Texas is a state of big ideas and bigger personalities.
So, it should come as no surprise that Texas is a perfect breeding ground for entrepreneurs.
According to the Business in Texas Small Business Handbook, small businesses account for over 98.6% of the businesses in Texas.
…Austin appears at No. 1 among the country’s 20 best cities for startups and entrepreneurs, ahead of key markets like Washington, D.C. (No. 2); Seattle (No. 3); Denver (No. 4); and San Francisco (No. 5). The Capital City is first in startup density and non-employer growth, third in tech job market expansion, and fourth in millennial population growth, according to the report.
There’s no denying that Texas is a great state for starting a new business. Here are just a handful of reasons why:
- There are no corporate or personal income taxes.
- Texas regularly leads the nation in exports.
- Texas boasts an impressive diversity of industry.
- Texas is the second-most populous state in the U.S., with a population of approximately 30 million people.
- Houston is the fourth-largest city in the United States.
- Austin is one of the top startup cities for entrepreneurs in the U.S.
- Texas is home to over a dozen companies on the Fortune 100 list.
- 2.7 million small businesses, employing 4.7 million people, call Texas home. This includes 1.1 million minority-owned business employees.
Clearly, Texas is a great place to be – and not just for the butter coffee and amazing brunches.
But, while Texas may be a Mecca for independent-minded entrepreneurs, there are still laws to consider when starting a business. So, if you’re wondering how to open a business in Texas, you’ve come to the right place.
Among the questions we’ll answer in this guide:
- How do you start a business in Texas?
- Is a business license required in Texas?
- What are the basic requirements to start a business in Texas?
- What are the business employer requirements in Texas?
- What tax requirements must you meet when starting a business in Texas?
- and much more!
This guide will help you write parts of your business plan and will help you launch your business in Texas.
Here’s what you need to know if you want to stake your business claim in the Lone Star State…
Texas business startup checklist:
- Choose a Business Structure
- Choose a Name and Visual Brand
- Comply With Tax Requirements
- Obtain Business Licenses and Permits
- Satisfy Business Employer Requirements
Step 1: Choose a business structure
When starting a business in Texas, there are many different types of legal structures for businesses to choose from.
So, don’t feel rushed to make a decision to pick a business structure.
Instead, spend some time learning about your options. Consider which structure is most advantageous for your business, and how each structure can help you accomplish your professional and personal goals.
Typical business structures you should consider:
Sole proprietorship – this is the most basic business entity. A sole proprietorship means that one person is solely responsible for a business’s profits and debts.
Partnership – a partnership is a shared responsibility between two or more people who both hold personal liability for a business.
Limited Liability Company (LLC) – a structure that permits owners, partners or shareholders to limit personal liability, but still includes tax and flexibility benefits associated with a partnership.
Corporation – this is an entity legally considered separate from its owners. That means that corporations are permitted to own property, can be held liable, must pay taxes, and may enter contracts.
Registering a new business in Texas
You should also know that when choosing a business structure in Texas, you will be responsible for paying filing fees. These can range from $5 to $750. So, be sure to research which fees are required by the business structure you choose and the conditions of your unique business.
You can see the full fee schedule here.
Finally, the Texas Business Organizations Code requires that you designate a registered agent. The Texas Small Business Handbook explains:
A registered agent is an agent of the entity on whom may be served any process, notice, or demand required or permitted by law to be served on the entity.
This basically means that in Texas you need a point person to be your business’s contact for legal stuff. Your registered agent must consent to serve in that capacity. And, further, the agent must be available in an office location in Texas during regular business hours.
With your business structure decided, your fees calculated and your registered agent in place, you’re well on your way. But, you will need to decide on a legal company name before you can officially register your business. So, read on to Step 2!
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Step 2: Choose a business name and visual brand
Choosing a business name is a vital decision for every new business.
As the Texas Small Business Handbook points out:
The business name selected is the key identifying and marketing component of the business. It should be given much thought and consideration.
Here at crowdspring, we always recommend that you start the naming process by considering what your business brand will be. It’s important that your business name reflects the brand you eventually want to represent your business.
So, start by brainstorming the values and personality traits that will embody your business.
Consider the key differentiators that will set your business apart from its competition. These are the brand-related factors that should guide you as you consider names for your business.
It is, of course, also essential that the name you select be original and available. Because a business name is a unique identifier, your business cannot share a name with any other business entity.
So, before committing to a business name in Texas, there are three searches you should conduct to ensure that you can legally secure the name you want.
- Conduct a Google search for your business name. If another business has already claimed that name, then it’s probably time to go back to the drawing board.
- Check with the Texas Secretary of State. You can also reserve or register your new business name here once it’s passed all three of these checks.
- Search TESS – the Trademarks Electronic Search System from the U.S. Patent and Trademark Office (USPTO). This database contains all of the existing trademarked names in the nation. If your name passes this check, you’re good to go. And, you should trademark the name yourself!
