How To Start a Business in Texas
According to the U.S. Small Business Administration 2022 reports, 99.8% of businesses in Texas were small businesses. In total, there were 3.1 million small businesses in Texas in 2022. These small businesses employed around 4.9 million people, which made up about 44.5% of the Texan workforce (employees). The Texas Professional, Scientific, and Technical Services small-business industry had the most employers in 2022, with a total of 65,144. Meanwhile, Health Care and Social Assistance small-business industry was the largest employer in 2022, with 735,913 employees.
The lone star state is known for its rich entrepreneurial spirit and lengthy history of innovation. This is abundantly visible considering that, between 1995 and 2019, the state’s small-business employment rate increased by 47.7%, according to information published by the U.S. Census Bureau. This percentage increase even surpasses the national small business employment growth rate.
Texas Economy Trends
- According to the U.S. Bureau of Economic Analysis, in the fourth quarter of 2022, Texas’s Gross Domestic Product (GDP) growth was the fastest in the nation. Texas measured a 7% growth rate, signifying that the state’s GDP grew faster than the nation.
- According to the Texas Comptroller of Public Accounts, Texas has the second-largest economy in America and the 9th largest economy globally.
- Texas’s GDP was estimated at $2.36 trillion in 2022. The state’s GDP is projected to have increased by 14.8% since the previous year (2021), when it was reported to be $2.1 trillion.
- The extent to which businesses can affect the state’s economy is clearly visible in reports on exports complied by the U.S. Census Bureau, Department of Commerce. According to 2020 figures, 38,074 companies/businesses were responsible for exporting $250.3 billion worth of goods from Texas. Note that the state GDP was recorded at $1.79 trillion in 2020.
- Out of the 38,074 exporters in 2020, 35,124 (or 92.3%) of these exporters were small businesses.
The aforementioned economic trends in Texas show that small businesses can significantly affect the state’s economic growth. Hence, starting a business in Texas can be a particularly profitable venture. Interested persons must consider many factors and requirements when setting up a business. Interested persons should consider the following steps when establishing a business in Texas:
- Step 1: Conduct market research
- Step 2: Outline a business plan
- Step 3: Obtaining the necessary business licenses or permits
- Step 4: Raising capital
- Step 5: Selecting a business structure
- Step 6: Selecting a business location
- Step 7: Registration of the business
Step 1: What Kind of Business Should I Start in Texas?
Selecting the kind of business to start in Texas generally depends on an individual’s strengths, and interests, or the current economic gap in the state. Generally, one can tap into several economic sectors in the state. According to Texas Economic Development, some of the most targeted/popular industries in Texas include:
- Advanced Manufacturing
- Aerospace, Aviation & Defense
- Biotechnology & Life Sciences
- Information Technology (IT)
- Petroleum Refining & Chemical Products
- Corporate Services
- Creative Industry
Market research is a useful tool for prospective business owners to determine what industry to enter and what type of business to start. Market research can provide information on what kind of business is most likely to thrive in a specific location in the state. Hence, prospective owners are advised to always conduct market research before establishing their business.
How To Do Market Research in Texas
Market research is a process that allows prospective business owners to evaluate the viability of a product or service they wish to offer in the Texas market. This process involves obtaining feedback from the service or product’s target market audience about their interest in using the service or product. A good business must be centered around products or services that provide value or fill a consumer market gap.
There are several ways to conduct market research in Texas. Prospective business owners can conduct the market research in-house (by themselves) or hire a third-party company specializing in market research. Some of the most common market research methods include surveys, interviews, and focus groups. Some benefits of conducting market research include the following:
- It helps business to stay on top of trends within their industry.
- It allows businesses to compete with other businesses in their industry more effectively.
- It enables businesses to explore riskier concepts without having to invest significant capital.
- Opportunities for growth are more easily identified
- It fosters effective connections between businesses and their target market
Market research can also provide businesses with the competitive advantage needed to outperform other businesses in their industries. This is particularly important due to the high number of business applications monthly. According to statistics provided by the U.S. Census Bureau, there were over 40,000 applications for new businesses in Texas as of March 2023.
Step 2: How To Write a Business Plan
A business plan serves as the foundation of a business and offers guidelines on how various phases of the business, such as startup and management, would be handled. Furthermore, a business plan outlines how a new business will be structured, ran, and scaled. A business plan also helps prospective business owners break down critical elements of their business to give a detailed insight into what running the business would look like.
A business plan is also a tool prospective business owners can use to get funding and business partnerships. Because a business plan can detail a business’s prospects and viability, investors can rely on its information to determine whether investing in the business is reasonable.
It is important to avoid generalizing a business plan. Instead, the advantages, disadvantages, and regulations associated with running a specific type of business in Texas should be considered when writing a business plan for a business. The type of services or products the business would offer should also be considered in the business plan.
The way most business plans are written can be categorized into two formats, namely, traditional or lean startup. Traditional business plans are more common than the latter and are more detail-oriented and comprehensive. A traditional business plan typically requires more work to create and is usually several pages long. On the other hand, a lean business plan only focuses on key elements. These elements are typically summarized, and only the most important points are detailed in the plan. Hence, a lean startup business plan is usually a one-page document that can take an hour to several hours to make.
