How to Start a Business in Texas

Step-by-step guide for new business owners.

A step-by-step guide for new entrepreneurs

Starting a business is an exciting dream for many people who long to be their own boss. As well as exhilarating, it can also be challenging as they move out of their comfort zone to pursue their passion. For those of you who are thinking of taking this brave leap, we have broken down some initial steps to help you get started. This guide will give you an excellent base from which to begin, whether you are currently in Texas or considering a move there. We discuss the structuring of your business, and — one of the most important early decisions! — your business name. Read on to learn the basics of starting a business in Texas.

Determine your business structure

Stick with us for a moment and we will get into some technical details.

Businesses can be structured in a variety of ways, and here we explain the most common ones. In order to select the appropriate structure for your business, you need to have two things clear: the tax structure you want for your organization and your method of business operation. Keep in mind that here we only explain what the differences between the structures are. If you’re looking for case-specific advice, consult a Texas-based law firm or accountant.

The four main styles of businesses found in Texas are:

  1. Sole proprietorship,
  2. General partnership,
  3. Corporation, and
  4. Limited liability company (LLC).

Sole proprietorship: This is the most common and simplest business structure. However, a sole proprietorship is only appropriate when an individual owns all the assets. This means that the individual is completely accountable for the business. Typically, sole proprietorships bear the name of the owners. However, if they would like to give their business a different name, they can create a DBA (Doing Business As) certificate. Finally, because the sole proprietorship has only one owner receiving revenue, it is not subject to the state’s franchise tax.

General partnership: This business structure is like a sole proprietorship, except that it involves two or more individuals. Although it’s a distinct business entity, creditors can access the personal assets of any partner to cover debts and liabilities. This business structure is also not subject to the state’s franchise tax.

Limited liability company (LLC): Members register these companies by signing a certificate of formation. You can visit the Texas Secretary of State website for more details. An LLC offers flexibility to its owners (known as members). The State of Texas provides these business owners with different tax benefits for a proprietorship. It also allows owners to have only limited liability for the business, which can be protective. At a cost of $300 to register an LLC, the certificate of formation is not prohibitively expensive. However, LLCs are subject to the state’s franchise tax. Keep in mind that it is easy to confuse LLCs with limited liability partnerships (LLPs). An LLP is a public partnership recorded with the Texas Secretary of State and costs $200 to register.

Corporation: These businesses require a mix of factors. These are a centralized administration, limitless duration, and easy transfer of ownership. In this business structure, corporation owners are shareholders, and the business managers are the directors. All Texan corporations need to enlist with the Texas Secretary of State. In doing so, they must also pay a $300 certificate of formation. Corporations are subject to the state’s franchise tax.

Non-Texan businesses must register with the Texas Secretary of State as a foreign entity if they wish to do business inside state lines.

Name your business

OK! Now that you’ve determined what type of business you’re going to have, it’s time for the fun part: choosing a name! The name will give your company a fixed identity, as well as be an integral part of the brand. It can also show potential customers what kind of business you are!

What should I name my business?

The short answer is, “great question!” It’s a personal decision that can depend on many factors. Some people already have an idea, while many don’t. If you’re searching for inspiration, check out our business name generator.

Even branding experts sometimes struggle with business name ideas. A business name generator can help by providing some options. It does this by asking a few simple questions and using your answers to generate tailored suggestions.

Check availability

To give your business a professional image, it’s crucial to have a website. Make sure you’ve checked the domain availability of your chosen name. If someone else has the domain, you may want to reconsider your business’s name.

Social media presence goes hand-in-hand with a website. Once you’ve registered your domain name, you should start setting up social media business profiles. You can use these to interact with the local community and create a brand image to attract customers.

Put together a business plan

Whether it be for 1, 5, or 10 years, writing a business plan will help you focus. Starting a business means having a lot of balls in the air, and a business plan helps you prioritize. Often, having everything written out can make a complicated situation feel less overwhelming.

The plan should include:

  • business objectives
  • business overview
  • organizational hierarchy
  • financial goals

Your business plan should also cover marketing strategies and a budget. Don’t worry about having everything perfect: nothing is set in stone, and the plan will evolve as your business grows.

Why is a business plan important?

The business plan often acts as a tool for the business owners to see the bigger picture. It will also help identify any potential roadblocks ahead and help business owners make important decisions regarding their business.

In addition, this document can serve as reference material for potential investors and clients. It reflects your business acumen. A well-formulated business plan can turn the tides in your favor: it can attract much-needed support for your venture.

In Texas, there is a Small Business Association platform that helps entrepreneurs create business plans. You can make use of these resources to help you get started.

Register your business

The registration process in Texas depends on which business structure you will have. If you are filing for a partnership, head to the County Clerk’s office. This office can also register proprietorships. Corporations, however, need to be registered with the Secretary of State.

