How to Start a Business in Texas Step by Step: Everything You Need to Know
There are many basic steps and some critical decision points when it comes to starting a business in Texas. 8 min read
How to Start a Business in Texas Step by Step
Have you ever wanted a guide for how to start a business in Texas step by step? The process is complex and can drag on if you aren’t aware of how to properly prepare. There are costs to consider, legal risks, and many additional factors that are difficult to research and prepare for on your own. Fortunately, with the right tools and resources, you can streamline the process and take a pivotal step towards launching the next big thing in the Lone Star State.
How Do You Start a Business in Texas?
There are many basic steps and some critical decision points when it comes to starting a business in Texas. You’ll need to be able to determine the best financing options for your long-term goals as well as your needs in the short-term. If you’re a new business owner, you should be willing to seek out the advice of a professional accountant, attorney, or tax consultant so that you know for sure you’ve met all the legal requirements involved.
You’ll also need to research each of the following:
- Legal structure of a business and correctly file the business’ name with the county and/or state
- Potential tax responsibilities of your new business at every level including local, state, and federal.
- Necessary permits, registrations, licenses, authorizations, and certifications authorizations for a specific business on the federal, state, and local level.
- State and federal employer requirements, including the various laws relating to employment of personnel.
How to Start a Business in Texas
Think about the type of business you’re interested in developing. Filing for your business with the state will keep your personal assets (like your house or car) protected and gives you a firm legal foundation moving forward. Many entrepreneurs choose to form an LLC because this business structure has every benefit of a Corporation without all the disadvantages such as double taxation, board of directors or corporate officers. You should form a corporation if you are attempting to take your company public or want to raise significant capital from outside investors.
When your business has become a registered legal entity, you can leverage all the power of Texas’ Lone Star tax code.
All you’ll need is a simple license and you will need to pay a quick fee. The process may be more complicated depending on where you will open your business as well as what kind of business you want to start. You will need a Business License Service to help find all the necessary licenses. A Business License Service determines everything expected on state, federal, municipal, and county levels. They also acquire all the forms and will give you step-by-step instructions on how to file.
The remaining steps will be:
- Open a Business Bank Account.
- A business bank account allows for secure, fast, automated, and user-friendly forecasting and marketing budget creation.
- Find the best location in Texas you can.
- Utilize available resources.
- Make a website for the business.
- Creating a business website allows customers and clients to learn about and engage with you. In the modern age, a website is a requirement to compete with any other businesses.
- Use local online resources to market in the surrounding region while also taking steps to connect with your niche, formulating the best marketing strategies for the area.
- Establish relationships with other entrepreneurs in the trenches and do some one-on-one interviews.
How Do I Open My Own Business in Texas?
Retail businesses, or anyone selling a specific product, will need to prioritize the location of their physical stores. Service businesses, however, will need to place greater emphasis on their access to proper staff, certifications, and equipment. To protect the business from any unforeseen circumstances, you’ll want to buy general liability insurance. Talk to multiple agents to find the one who knows the type of insurance needed in your industry.
Whether you’ve officially opened the business or not, you must ensure that your books are properly in order. You can track your bills, income, and expenses better with a strong accounting system. It will also help simplify your company’s annual tax filings.
You’ll also need to obtain your business’ Employer Identification Number from the IRS. This is done through an online application or by printing out Form SS-4 and mailing it to the IRS as follows:
Internal Revenue Service
ATTN: EIN Operation
Cincinnati, OH 45999
Make sure you include the following on your EIN application:
- Provide your LLC’s name and address.
- Make sure to include the social security number and name of the managing member or owner.
- You need to enter information about the members of the LLC and the services it provides. Enter all relevant information regarding the services your LLC provides and all its members.
If you apply directly with the IRS, there will be no application fee for your EIN application.
Your company’s EIN is used by the IRS for tracking business dealings just like how a Social Security Number tracks someone’s personal tax filings. It will help you establish business credit, file employee tax withholdings, and help you open a business checking account.
Understanding the Types Of Business Structure
There are many ways to structure a business. The easiest are general partnerships and sole proprietorships. An LLC (limited liability company) is more complex, but it provides the bonus of separating your personal assets from the business. This is crucial if the business ever runs into legal trouble or must declare bankruptcy. Each structure registers in a different location. General partnerships and sole proprietorships will register with the count while corporations must file with the Texas Secretary of State.