The formats used to write the two business plan categories (traditional or lean startup) differ. A traditional business plan generally includes the following sections:
- Executive summary: In this section, a description of what the business is and why it will be successful should be provided. Other details about the business should also be provided. These details include and are not limited to the business mission statements, the services or products it will provide, and its location.
- Company description: This section should include information regarding problems the business’s product or service will solve. The business-targeted demography should also be detailed. The business’s competitive advantages that can facilitate the business’s success and how the Texas market can play to the strengths of the business should also be included.
- Market analysis: This should aid in giving a clear picture of the Texas industry that the business would operate in and the targeted demography of the business. Market analysis should also include competitive research. This type of research would reveal information about the strategies and advantages of competitors in the business industry.
- Organization and management: Information on how the business will be structured and who will make operational decisions should be detailed in this section. This section should clearly state whether the business would be incorporated as a C or S corporation, a general or limited partnership, a sole proprietorship, or a limited liability company (LLC). An organizational chart should be included in this section. The chart should outline what each managerial staff will be in charge of and how their duties play to their strengths and experience and can contribute to the business’s success.
- Service or product line: The services or products the business will provide should be detailed in this section. The benefits of the services or product to the business customers and its lifecycle should also be described. Plans for protecting the business’s intellectual property, such as copyright or patent filings, should also be explained.
- Marketing and sales: This section should be focused on what marketing and sale strategies will be used to ensure that the business attracts and retains customers.
- Financial projections: The goal of this section should be to provide evidence-backed data that the business will be a financial success. The balance sheets, cash flow, and income statement for the previous two to five years of business operations should be provided if the company is already established. If the business is not yet established, its projected income statements, balance sheets, cash flow statements, and capital expenditure budgets should be provided. If the business seeks loans or investments, its available collateral should also be listed in this section.
Numerous templates/components can be used to develop a lean startup business plan. Some examples of these components include the following:
- Key partnerships: Information on other businesses and services, such as suppliers and subcontractors, that the business would collaborate with to function.
- Key activities: How the business would use resources at its disposal, such as technological tools and marketing strategies, to gain a competitive advantage over other businesses.
- Key resources: List resources that would be leveraged by the business to provide value for its target market. This can include the business’s intellectual property and capital.
- Value proposition: Information on the business’s unique value to its targeted market.
- Customer relationships: A detailed breakdown of the business customer’s experiences, such as the main medium that would be used to interact and foster a good relationship with customers.
- Customer segments: The business’s intended market demography. Since services and products are rarely used by all demography of persons, there should be a clear and concise answer to which market demography the business would target.
- Channels: These are the mediums the business would use to communicate with their customers.
- Cost structure: Costs associated with the business providing the products or services it proposes to offer and strategies that would be employed to minimize these costs and maximize profits.
- Revenue streams: a breakdown of the company’s proposed revenue model. There should also be a list of all the business’s revenue sources.
Step 3: Do I Need a Business License in Texas?
A general business license is not required to operate a business in Texas. However, certain licenses, permits, certifications, registrations, or authorizations at the federal, state, and local level are required for specific business activities in the state. Additionally, in addition to any locally or state-issued licenses, businesses that are subject to federal regulation must also have a federal business license.
Different agencies are responsible for issuing licenses and permits in Texas. Furthermore, different factors, such as the city/county and business type, can affect the license and permits a business would need to operate in Texas legally. Hence, determining licenses or permits a business would need can take time and effort.
Fortunately, the Business Permit Office within the Texas Economic Development and Tourism Office provides a Business License and Permits Guide. Prospective business owners can use this guide to determine what licenses and permits they would need to obtain to operate their businesses in Texas. Each type of business license and permit has its set unique requirements that business owners must meet and different fees that must be paid when applying for them. These requirements, fees, and license renewal periods are typically set by the agency responsible for the license or permit issuance in compliance with state and federal laws. Hence, all queries regarding licenses and permits should be directed to the agency responsible for their issuance.
Business owners can also contact the Texas Economic Development & Tourism’s Business Permit Office (BOP) for more information and assistance on permits and licenses required for operating a business in Texas.
How Much Does a Business License Cost in Texas
The cost a business owner would need to pay for a business license in Texas varies depending on the type of business they operate. On the low end, a business license can cost between $15 to $50. For instance, an Automatic Dial Announcing Device (ADAD) Permit costs $50 and $15 for renewal. Meanwhile, a business license can cost several hundred dollars on the high end. The licenses for businesses associated with vices and recreational facilities are generally more expensive. For instance, the general license fee for a coin-operated amusement machine in Texas can cost $200, $400, or $500, depending on the number of machines owned.
How To Register for a Seller’s Permit in Texas
In Texas, individuals, corporations, partnerships, and other legal entities engaged in the following types of businesses are required to hold a Texas sales and use tax permit:
- The sale of tangible personal property
- Leasing or renting out tangible personal property
- The sale of taxable services
- Out-state businesses that have made at least $500,000 in the previous 12 months from selling or leasing tangible personal property or taxable services to Texans.