Assumed Name Certificates
Sometimes companies do business under another name other than the one that legally identifies their business. This is often called a “DBA” which stands for “doing business as.” DBAs are also commonly called “assumed name”, “fictitious business name”, or “trade name”.
For example, if your registered company is an LLC and is named Three Brothers, LLC, you cannot operate that business lawfully in most states if you’re selling products under the trade name Three Tigers. That’s because the registered name, and your trade name, are different.
Fortunately, this is not a difficult problem to overcome. You can simply register your actual trade name with your state (and or local government) by filing a “doing business as” (DBA) certificate. Here’s a terrific resource that explains what a DBA is, the DBA state requirements, and how to file a DBA for your business in all 50 states and U.S. territories, including how to file a DBA in Texas.
Choosing your business name is just the first step to building your brand identity.
Your logo should come before your website. Let your new business name inspire your new logo.
For more tips about getting an awesome logo design, read The Small Business Guide to Creating the Perfect Logo.
Once you have your new logo, you can use that design as a visual basis to guide your website design. Since we know building a website can seem daunting to most new business owners, we suggest you check out these two articles to get started on the right foot:
There’s more to visual brand identity than just a logo and website. But, they’re the best places to start.
Step 3: Comply with tax requirements
While Texas has a lighter tax burden than many states, businesses operating in Texas are still responsible for ensuring they pay the proper taxes – just like anywhere else.
So, be sure to investigate and adhere to the necessary tax laws and guidelines for your business.
The Texas State Governor’s Office recommends that you work with an attorney or an accountant to determine your business’s tax responsibilities.
And, there’s little wonder why – taxes can get complicated.
These are the four tiers of taxes you’ll have to consider:
Federal Taxes – These are the taxes paid to the Internal Revenue Service. To learn more, check out the Small Business Forms and Publications info provided by the IRS. You may need to get an employer identification number (EIN) from the IRS. If you’re a sole owner and don’t have employees, this is not required. But you might want to get an EIN anyway to keep your personal and business taxes separate and to be sure that you can quickly hire when the time comes to expand your business. The IRS has a useful checklist to help you decide whether you will need an EIN to run your business. If you do need an EIN, you can register online for free.
State Taxes – These are the taxes paid to the state of Texas. The Texas State Comptroller is responsible for collecting sales, use, excise, and franchise taxes. For a full list of taxes collected by the Comptroller, you can visit here. And, you can file your taxes electronically here.
Local Taxes – Depending on your business, you may owe business inventory (aka property) taxes. These taxes are also paid through the Texas Comptroller. However, Texas does offer two local tax exemptions – the “Goods in Transit” Exemption and the “Freeport Exemption.” Be sure to research if your business can claim either of these exemptions.
Unemployment Taxes – The Texas Workforce Commission manages the Unemployment Tax program. Employers are required to provide wage information and unemployment taxes. Most employers in Texas are required to pay Unemployment Insurance taxes. You can set up your account here.
Properly managing your taxes is an important part of running a business in Texas. Avoid any possible pitfalls by ensuring you are managing your taxes correctly.
Step 4: Obtain business licenses and permits
The Lone Star State doesn’t have a generic “business” license. So, that’s one less thing you have to do.
But, there are certain industries and fields that do require licensing in Texas. You can learn about the state licenses required at the Texas Department of Licensing and Regulation.
For example, if you’re starting a trucking business in Texas, you’ll need to obtain both state and federal licenses, as we discuss in our definitive guide on how to start a trucking company.
Because licenses for different types of businesses are so specific, there’s not much that we can say about the licensing process your unique business must undergo. But, the Governor’s Business Permit Office has you covered. You can contact them at BusinessPermits@gov.texas.gov. Or, download their handy Texas Business Licenses and Permits Guide.
As always, please do your due diligence and research to see if you must acquire any specific licenses to legally conduct your business in Texas.
Step 5: Satisfy business employer requirements
When starting a business, there’s a good chance that you won’t be on this journey alone. You’ll have employees.
The final step of setting up your business in Texas is to learn the state and federal employer requirements. You have obligations to your employees. And you need to know what they are.
As the Texas Small Business Handbook explains:
If you are planning on hiring or have already hired employees, you have labor, safety, and tax obligations. Requirements include federal and state mandates such as the Americans with Disabilities Act, Equal Employment, safety, wage, and labor requirements.
You’ll find more information here at the Texas Workforce Commission’s website.
And, Workforce Solutions provides a number of services supporting employers – like employment law info and assistance in finding and hiring employees. You can find your local Workforce Solutions Office here.
Finally, grab a copy of The Workforce Commission’s book, Especially for Texas Employers.
The Bottom Line
There’s no question – starting a business can be daunting.
But, Texas small business laws exist to support and nurture new businesses. And, for more support, seek out the Texas Small Business Association.
The Lone Star State has proven time and again that it’s a great place to build a business. Will yours be next?
Top Texas Business and Startup Resources
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