Why Do You Have To Register Your Business With The State?
You register your company with the State of Texas in order to obtain your sales tax permit and pay your business taxes. There may be additional taxes or licenses required depending on your specific business in addition to the standard sales tax. These may include a franchise tax which all Texas corporations must pay.
What Are Your Legal Responsibilities In Starting A Business In Texas?
When you start a business in Texas, you’ll need to consider a few legal responsibilities:
- You must comply with all employee regulations. This is done by providing employees with worker’s compensation insurance and registering with the state for unemployment.
- Follow all federal rules including withholding proper income tax from employees.
- IRS website offers tools and forms to help with the process; the State of Texas also has online features to make employee issues easier to handle.
File for Annual Franchise Tax in Texas
While you will encounter annual taxes, the reports won’t have to be filed the same year that your LLC has been formed. For example, if you form the LLC in March of 2016, you won’t have to have your first report ready until May 15, 2017. However, the state of Texas will charge a penalty of $50 if you do not file on time. Many LLCs have been dissolved or suspended for failing to file their annual report.
Legal Obligations are Required for Hired Employees.
There are several legal obligations to consider when hiring employees, including:
- Ensuring that all potential employees are legally eligible to work in the US.
- Reporting employees as "new hires" with the State of Texas.
- Printing compliance posters and place in a conspicuous location.
- Ensuring payment of employees in specific increments as required by the state.
- If your business is in a specific industry, additional state taxes may apply.
What is LLC in Texas?
Limited Liability Companies (LLCs) are among the best business structures for smaller enterprises. The LLC structure allows owners to limit their personal liability regarding the company’s finances. This means the business’ owners won’t have any risk to their personal assets in the event of a lawsuit—they’ll only be liable up to their investment in the company.
This structure also gives the business some operational flexibility. The upfront investment in forming an LLC is relatively low. Further, the company itself won’t pay any taxes as the income gets passed through to the business owners who then report that income on their own personal income forms.
How to Set Up Your LLC
All owners of an LLC are considered members. A single individual can run an LLC, or it can be run by a board. All the owners will be considered members. Any of these people, or anyone who can act on behalf of your LLC, has what’s known as “governing authority”. Before filling out the LLCs certificate of formation, the owner will have to decide how many people can have governing authority in the company.
You’ll also want to investigate your desired name to make sure it suits your company well and will be easy to search for by your customers. If you create an LLC, it has to have either “Limited Liability Company” or “L.L.C” in the name.
If you want to include restricted words such as Attorney, Bank, or University, you will have to fill out extra paperwork. This may also mean that a licensed professional in that field must be part of the LLC. You also cannot include any prohibited words that might confuse your LLC with a government agency such as Secret Service or Treasury. Ensure that the name is available by searching the database of the Texas Secretary of State. Making an account on the Texas Secretary Of State website will also grant you access to File any business forms online and make any payments to the State. Make sure to also search online for your desired name to see if it’s available. If it is, reserve a domain name quickly. Whether you plan to have a website immediately or not, you will want to sit on that domain to prevent another company from taking it.
Reserve your Legal Business Name
You’ll file the company’s legal name with the Secretary of State. This will allow the state or any other interested parties to locate and store any relevant information about the business. You must have a name for the company and the names of all owners before you officially file the name. There will be a $40 fee for registration which can be paid with cash or a check. An online form can be paid by credit card. Also file any assumed names or aliases for the business directly with the Secretary of State. There will be an additional fee of $25 for each assumed name certificate you need. Your county of residence could charge an additional assumed name certificate fee in some areas.
Open a Bank Account For Your LLC
You cannot open a company bank account before you have secured an EIN. Some banks require that you bring extra documentation when you try to open an account, be sure to ask. There are likely different requirements at each bank in Texas. Bring your business license and certificate of formation in case it is needed.
If you have a preferred bank, talk with them about all the options available to a business account to ensure that they meet your company’s needs. For example, overdraft protection may be crucial to your business where other entities won’t find it as critical, so the features at each bank might be different depending on their preferred client.
Starting a business in Texas can be an intimidating process. If done wrong, you could be facing major fines and legal trouble. However, when done carefully and properly you set yourself up for long term success. Do your research, seek the right counsel, and double check everything. If you do, your company will be set up to succeed long term.
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