How to Start a Business in Texas

Looking to start a business in Texas? You’re in good company. A 2019 WalletHub study named Texas as the overall best state in which to start a business. Just a few factors that make The Lone Star State attractive to hopeful entrepreneurs include low tax burden, affordable cost of living, and access to a talented workforce. 

However, before you can reap these benefits, you’ll need to form your business entity. And if you want to remain compliant with the state, you’ll need to form it correctly. We know this process may seem daunting, but that’s why we’re here to help. Keep reading to learn how to start a business in Texas, step by step. Along the way, we’ll even explore how our products and services can help cut through the red tape and handle the heavy lifting, so you can focus on growing your new business

Starting a Business in Texas: 6 Steps

Starting a business in Texas involves six main steps. First, you’ll need to create a business plan. Next, you’ll choose your business entity type. Then, you’ll determine your startup costs and name your business. Finally, you’ll register your business with the state of Texas, and market it to your target audience.

Keep reading to learn more about the entire process, including everything new small business owners need to consider as they complete each step. 

Step 1. Create a business plan

You need to create a business plan. Your business plan is like a roadmap for your great business idea.

What should I include in my business plan?

Your business plan should include details such as:

• What purpose your business will serve and/or what problem your business will solve
• The kinds of products or services your business will provide
• How your business will make a profit
• Competitor research
• How you will use SMART goals (specific, measurable, achievable, realistic, and in a certain timeframe) to track your company’s progress
• How you will acquire funding for your new business
• Any other research or planning you’ve done when starting your business

Who should create a business plan?

No matter how large or small your new business is going to be, all business owners should create a business plan. This document helps you understand key parts of your business and plan your path to success.

Choose a business location

Part of planning a successful business is choosing a location. Will you operate from a storefront, store your merchandise in a warehouse, or sell products out of your home? It’s important to nail down these details for both business planning and understanding the rules for your location. For example, there may be zoning laws, different opportunities, or incentives in your area (such as the Texas Enterprise Fund). 

Use a business plan template

We know creating a business plan may seem overwhelming. It can be difficult to think of every little thing you need to include. That’s why we’ve created a comprehensive business plan guide and template to make things easier.

Need help creating a business plan for your Texas business? Use our business plan template. We’ve also put together a comprehensive library of articles and guides on business planning

Funding Your Business

In addition to helping you troubleshoot potential problems and identify your target customer base, your business plan enables you to look at how you’ll fund your business. Look into all options, from federal government programs to local lenders.

Potential Funding Options

You may want to consider Small Business Administration (SBA) loans, bank loans, small business grants, or even bootstrapping your Texas business. Other funding programs available for Texas business owners include: 

• Business and Community Lenders (BCL) of Texas
• LiftFund
• PeopleFund
• Texas Bankers Association
• Independent Bankers Association of Texas
• Texas Department of Banking
• Texas Product Development and Small Business Incubator Fund
• Capital for Texas (C4T) Program

Looking to get your Texas business funded? We’ve got some great ideas about funding your business here.

Step 2: Choose your Texas business entity

All Texas businesses need to choose their business structure. Your business structure determines how you will run and grow your company, as well as what taxes you’ll pay. 

Comparing Business Structures

Deciding on what type of legal entity you want to form is highly dependent on your individual needs as a business owner and what kind of business you’re starting. Two popular business structures for new Texas businesses are sole proprietorships and LLCs, but you can also form other structures, such as a corporation, general partnership, or limited partnership.

Trying to decide which type of business is right for you? Compare each structure.

How to Start a Business in Texas: Sole Proprietorship

Many individuals who own and operate their business single-handedly (think: independent contractors) choose to form a sole proprietorship. Sole proprietorships are a simple, low-barrier way to start a business in Texas. You can form a sole proprietorship without having to file official formation paperwork with the Secretary of State. Sole proprietorships are also exempt from the Texas small business franchise tax. 

That said, as a sole proprietor, you’ll have no legal separation of your assets and liabilities from those of your business. 