Temporary sales and use tax permits are not issued in Texas. Hence, regardless of how long an individual or legal entity plans to engage in any of the aforementioned types of businesses, they would need to obtain a regular sales and use tax permit.
The Texas Comptroller of Public Accounts is the government agency responsible for issuing sales tax permits in Texas. The agency provides several means through which interested persons can apply for sales tax permits. Interested persons can apply online using the Texas Online Sales Tax Registration Application System. Alternatively, interested parties can complete the AP-201, Texas Application for Sales and Use Tax Permit form and mail it to the Comptroller’s office at:
Comptroller of Public Accounts
111 E. 17th St.
Austin, TX 78774-0100
All applicants must be at least 18 years of age to apply for a Texas sales and use tax permit. If an applicant does not meet the minimum age requirement, their parent or legal guardian can apply for the permit on their behalf. Note that applicants who are sole owners, partners, and officers or directors of a corporation would need a social security number (SSN) to apply for a permit through the Online Registration Application System. Such persons can instead apply for the permit using the AP-201 form if they do not have an SSN.
The general requirement for using the Online Registration Application System to apply for a Texas sales and use tax permit, depending on the business type, includes:
- Sole owner’s SSN
- The SSN or federal employer’s identification number of each party in a partnership.
- The file number issued by the Texas Secretary of State to Texas corporations.
- SSNs for each officer or director of a corporation
- The business’s North American Industrial Classification System (NAICS) code (required for all types of businesses)
Although businesses are not required to pay a fee for the permit, they may need to post a security bond. The Texas Comptroller’s field office can be contacted for more information on security bonds.
Step 4: How Much Does It Cost To Start a Business in Texas?
According to estimates provided by the Small Business Administration (SBA), starting a small business can cost between $3000 to $5000. However, factors such as the product or services the business provides, the business structure implemented, and business location can inflate this number. Texas law requires that businesses pay for the following:
- Business structure registration: After a business owner selects the type of business structure on which to establish their prospective business, there are certain registrations they are required to undergo.
- Registration of a business name (DBA or assumed name): In Texas, all sole proprietorship and partnership businesses must register and file a business name with the local county clerk’s office where the business is set up. The fee most county clerk charges business owner for registering a business name is usually $13.50. However, additional fees may apply.
- Reserving a business name: prospective owners of the following types of businesses in Texas are required to pay a $40 fee to reserve their business name prior to registering their business:
- Domestic For-Profit Corporations
- Foreign For-Profit Corporations
- Foreign Professional Corporations
- Foreign Professional Associations
- Foreign REITS
- Foreign Business Trusts
- Limited Partnerships (domestic & foreign)
- Nonprofit Corporations (domestic & foreign)
- Limited Liability Companies
- Certificate of formation: prospective owners of the following types of businesses are required to pay a $300 fee for their business’s certificate of formation:
- Domestic For-Profit Corporations
- Nonprofit Corporations (domestic & foreign)
- Limited Partnerships (domestic & foreign)
- Limited Liability Companies
- Business licenses and permits: depending on the type of services or products a business is expected to provide, a business owner may need to obtain licenses or permits to operate legally in Texas. Different agencies are responsible for issuing these licenses and permits, and their cost varies. For instance, the cost of acupuncturist licensure in Texas is $320.00, and a Hemp Producer License costs $100.
- Business tax: The state of Texas imposes an annual franchise tax on all taxable entities formed, organized, or doing business in Texas. However, these entities are not required to pay annual franchise taxes if their annual receipts are under the yearly thresholds. According to the Texas comptroller, the threshold for 2022 and 2023 is $1.23 million. For retail or wholesale businesses whose annual receipts surpass $1.23 million, their franchise tax rate is 0.375%. Meanwhile, Texas’s franchise tax rate for non-retail or whole businesses is 0.75%. If a business’s total annual revenue is under $20 million, it can opt to pay its franchise tax by filing an EZ computation form at a franchise tax rate of 0.331%. Additionally, the state of Texas is one of six U.S. states that does not impose corporate income tax or personal income taxes.
Besides the aforementioned items, several other factors can affect the cost of starting a business in Texas. These include and are not limited to the following:
- Insurance cost
- Market research
- Equipment and inventory
- Staffing and payroll
- Office space or website depending on whether the business would need a physical office, an online presence, or both.
These and many other factors must be considered, and a projected portion of the total startup expenditures for the business should be allocated toward them.
How To Get Business Funding in Texas
Some ways business owners can get funding for their business in Texas include and are not limited to the following:
How to Self-Fund a Business in Texas
Self-funding, also known as bootstrapping, is a method of funding a business in Texas that solely relies on the business owner’s financial resources. These resources include proceeds they receive from selling their assets, withdrawing savings, 401(k) savings, credit cards, and borrowing against their home, Rollovers for Business Start-ups (ROBS). Due to the minimal cost that most small-scale businesses require to set up, self-finding is ideal for such businesses.