Filing the tax documents

After registration, an owner needs to file the federal tax papers. All business owners can do this through the website of the Internal Revenue Service.

Following this, the tax papers specific to the State of Texas need to be filed with the Comptroller of Public Accounts.

Finally, you will need to file local tax papers in the appraisal district and tax offices. 

Ensure you can hire employees

Your business needs to satisfy both Texas’ requirements for employers and federal regulations. Employees are a crucial piece of any business’ puzzle, so make sure you build in compliance from the ground up. When you are working on this parameter from the beginning, you will avoid problems later on. You can check the Texas Workforce Commission’s requirements on their website.

Any business owner in Texas will be familiar with these requirements. The details, however, will vary for each business. Regardless of whether or not you have employees, there are diverse safety, labor, and tax obligations you will have to meet. These include federal and state mandates, e.g., Equal Employment, safety, the Americans with Disabilities Act, labor and wages requirements, etc. Because things can get complicated fast, it’s recommended that you look into hiring a business or tax attorney.

As a business owner in the state of Texas, you will have a few other economic obligations, especially if you have employees. Below are some of the most significant ones. Ensure that you refer to the state’s full handbook in case you have more questions.

Business insurance

  • Most private businesses don’t need to have workers’ compensation insurance in Texas. Exceptions include businesses that get helpful legal protections, such as immunity against civil cases by injured workers. However, those businesses without workers’ compensation insurance should file with the Texas Department of Insurance on an annual basis.
  • It is important to own business property insurance like renter or lessee coverage to keep your on-premises properties safe.
  • In Texas, small businesses are not required to offer health insurance. Those that do must make it accessible to all employees who work at least 30 hours every week. Often, insurance firms can demand that 75% of qualified employees have a health insurance plan. In addition, the Patient Protection & Affordable Care Act mandates all small employer companies to cover basic health benefits like prescription drugs and emergency services. There are many more details on small employer health care available here.

Texas Workforce Commission

This is a governmental agency that works to help protect both employers and employees. Anyone starting a business in Texas needs to be well-acquainted with this group and its services. The Texas Workforce Commission (TWC) and twenty-eight regional workforce development boards help cover the large state. Texas formed this body to provide aid services to employees and small businesses. They also administer unemployment bonuses and tax schemes. Below are a few services they provide:

  • Skills for Small Business: This service provides training funds for companies with less than 100 employees. It also helps new employees to upgrade their skills and helps businesses manage recruits. Helpfully, this training is obtainable at local colleges, making it accessible across the state.
  • Skills development funds: These are collaborative training schemes designed to meet precise business needs. Businesses can easily apply for this grant and a custom curriculum.
  • The work opportunity tax credit scheme: This program offers a tax credit that reduces employers’ federal tax liability when they hire individuals from target groups such as ex-felons, SNAP recipients, veterans, and inhabitants of rural counties.

Unemployment tax

According to The Texas Unemployment Compensation Act, employers must pay unemployment tax. That is, liable employers must pay this tax.

Who are liable employers? Well, almost all the business structures previously mentioned fall into this category. Non-liable employers are those who employ only independent workers instead of full-time employees. This also includes those businesses whose employees get paid via a professional employer institution.

Third-party resources, programs, and lenders

In Texas, there are a significant number of state and federal resources like low-interest loans. The U.S. Small Business Administration, business advice, grants, and a slew of other options are also available. Historically, companies owned by veterans, minorities, and women were the intended recipients of these resources.

Small business entrepreneurs can face several hurdles when they begin building their brands. One of the biggest is a lack of starting capital. Aside from several small business loans and sponsorship from investors, the Small Business Handbook lists some other sources. These include the Lift Fund, nonprofit lenders, People Fund, some local credit unions, BCL of Texas, and alternative lenders.

Sign up for business banking

If you are a startup, it is important to have a separate bank account for your business.

First, you need to register for a company checking account. If you are looking to avoid additional charges, there are several free business banking accounts available. Comparison shopping between banks will help you find the best deal for you. When choosing a bank, remember to include things like how frequently you intend to make transactions, projected monthly balances, payroll, etc.

Another option is to acquire a business credit card. This can be a safety net whenever you need extra capital. If eligible, a zero percent introductory rate can serve as an interest-free loan for when you’re starting out.

Final Words

Any entrepreneurial-minded Texans have definitely struck it lucky: financial resources are readily available, and so are educational and training resources.

Texas may be hot in the summer, but if you can learn to live with it, it’s a small sacrifice to make for getting started on the path to being your own boss.

While it’s hard to predict what the future may bring, Texas appears interested in helping new businesses survive and thrive. Make the most of your new small business in Texas by using the tips outlined in this guide.

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