLCs, S corporations, and partnerships. To learn more, see our article on Texas business income tax.
Sole proprietorships. Sole proprietors pay federal taxes on business income as part of their personal federal income tax returns.
Partnerships. Partners pay federal taxes on partnership income. In addition, most Texas partnerships are subject to the state's franchise tax, but only owe the tax if total revenue exceeds a certain amount. LLPs and certain limited partnerships must file an annual report with the SOS.
LLCs. Members pay federal taxes on their share of LLC income on federal tax returns. LLCs themselves are subject to the state's franchise tax, but only owe the tax if total revenue exceeds a certain amount. Unlike other states, Texas doesn't require LLCs to file an annual report. See our article on Texas LLC annual report and tax requirements for more information.
Corporations. A shareholder-employee with a salary must pay federal income tax on their personal federal tax return. The corporation itself is subject to the state's franchise tax.
Business insurance can protect your business and your personal assets from unexpected events, such as personal injury lawsuits and natural catastrophes. An insurance agent can help you explore the different coverage options for your business. You should consider getting general liability insurance to protect your business against claims relating to bodily injury or property damage. Your business might also benefit from cyber liability insurance to cover litigation and settlement fees following a data security breach.
No matter the type of business you form, you should consider opening a separate business account to make it easier to track your income and expenses. For some business types, including LLCs and corporations, a separate bank account is necessary to maintain your liability protection.
The Governor's Office has a start a business in Texas webpage. The webpage outlines startup steps for small business owners. These steps provide links to helpful resources like the Small Business Administration website, the Small Business Development Centers, and various government offices.
The Texas government website's starting a business in Texas webpage is a great resource for small businesses. You can find information and links for business forms and fees, professional and occupational licenses and permits, and financing.