There are several considerations business owners need to take when self-funding their business. These include and are not limited to analyzing their personal assets and finances to determine if they have enough to fund their business. Business owners should also consider ways of reducing the initial cost of their business. This can include not over-expanding, focusing on a particular niche market, and using free tools provided by or in partnership with the government, such as getting a SCORE mentor.
How To Find Investors in Texas
An investor is an individual or entity (such as a mutual fund or firm) that invest capital in a business with the expectation of receiving financial returns. Besides providing the capital a business needs, investors can also provide different resources at their disposal to ensure the business’s success. For instance, investors can use their network and already established ventures (such as stores) to help market a business’s product.
Business owners need to research investors in their business industry and put together a pitch highlighting the unique attributes of their products or services before seeking out investors. Research on investors would give business owners an idea of businesses particular investors are more inclined to invest in. Meanwhile, a well-put-together pitch should contain a solid business plan and financial projections that backups the business’s claims. Investors typically review this information to determine whether investing in the business is worthwhile. There are several ways Texas business owners can find investors for their businesses. Some of these methods include:
- Through the Internet: Numerous websites host databases containing information on investors who are interested in investing in startups, business expansion, and more in Texas. These websites typically provide a profile for each investor listed in their database. These profiles usually contain a range of how much the investor is willing to invest, their preferred industry, and basic information about the investor. Some of the most examples of these websites include Texasinvestmentnetwork, Crunchbase, and AngelList.
- Networking: This involves attending local networking events set up by groups or organizations to forge relationships with individuals in specific industries.
- Inner circle: This involves business owners seeking investment from their friends and family members.
Investors can be categorized into different types. Each type of investor has its advantages and disadvantages. For instance, certain types of investors are ideal for specific business partnerships. Additionally, the methods utilized in finding investors will also depend on the kind of investor a business owner is looking for. Among the most prevalent types of investors in Texas are those indicated in the list below:
Personal investors are made up of close acquaintances, friends, or family members of the business owner who are willing to invest in their company. Most business owners usually rely on these types of investors during the setup phase of their business. Personal investors are characterized as being easier to convince compared to other types of investors.
Angel investors are wealthy individuals who are willing to provide financing for small business ventures in exchange for equity in these businesses. Depending on the angel investor, one-time or ongoing injections of financial investments may be provided to a business owner. Some examples of angle investors groups in Texas include:
- Alamo Angels
- Baylor Angel Network
- Central Texas Angel Network
- Houston Angel Network
- Lubbock Angel Network
- North Texas Angel Network
- Pipeline Angels
Private equity investors, known as venture capitalists (VCs), are focused on investing in businesses with high growth prospects in return for an equity stake in the business being funded.
How To Get a Loan To Start a Business in Texas
In Texas, business owners can get loans to start their business through their friends or family members, non-profit lenders, the U.S. Small Business Administration (SBA), and banks.
Getting loans from friends and family
Loans from friends and family members are considered internal financing, as it relies on a business owner’s existing resources. Several advantages and disadvantages are generally associated with friends and family loans. Some of the advantages of friends and family loans include:
- No interest or low-interest rates
- Flexible repayment terms
- Credit checks are usually not required
- Builds a business’s credit history for future lenders.
Meanwhile, some disadvantages of friends and family loans include:
- The potential to damage relationships if commitments were broken.
- The amount loaned is typically smaller than the amount an established lending institution or bank might offer
- Instead of lines of credit, termed loans are usually provided.
Getting loans from non-profit lenders
Texas is home to several non-profit lenders, also known as Community Development Financial Institutions (CDFIs). These lenders are characterized by the favorable terms and resources they offer, such as low-interest rates, mentoring, and workshops. Non-profit lenders are primarily focused on lending to disadvantaged businesses and entrepreneurs. Some of the most popular non-profit lenders in Texas include:
Getting a Loan from the U.S. Small Business Administration (SBA)
The SBA is an independent agency of the U.S. federal government. This agency specializes in providing aid, counsel, and assistance to protect the interest of small businesses across U.S. states, including Texas. The SBA offers various services to small businesses, such as growth and optimization training and loans through their lending partners. Besides providing loans through their lending partners, the SBA also provides loans directly to businesses and homeowners recovering from a declared disaster.
The SBA offers different types of loans to businesses, such as the microloans program, 7(a) loans, and 504 loans. Some of the benefits of SBA-guaranteed loans include lower down payments, no collateral needed for some loans, and flexible overhead requirements.
Generally, SBA lending partners and loan programs have unique eligibility requirements businesses must meet before being granted an SBA-backed loan. These requirements are usually tailored to the business’s location, revenue source, and ownership type. Some of the SBA’s general eligibility requirements include business size standards, the ability to repay the loan, and having a sound business purpose. SBA lending partners would also individually supply applicants with a full list of their unique loan eligibility requirements.