How to Start a Business in Texas: LLC

One of the most common business types in Texas is the limited liability company (LLC). While LLCs do require filing formation documents with the Secretary of State, they also offer limited liability protection benefits that you can’t get with a sole proprietorship. That’s because an LLC separates your assets and liabilities from your business’s assets and liabilities. 

Step 3: Determine your Texas business startup costs

In Bexar County, home to San Antonio, businesses have to pay business property taxes. These are taxes on property you use to generate revenue. Figure out your startup costs. Complete this step to understand how much funding you’ll need to get your new venture off the ground. 

Common Business Costs

Just a few of the costs typically associated with starting a business in Texas include: 

• Formation document filing fees (if forming an LLC or corporation) 
• Office supplies and equipment
• The cost to create, acquire, and/or deliver any products or services you’re selling
• Payroll for employees
• Office space rent and utilities
• Transportation
• Business licenses and insurance
• Taxes (such as federal income taxes, payroll taxes, franchise taxes, self-employment taxes, etc.) 

If you find it taxing (no pun intended) to do all that math, don’t stress. We’re here to help. Use our guide to calculate business startup costs.

Step 4: Create a business name

Give your business its identity with a great name. Your business name provides potential customers with their first impression of your brand, so choose wisely. 

Texas Business Naming Rules

You also need to adhere to Texas’s rules regarding business names. You can research all of Texas’s business naming regulations on the Secretary of State website, but we’ll cover some of the main points below. 

Designators

If you form an official business entity, such as an LLC or corporation, your name must include an appropriate designator.

For Texas limited liability companies, your LLC designator must contain one of the following: 

• Limited Liability Company
• Limited Company
• An abbreviation of one of the aforementioned terms (L.L.C., LLC, L.C., or LC) 

Designator options for Texas corporations include: 

• Company
• Corporation
• Incorporated
• Limited
• An abbreviation of one of aforementioned terms (Co., Corp., Inc., Ltd., etc.)

Restrictions

Your name must also not include any words or phrases that make your business seem like a different entity type (for instance, LLCs cannot include “Inc.” in their name). 

No matter what type of business structure you choose, your Texas business name cannot be offensive or imply a false government affiliation or a false or illegal purpose. Your name cannot claim to be an insurer, bail bonds provider, or any other entity type that does not qualify for the status of the business structure you’re registering. 

Check name availability

Finally, all business names must be distinguishable from any other name currently in use in the state of Texas. You can check the Texas Secretary of State’s database to determine name availability. You can also use our Texas business name checker. 

Assumed Names

If you want to do business under a different moniker than your official company name, you can also register an assumed name (also known as a “doing business as” or “DBA” name in other states). An example of when an assumed name would be applicable is if a limited liability company with the official name “ABC Toys, LLC” wants to sell puzzles online as “ABC Puzzles.” 

Assumed names are also commonly registered by sole proprietorships and partnerships so the owner can do business under a name other than their legal name. For instance, a sole proprietor named “John Smith” might file for an assumed name to conduct business as “Smith Landscaping.” Registering an assumed name also enables sole proprietors and partnerships to get a business bank account under that name. 

If you want to register an assumed name in Texas, you must file your assumed name certificate with the office of the county clerk in the county where your business is based. As with official business names, assumed names must also be distinguishable from other names in the state and adhere to Texas’s rules regarding restricted words. 

Trademarks

Just because a business name shows as available when you search for it, that doesn’t mean you’re fully clear to use it. A name can also be trademarked at both the state and federal levels. Check with the Texas Secretary of State to do a statewide trademark search. You can also do a federal trademark search through the United States Patent and Trademark Office (USPTO). 

Note: None of the above methods fully guarantee that no one will file a trademark infringement lawsuit against you. The research you can do on your desired business name (Googling, checking phone books, or even consulting a trademark attorney), the better. 

Reserve your business name

Have you found a great business name, but aren’t quite ready to register it? Reserve it so no one else can take it! Texas allows you to reserve your business name for up to 120 days. You can reserve your desired business name through the Texas Secretary of State, or let us do it for you. 

