How to Start a Business in Texas: Everything You Need to Know
To start a business in texas, first you need to decide on the best structure for your business, register your business, investigate different permits, and more.6 min read
Texas is the largest state in the lower 48, with a population of 27 million people and a GDP the size of Canada. Texas is full of opportunities for enterprising entrepreneurs to start their own business. Here's a closer look at practical advice on opening up your own business in the Lone Star State.
Why Start a Business in Texas
As the numbers above suggest, Texas has a consumer base unlike anywhere else in the country. The state also boasts an unrivaled brand, recognized around the world. According to the Texas Economic Development Commission, Texas made $251 billion on exports last year, and it's been leading all other states for more than a decade. At least 51 of the Fortune 500 are here, and you should be too.
Texas offers great tax incentives as well: there is no state income tax in Texas. It also allows businesses to deduct R&D expenditures from sales or franchise taxes. There are business taxes on most kinds of businesses, so this will need to be researched as well.
How to Start a Business in Texas in 5 Steps
Step One: Decide on the best structure for your new business
You’ll need to ask certain questions before deciding: Who will take responsibility, whether things go right or wrong? How will you maximize your profits under existing tax laws?? Before you decide which kind of business you will run, should seek out experienced professionals to advise you as to which of the following structures will suit your needs best.
The Sole Proprietor: This is the simplest structure to form and to operate. You're in business for yourself, and you normally operate under your name. With this structure, everything is on the line. Creditors won't distinguish between personal and business debts. It is also the simplest for tax purposes, with you usually filing the business tax return at the same time you file your personal tax return.
Partnership: How much power are you willing to give away to other people and how much financial responsibility will they accept? There are two main types of partnerships: General Partnerships and Limited Liability Partnerships (LLPs). General partners share equally in the management, profits and debts. Partners with limited liability avoid playing an active role in the business, but they're also shielded from most debts and obligations. While the partnership is still considered a separate entity, creditors can still look to the general partners to satisfy any debts.
Corporation: This is the best way to protect your personal assets because the corporation has an identity completely separate from its owners and operators. Your choices here include the S Corp, which has stringent rules on who can be owners, and the C Corp, which is the easiest structure for companies that intend to issue stock. You also receive great tax benefits that other business structures do not enjoy, although it depends on which kind of corporation you choose. A C corporation is taxed as a separate entity, causing a ‘double-tax,’ as the entity is taxed, and the owner’s salary or dividends is also taxed. An S corporation can deduct business losses on tax returns, and the profits are ‘passed-through’ to its owners, resulting in only a single tax.
Limited Liability Company (LLC): Choosing the LLC structure is a popular way to combine aspects of the LLP and the S Corp, with a bit more legal and tax flexibility. Owners get the pass-through tax benefits of corporations, without the strict requirements of a corporation.
Seek out reliable legal and financial counsel to make the right decision at this stage of the business formation process. There are many complexities depending on your business’s needs and concerns. Be aware that a small error at the beginning can have serious consequences later.
Step Two: Register Your Business
You must register with the Texas Secretary of State to operate a corporation, partnership, and an LLC. s. Sole proprietors don't need to register with the state, but this structure and partnerships often need to register within their respective counties of operation. You can register your business with the Secretary of State online, and many county clerk’s office also offers the same virtual services. Each corporation in Texas must operate under a name that's unique, so you'll first need to conduct a name search online or with your local county clerk. This step is important, only to determine that you are not taking another business name, which could result in lawsuits and legal costs after the business is up and running. The Secretary of State will run this name search for you to ensure your name is unique. However, keep in mind that you can always file a ‘doing-business as’ (DBA) or an assumed name certificate in the event you want to operate under a different name in the future. Basically, don’t let this step hang you up so early in the process.
Step Three: Investigate necessary permits and figure out who you owe money to
Make sure you secure all the necessary licenses, permits, registrations, and certifications. Texas doesn't have a general business license, but just about every industry has oversight and regulatory agencies. The Small Business Administration (SBA) can guide you on this. Contact your local government for further guidance as well.
This is also the time to apply for a Texas sales and use tax permit if you will be selling taxable items or offering services that are taxable. This applies to sole proprietors, partnerships, corporations, companies and all legal entities. Keep in mind that you might have to report to different tax entities. If you own property that is used to produce income, you will likely need to pay property taxes to the county appraisal district.
Step Four: Open bank accounts
This is important for tax purposes and to keep up with accounting in your day-to-day running of the business. If you're a sole proprietor, you can do this with your social security number. Otherwise, you'll need an Employer Identification Number (EIN) from the IRS. You can actually apply for this number online at the IRS website. Banks normally ask for a copy of your Certificate of Formation and an EIN in order to open a business account in the name of your new company.
Step Five: Notify the TWC and figure out what your obligations are
As an employer, while you’re researching permits, you should look into what else might be required of you. You may need to carry disability insurance for your employees, and follow certain federal mandates, such as withholding federal taxes, preparing a worker’s compensation fund, or even potentially providing health insurance. There are also multiple pieces of federal legislation that will likely control you, such as the Americans with Disabilities Act, Wage and Labor requirements and New Hire Reporting requirements.
If you do intend to hire employees, you also need to register with the Texas Workforce Commission (TWC). TWC collects unemployment taxes for workers employed in Texas. It determines whether an employer should pay state unemployment tax and assigns the tax rate. Any time you hire a new employee, you need to notify the TWC within 20 days.To Learn More About How to Start a Business in Texas
The Texas Secretary of State website offers resources such as a Texas Business Startup Guide, a Business Advisor run by the State Comptroller and a portal for locating business licenses and permits.
In addition, in the state capital of Austin, you'll find BizAid at the office for Economic Development. If you qualify for BizAid, you will receive free one-on-one consultations with Texas business professionals who will offer advice on your business plan and marketing strategy.
When you're ready to take the first step into this adventure, the Secretary of State's website also offers links to download all the necessary forms for business formation. You can also explore the Texas Open for Business website, which gives great guidance and resources to new entrepreneurs in the State of Texas.
Navigating the rocky waters of getting your business off the ground is complicated no matter where you are located. . Even if you have the world's best business plan, you could face significant liabilityif you make a mistake in filing the paperwork. You can start by asking legal questions in the UpCounsel marketplace, where lawyers have an average of 14 years working experience, including counseling Fortune 500 companies. Start your business the right way and get the answers your require.