Business owners can get SBA-backed loans by applying through SBA lending partners. Interested persons can find approved SBA lending partners by using the Lendermatch tool. Small business owners in Texas can also apply for SBA microloans by working with any of the SBA-approved intermediaries in the state. Loan applicants are generally advised to work with a consultant or an attorney when applying for a loan through any SBA lending partners or SBA-approved intermediaries. For more information about SBA loans, interested persons can contact any of the six (6) SBA district offices found in Texas listed below;
How To Find Texas Business Grants
Texas business grants are free services and financial support the state government offers to stimulate the state economy and assist businesses. The state and local governments in Texas provide different types of grants. Some examples of these grants include and are not limited to the following:
- Texas Travel Industry Recovery Grant Program
- Texas Workforce Training Grants
- Texas Young Farmer Grant Program
Most grants in Texas are issued and administered by different state and local government agencies. Furthermore, as mentioned earlier, the types of aid grants in Texas provides is not limited to financial support only. For instance, the state’s Workforce Commission provides the Texas Workforce Training Grants. This grant is geared towards incentivizing and assisting in training newly hired employees of small businesses with less than 100 employees. The grant also assists these businesses in upgrading the skills of their full-time employees. These grants offer training through community or technical colleges or the Texas Engineering Extension Service (TEEX). Additionally, the grant pays businesses up to $1,800 for each new hire and $900 for each existing employee being trained over a 12-month period.
Meanwhile, the Texas Economic Development Agency offers the Texas Travel Industry Recovery Grant Program per Senate Bill 8. Under this grant’s incentive, Texas businesses in the tourism, travel, and hospitality industries negatively affected by the covid 19 pandemic can receive up to $20,000 for recovery.
Generally, Texas business owners are required to meet the qualifying criteria for a grant before the Texas government can issue the grant to the business owner. These requirements vary by the type of grant. For instance, Texas business owners must meet the following requirements to qualify for the Texas Travel Industry Recovery Grant Program:
- The business must be in the state travel, tourism, or hospitality industry
- The business must have been in operation before January 20, 2020
- The business must operate in the state of Texas
- Must be a privately-owned for profit or nonprofit business
- The business must provide services for in-person events or be open to the public
- Must have been negatively impacted by the COVID-19 pandemic
- Must be an eligible business or organization listed for the travel, tourism, and hospitality industries in NAICS codes
- The business or organization must not be barred from competing for federal awards.
Along with meeting the aforementioned requirements, applicants are also required to submit the following documentation:
- A 2019, 2020, and 2021 Texas sales and use tax return 01-117 or 01-114. In lieu of these forms, applicants can submit any of the forms for 2019, 2020, and 2021 listed below:
- Texas Hotel Occupancy Tax Report (Comptroller of Public Accounts Form 12-100)
- U.S. Corporation Income Tax Return (IRS Form 1120)
- U.S. Individual Income Tax Return (IRS Form 1040)
- U.S. Return of Partnership Income (IRS Form 1065)
- Texas Franchise Tax Annual Report (Comptroller of Public Accounts Texas Franchise Tax Form(s))
- Return of Organization Exempt from Income Tax (IRS Form 990)
- Texas Mixed Beverage Gross Receipts Tax (Comptroller of Public Accounts Form 67-100)
For more information on the eligibility requirements for Texas Travel Industry Recovery Grant Program, interested persons can refer to the FAQs page. Besides grants provided by the Texas state government, different federal grants are offered by the U.S. federal government. Interested persons can navigate to Grants.gov to view catalogs of federal grants.
Can I Start a Business With No Money in Texas?
No, businesses generally cost money to set up in Texas. To operate legally in the state, most types of businesses require licenses, permits, and certifications. Registering these business licenses, permits, certifications, and other expenses such as insurance costs money. Furthermore, product-based businesses would also require prospective business owners to buy the inventory needed to produce the product the business offers.
Although business costs are inevitable when setting up a business in Texas, there are specific types of businesses that only require a little capital to get started. Compared to product-based businesses, service-based businesses are less capital-intensive to set up. For instance, entrepreneurs who offer video editing services only need a computer, free time, and internet service to start.
Step 5: Choosing a Business Structure in Texas
In Texas, there are different business structures that prospective business owners can choose to model their business after. The most common forms of business structures found in Texas include the following:
- Sole proprietorship
- General partnership (GP)
- Limited Partnership (LP)
- Limited Liability Partnership (LLP)
- Limited Liability Company (LLC)
Prospective business owners are advised to consult with a licensed business attorney and accountant when selecting a business structure. The following factors should also be taken into consideration when choosing a business structure in Texas:
- Business Taxation
- Liability management
- Formality of operation
- Transferability of ownership interests
How To Start a Sole Proprietorship in Texas
A sole proprietorship is the most common and simplest business structure in Texas. Sole proprietorships are characterized as businesses where a single individual (the sole proprietor/business owner) engages in a business activity without formal organization. The business venture is not considered a separate entity from the sole proprietor in a sole proprietorship. Hence, along with having full control over their business, sole proprietors are also personally liable for their business’s debts and obligations. Additionally, sole proprietors can also report their business’s loss, profits, and expenses deduction on their personal taxes deduction.