Step 5: Register your Texas business, open financial accounts, and secure insurance

To officially form your business, you need to register it with the state of Texas. This generally means appointing a registered agent and filing the appropriate paperwork. 

Appoint a registered agent

Every official Texas business (LLC or corporation) is required to appoint a registered agent. A registered agent is an individual or business entity that accepts legal notices on behalf of your business. 

Use a registered agent service

While there are no laws prohibiting business owners from serving as their own registered agent in Texas, many entrepreneurs opt instead to use professional registered agent services. By using a registered agent service, you ensure that all the Secretary of State’s registered agent requirements are met without any inconvenience or embarrassment to you (such as having to be available during regular office hours to receive legal documents or being served with a lawsuit in front of clients/others). 

File the appropriate paperwork

Perhaps the most important step in registering a business in Texas is filing the appropriate paperwork. When creating formal business structures (such as LLCs or corporations), you’ll file these documents with the Secretary of State and pay your state filing fees. 

Texas LLC Certificate of Formation

If you’re starting an LLC, you’ll file a Texas LLC Certificate of Formation (also called Articles of Organization in other states) with the Secretary of State.

Texas Corporation Certificate of Formation

If you’re forming a corporation, you’ll file a Texas Corporation Certificate of Formation (also called Articles of Incorporation in other states).

Get an EIN

To set your Texas LLC or corporation up to pay business taxes, you’ll need an Employer Identification Number (EIN), also known as a Federal Employer Identification Number (FEIN). Much like a Social Security Number does for individuals and sole proprietorships, your EIN identifies your business to the Internal Revenue Service (IRS). You will likely also need an EIN to open a business bank account.

Apply for any necessary business licenses or permits

To start your new business, you should apply for any necessary business licenses or permits you need. These needs can vary depending on your industry and location. 

Local Licenses and Permits

Check with the county clerk or city government to inquire about required local permits and licenses. 

State Requirements

You also can consult the Texas Economic Development and Tourism Business Permit Office to explore information on state licensure requirements. 

Professional Licensure and Business Insurance

If your industry requires professional licensure, you can also check with your industry’s licensing board to determine what you need. Finally, you may opt to get various types of business insurance such as professional liability insurance for your new company.

Obtain a business bank account

When starting a new business in Texas, it’s also important to obtain a business bank account. This step enables you to separate your personal expenses from your business expenses. Having separate personal and business accounts will not only create further separation of your personal assets from those of your business, but it will also make things much easier for you come tax time. 

Get a discounted bank account

Luckily, we can help here as well. We’ve partnered with LendingClub to offer our customers a discounted bank account. This account includes a debit card, unlimited transactions, online banking, and more. You may also want to get a business credit card to further manage business expenses. 

Opening a business banking account is streamlined when you let us help you. Learn what’s included and how you can start your business bank account today.

Step 6: Market your Texas business

Once your business is registered, you can start marketing it to the public. This means identifying your ideal customer base and finding ways to make them aware of your products and services. 

Create a marketing plan

To effectively market your business, you’ll need to create a marketing plan. When creating this plan, you should consider several factors. What do you want your customers to know about your products and services? What should you include in your product and service descriptions? What types of marketing materials will you create/use? Where will you run marketing content (social media, broadcast TV, print ads, etc.)? 

You can also optimize your company’s profile on Google Business Profile.

New to marketing planning? No need to be a marketing pro to run a small business! Get the essentials in this free guide on marketing planning

Get a domain name

A huge part of marketing your business is being available online. That’s why you should look into getting a domain name. A domain name is the URL you’ll use for your business website. In other words, a domain name is where people will find your business online. When brainstorming potential names for your business, it’s a good idea to see if your desired name is available as a URL.

We can help you get a domain name for your business. Plus, don’t forget about privacy. Use our domain name privacy service to prevent your personal contact information from becoming public. 

Snag social media handles and a business email address

Along with a great domain name, you may also want to go ahead and snag social media handles and a business email address that match your company name. Not only will this make your brand seem more professional and official to potential customers, it will also make marketing, advertising, and communication much easier. 