In Texas, prospective business owners are not required to file legal documents with the Texas state government to set up a sole proprietorship. Instead, interested persons can follow the step listed below to create a sole proprietorship in Texas:
- Choose a business name: sole proprietors can opt to either use their legal name or a trade name (also known as an “assumed business name” or “doing business as” (DBA)) as their business name. If a sole proprietor chooses a trade name that is different from their surname, they must file an assumed name certificate with the clerk’s office in the county where their business’s premise is maintained. Suppose the sole proprietorship has no primary business premise. In that case, the assumed name certificate must be filed in all counties where the sole proprietorship business will be conducted.
When choosing a business name, it is crucial not to select a name too similar to another registered business name to avoid trademark infringement. Prospective business owners can search the following government databases to ensure that their selected business name is available:
- Texas Comptroller of Public Accounts’ taxable entity search
- Texas Secretary of State’s online business search (SOSDirect)
- United States Patent and Trademark Office’s Trademark Electronic Search System.
- Apply for licenses, permits, and zoning clearances: Depending on the types of business activities a sole proprietorship would be engaged in, the sole proprietor may need to apply for a business or professional license. Fortunately, the Texas Governor’s Office of Economic Development and Tourism provides a comprehensive guide sole proprietors can use to determine the licenses and permits their business requires.
Sole proprietors may also need to apply for an Employer Identification Number (EIN) for tax and various employee reports.
How To Start a Corporation in Texas
A corporation in Texas is a business structure where a legal entity conducting business in the state stands separate from its owners (shareholders). This implies that the corporation’s owners can not be held personally liable for the debts or obligations of the corporation. Hence, if a corporation gets sued, the personal assets of its owners can not be used to satisfy judgments against the corporation. However, owners are liable for the taxes of their corporation.
In Texas, a corporation can elect to be taxed in one of two ways, as a C-corporation (C-Corp) or an S-corporation (S-Corp). C-Corps are subject to double taxation. This means that a C-Corp files its own tax returns, and its shareholders are also taxed on corporate profit distributions and stock sales. Meanwhile, an S-Corp avoids double taxation by “passing through” its corporate income, losses, deductions, and credits to the individual tax returns of its shareholders. In turn, these shareholders are only required to pay income tax. Hence, avoiding double taxation. Interested persons can visit the U.S. Small Business Administration’s Office of Advocacy website for more information on the different types of corporations.
The first step in starting a corporation in Texas is choosing a corporate name. The chosen name must contain one of the following words or its equivalent abbreviation: “Incorporated,” “Corporation,” “Company,” or “Limited.” After selecting a unique corporate name, the business owner can legally create a corporation by filing a Certificate of Formation For-Profit Corporation (Form 201) with the Texas Secretary of State. To complete the process, the completed Form 201 and the $300 filing fee can be mailed to the Texas SOS office at:
P.O. Box 13697,
Austin, Texas 78711-3697
Or delivered to
James Earl Rudder Office Building,
Austin, Texas 78701
Alternatively, business owners can file the Certificate of Formation For-Profit Corporation and pay the $300 filing fee online through the Texas Secretary of State SOSDirect website. Note that the filing fee can be mailed via personal checks or money orders and paid online using LegalEase debit cards, American Express, Discover, MasterCard, and Visa credit cards.
Setting up a corporation can be very complex compared to other business structures. Hence, business owners are advised to seek legal counsel when setting up a corporation in Texas.
How To Start an LLC in Texas
A limited liability company (LLC) is a distinct type of entity with features of both a corporation and a partnership business structure. One or more persons or entities, referred to as members, can own an LLC. An LLC member can be an individual, partnership, corporation, trust, or other legal or commercial entity. Generally, LLC members are provided limited liability coverage against their business’s liabilities or debts. LLC members also enjoy pass-through tax treatment like those afforded to partners in a partnership.
To create a Texas LLC, one must register their business with the Texas Secretary of State. A Certificate of Formation for a Limited Liability Company (Form 205) must be submitted to the Texas SOS by mail or online through the SOSDirect website to register a Texas LLC. Generally, the Texas SOS charges business owners a $300 fee to register their business as an LLC.
How To Start a Business Partnership in Texas
A business partnership, simply referred to as a partnership, is a business structure where two or more persons jointly own and operate a business. In Texas, there are three main types of partnerships: general partnership, limited partnership, and limited liability partnership.
How To Start a Limited Partnership in Texas
A Texas limited partnership (LP) is a type of partnership that has a minimum of one general partner and one limited partner. The partnership’s general partner(s) has full control over the business’s operational decisions and is liable for the business’s debts and obligations. Meanwhile, the limited partner(s) are usually investors in the business. A Limited partner(s) typically has limited decision-making ability in the business’s operations and limited liability for the business debts and obligations. In a limited partnership, the general and limited partners’ responsibilities are often outlined in the partnership agreement. As a result, a limited partner can exercise more control over the business if the partnership agreements permit.
Whereas, in a Texas limited liability partnership (LLP), both general and limited partner(s) have limited liability for the business’s obligations and debts.
To operate as an LP or LLP in Texas, one must register the business with the Texas Secretary of State’s office. One can complete and file a Certificate of Formation Limited Partnership (Form 207) with Texas SOS to register an LP. For an LLP, complete and file a Registration of a Limited Liability Partnership (Form 701) with Texas SOS. Alternatively, one can register an LP or LLP online using the SOSDirect website. Note that the Texas SOS registration fee for an LP is $750. Meanwhile, the registration fee for an LLP is $200 per general partner in the partnership.
How To Form a General Partnership in Texas
A general partnership is created in Texas when two or more people join forces to run and manage a business for profit. All partners in a general partnership are liable for their business debts and obligations.
In Texas, general partnerships are not required to be registered with the state SOS. However, if the general partnership business is conducted under an assumed name, an assumed name certificate (DBA) must be with the county clerk in the county where the business’s premise is maintained. If the business does not maintain a premise, an assumed certificate should be filed in all counties where the business operates.
How To Start a Nonprofit in Texas
Interested persons can start a nonprofit in Texas by following the steps listed below:
- Choose the type of nonprofit to establish
Before starting a non-profit, it is important to outline its purpose, tax-exempt needs, organizer, and service location. Considering the aforementioned factors, one can review types of non-profit lists available online through third-party websites like forbes.com to determine the type of nonprofit to establish.
- Select a name
When selecting the name for one’s nonprofit, it is important to consider names that relate to the nonprofit’s mission and that would not limit future expansion opportunities. For instance, if the nonprofit aims to create homes for Harris County’s homeless population, its name should identify this goal without limiting it to Harris County alone. Doing this would make it easier for the nonprofit to expand later on and provide homes for other counties’ homeless populations. After selecting a name, make sure the name is not currently being used in Texas by searching for the name on the SOSDirect website.
- Assemble the nonprofit’s incorporators and directors
Under Texas state law, nonprofits must have at least three unrelated directors. The duties of these directors are to guide the nonprofit’s development and mission and to ensure ethical business practices. Meanwhile, the duty of an incorporator is to sign the nonprofit article of incorporation. The incorporator must be at least 18 years old.
- Appoint or hire a registered agent
A registered agent must consistently be available during regular in a nonprofit’s office to receive key paperwork on the nonprofit’s behalf
- File Texas Nonprofit Certificate of Formation
This involves registering the nonprofit with the Texas SOS office. To register a nonprofit complete and file Form 202 with the Texas SOS office in person, by mail, or online using the SOSDirect website. Doing this legally creates the nonprofit.
- Create the nonprofit’s Bylaws
This outlines how the nonprofit will be run.
- Obtain an Employer Identification Number (EIN)
- File for Texas and Federal Tax Exempt Status
One must file the required forms with the IRS to apply for federal tax-exempt status. The filing process differs depending on the type of nonprofit. For instance, for a 501(c)(3) nonprofit, one can file form 1023 (or form 1023-EZ for smaller organizations). At the state level, a nonprofit can apply for franchise and sales tax exemptions by completing form AP-204 and filing it with the Texas Comptroller of Public Accounts.
Step 6: Choosing a Business Location
When choosing a business location in Texas, the following factors should be considered:
- Local zoning ordinances
- The area’s foot and vehicle traffic
- The area’s crime rate
- Parking and accessibility
- The competition in the area
- Cost of Utilities in the area
What Kind of Business Can I Run From Home in Texas?
In Texas, no state statute regulates the kind of business one can run from home. However, it is generally advised to check local zoning laws to determine whether running specific types of business from one’s home is allowed. Most local zoning laws permit the operation of certain types of business from home, provided the business activities do not adversely impact neighbors. Interested parties can check the local ordinances at the clerk’s office of a city or county to see if running specific business activities from home is prohibited in the area.
How Do I Start a Small Business From Home in Texas
To start a small business from home in Texas, interested persons must obtain the following licenses, permits, and clearances:
- Sale tax permit. This is a requirement for all businesses that sell taxable goods and services with the state.
- Apply for a business license and permits. Depending on the types of services or products a business provides, its owner may need to obtain a business license and permit from the type of business regulatory agency.
- Home occupational permit
- Zoning clearance
Starting a Business Online in Texas
An online business is a type of business that provides goods and services over the Internet. Persons interested in starting a business online in Texas must comply with all state regulations imposed on the type of online business they wish to start. These include obtaining relevant business licenses and permits. For instance, if the online business sells taxable items, the business owner must obtain a Texas sale tax permit – unless its sales qualify as occasional sales.
Besides obtaining required licenses and permits, individuals operating online businesses in Texas must also adhere to federal and state regulatory laws, such as the Deceptive Trade Practices Act (DTPA). For instance, under the DTPA taking advantage of a disaster declared by the state governor or the United States president by selling certain goods at an exorbitant price is prohibited. These goods include fuel, food, medicine, lodging, building materials, construction tools, and other necessities.