What else do I need to know?

There are lots of things to consider when starting a business in Texas. Here are a few additional considerations.

Do your homework when choosing a business type

We provided a basic overview of some of the most popular entity types chosen by Texas business owners. However, you need to do your research into each structure. What kind of liability protection does each type offer? What are the rules and limitations of each structure? How is each entity taxed? What are your business needs? 

Compare entity types

A great idea is to compare any formal business structures you’re considering. That’s why we’ve created several limited liability company comparison guides to help you do just that:

• LLCs and sole proprietorships
• LLCs and corporations
• LLCs and partnerships
• LLCs and limited liability partnerships (LLPs)

Be smart with your spending

When you’re starting a business, every dollar counts. New entrepreneurs need to be smart with their spending and thorough when creating their financial plan.

Research business taxes

When learning how to start a business in Texas, you should also consider taxes. Here are several things you need to know: 

Low Tax Burden

Compared to most states, Texas offers business owners a low tax burden, and there’s no personal income tax in the state. Texas is one of only five states that does not levy any corporate tax or personal income tax at the state level. In addition, sole proprietors are exempted from Texas’s state franchise tax. 

State Franchise Tax

Texas imposes a state franchise tax. This is a fee for the privilege of doing business in Texas. However, the state also exempts or reduces many businesses’ franchise fee amounts based on the company’s revenue. Businesses with revenues under a certain threshold may not have to pay the franchise tax or may have their fee reduced. 

In fact, almost 90% of LLCs are exempt from paying the Texas franchise tax. Only LLCs with annualized total revenue above the “No Tax Due Threshold” pay the tax. As of this writing (2022), if your LLC’s annualized total revenue for the tax year is less than $1,230,000, you don’t have to pay the franchise tax. 

Texas state taxes are payable to the Texas Comptroller of Public Accounts. You’ll use either the E-Z Computation or Long Form report to calculate and report your franchise fee amount. When no franchise tax is due, you’ll file Form 05-163 (No Tax Due Information Report). This report is due by May 15, every year. 

LLC Taxes

The way your Texas business will be taxed depends largely on its entity type. Different legal structures are taxed differently.

In most states, LLCs are treated as “pass-through” entities. This means the LLC itself doesn’t pay federal income taxes. Instead, each LLC member (owner) pays federal income taxes on their portion of the business profits on their individual tax return.

However, Texas is a little different when it comes to state income taxes. Because the state doesn’t impose a personal income tax, LLC members do not pay state personal income taxes on the income that passes to them from the LLC. Instead, Texas imposes the state franchise tax on LLC members (unless the LLC had revenues that were low enough to qualify it for an exemption or a reduced rate). The LLC members will still pay federal income taxes on their portion of the LLC’s profits.

Note: Texas is one of the few states that does not require LLCs to file an annual report. But, LLCs do need to file an annual franchise tax report. If tax is due, you will either file the E-Z Computation or Long Form report. When no franchise tax is due, you’ll file Form 05-163 (No Tax Due Information Report). 

Common Taxes for Texas Businesses

Depending on your business type, many Texas entrepreneurs will be responsible for a range of taxes, such as:

• Unemployment taxes
• Texas franchise tax
• Texas sales and use tax

Examples of Good Businesses to Start in Texas

In such a big state, there’s room for all sorts of new businesses in Texas. Here are some trending ideas you may consider:

• Landscaping
• Construction
• Restaurant or food truck
• Real estate agent
• Custodial services
• Beauty salons
• Grocery store
• Contract painter

Want more ideas? Find your passion in our list of small business ideas you can start today.

We can help!

Thanks to an affordable cost of living, low tax burden, and a talented workforce, the Lone Star State shines brightly for hopeful entrepreneurs. If you’re ready to start your business in Texas, follow the steps above to set your new company up for success. 

Overwhelmed by the process? Don’t sweat it. Our formation services can help you throughout each step. From filing your formation documents to helping you stay compliant, we’ve got you covered. Reach out to us today and turn your dream of owning your own business into a reality!