Step 7: Legal Requirements for Starting a Business in Texas
The legal requirements a prospective business owner must meet to start a business in Texas depend on the type of business activity they are engaged in. Most business activities are either regulated by state or federal agencies, which generally require business owners to obtain certain licenses or permits to operate in Texas.
State-regulated businesses would require business owners to obtain licenses and permits from their regulatory agency to legally conduct business in Texas. However, if a business activity is regulated by a federal agency, the business owner must obtain the necessary federal licenses or permits to conduct their business in Texas.
Businesses in Texas are also required to obtain local zoning clearances. Furthermore, some types of business structures must also be registered with the Texas Secretary of State Office to operate in Texas. Generally, Texas businesses must adhere to the State’s Business Law.
How To Get an EIN Number in Texas
To get an EIN number in Texas, interested persons must apply for the EIN through the IRS. All applicants must have a valid Taxpayer Identification Number (TIN), such as an SSN, ITIN, or EIN, to apply for an EIN number. Qualified persons can apply for an EIN online using the EIN assistant. Alternatively, one can complete the Form SS-4 application and either fax or mail it to the IRS at:
(for US applications)
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
(For applicants who do not have a legal residence or a place of business in the U.S.)
Internal Revenue Service
Attn: EIN International Operation
Cincinnati, OH 45999
Fax: 855-215-1627 (within the U.S.)
Fax: 304-707-9471 (outside the U.S.)
How To Get a Texas Registered Agent
Texas businesses can get a Texas-registered agent by hiring a professional registered agent service. Most of these services cost between $100 to $200 annually or $10 to $20 monthly. Alternatively, a business can appoint a consenting individual to serve as a registered agent. To do this, complete and file Form 401-A with Texas’s Office of the Secretary of State and pay a $15 fee.
Patents, Trademarks, and Copyrights in Texas
Patents, trademarks, and copyrights in Texas are tools businesses and individuals can use to protect their intellectual property for a certain period of time.
A patent is intellectual property rights provided by the U.S. government to an inventor under Title 35 of the US Code. In Texas, patents are also subject to the state’s patent rules. Patents generally prohibit the making, selling, offering for sale, using, or importing of a patented invention by individuals or entities not registered as an invention’s inventor. Patents are typically valid for up to 20 years after the patents have been filed. In Texas, inventors can register their patents through the United States Patent and Trademark Office (USPTO). Interested persons can query the USPTO Texas Regional Office for additional information and inquiries.
Copyrights are exclusive rights provided to the original author of creative works like songs, software, and movies, prohibiting others from distributing, performing, reproducing, or publicly displaying these works. Copyright protections are automatically vested on creative authors per the Federal Copyright Act. For creative works produced on or after 1978, copyright protections last for the entirety of the author’s life and 70 years after the author’s death.
On the other hand, trademarks are words, designs, phrases, symbols, or combinations of these items that are used to identify and distinguish goods and services of specific brands. Trademarks serve as tools businesses and individuals can use to protect their brands against counterfeiting and fraud. Texas Business and Commerce Code Chapter 16 and the Federal Lanham Act govern the use and registration of Trademarks in Texas. Interested persons can register a trademark in Texas by completing Form 901 and filing it together with the necessary fees to the Secretary of State. For nationwide registration, interested persons must register their trademark with the USPTO. Generally, trademark registration is only valid for five (5) years, after which it must be renewed.
Texas Business Tax
The Texas Comptroller’s Office is the agency responsible for processing, administering, and overseeing most business-related taxes in Texas. Texas business taxes that a business owner can anticipate paying vary depending on the nature of their operations and location. Some of the most common Texas business taxes include:
- Sales tax: Texas-based businesses are subject to a 6.25% state sales and use tax on all retail sales, leases, and rentals of the majority of the products they produce, as well as on taxable services. Additional sales and use taxes of up to 2% may also be levied by local taxing jurisdictions, such as cities, counties, special purpose districts, and transit authorities. The maximum combined sale and use tax rate both the state and local taxing jurisdictions can impose on a business is 8.25%.
- Franchise tax: Taxable entities in Texas are subject to franchise taxes provided their annual receipts pass the state’s yearly no-tax-due threshold. For 2022 and 2023, the no-tax-due threshold was $1.23 million. The franchise tax rate for qualifying retail and wholesale businesses is 0.375%. For businesses other than retail or wholesale businesses, the tax rate is 0.75%.
- Property tax: there are no state-imposed property taxes on Texas businesses. However, local tax units in the cities or counties where businesses are located can impose property taxes on businesses locally.
Are Business Records Public in Texas?
Under Texas Public Information Act (Texas Government Code, Chapter 552), the general public is provided the right to access non-confidential records maintained and produced by government agencies. These include business records maintained by relevant government agencies, such as the state Comptroller. However, per provisions of Subchapter C of the Texas Public Information Act, certain types of information are considered confidential and are not publicly disclosable. Some examples include:
- Social security numbers
- Insurance policy numbers
- Credits card numbers
- License plate numbers
- Driver’s license numbers