Starting a Texas business involves more than submitting a formation document. Owners must select an appropriate legal structure, confirm the business name, identify tax responsibilities, obtain applicable permits and budget for expenses that arise after registration.
The process can be relatively simple for an independent service provider operating under a personal name. It becomes more involved when a business forms an LLC or corporation, hires employees, sells taxable products, leases commercial space or operates in a regulated industry.
Understanding each requirement before spending money can prevent duplicate filings, unsuitable lease commitments and missed tax obligations.
Decide What the Business Will Do
Begin with a clear description of the products or services the business will provide. This decision affects permits, insurance, taxes, equipment, zoning and startup costs.
Write down:
- The main product or service
- Where customers will be located
- Whether sales will occur online or in person
- Whether inventory will be stored
- Whether employees will be hired
- Whether customers will visit the property
- Whether the business will operate from home
- Whether professional licensing is required
Avoid using a description that is either too broad or too narrow. The description should be specific enough to identify likely legal and operational requirements without unnecessarily limiting future activities.
Choose a Texas Business Structure
The structure determines how the business is formed, taxed and managed. It may also affect the owner’s exposure to business liabilities.
Common options include sole proprietorships, general partnerships, limited liability companies and corporations.
Sole Proprietorship
A sole proprietorship is generally the simplest structure for one owner. The business and owner are not separate legal entities for liability purposes.
A sole proprietor may not need to create an entity with the Texas Secretary of State. However, assumed-name filings, tax registrations, professional licenses and local permits may still be required.
This structure may be suitable for certain low-risk independent activities, but the owner should understand that personal assets may be exposed to business debts or claims.
General Partnership
A general partnership may arise when two or more people operate a business together for profit. The partners should not depend only on verbal agreements.
A written partnership agreement can address:
- Ownership percentages
- Financial contributions
- Work responsibilities
- Authority to sign contracts
- Profit distributions
- Decision-making procedures
- Departure of a partner
- Sale or closure of the business
- Dispute resolution
Partners can become responsible for business obligations and, in some circumstances, actions taken by another partner. Legal advice may be important before beginning operations.
Limited Liability Company
A Texas limited liability company is a separate legal entity formed by filing a certificate of formation with the Texas Secretary of State.
An LLC can provide liability separation between the business and its owners when it is properly formed and operated. However, formation does not protect an owner from every possible obligation, including personal guarantees, personal wrongdoing or certain tax responsibilities.
The Texas Secretary of State currently lists a $300 filing fee for an LLC Certificate of Formation. The official instructions are available through Texas Secretary of State Form 205.
An LLC should also have a company agreement explaining ownership, management, voting, distributions and procedures for major changes.
Corporation
A corporation is also formed through the Texas Secretary of State. It generally has shareholders, directors and officers, along with more formal governance requirements.
A corporation may be considered when a business expects outside investment, plans to issue shares or wants a structure designed for future ownership changes.
Corporate tax treatment can be more complex. The legal structure and federal tax election are related but separate decisions, so prospective owners should obtain individualized tax and legal guidance.
Compare Formation and Operating Costs
The state filing fee is only one part of the startup budget.
Possible expenses include:
- Entity formation
- Name reservation
- Assumed-name registration
- Registered-agent arrangements
- Local permits
- Professional licenses
- Insurance
- Commercial rent and deposits
- Equipment
- Inventory
- Accounting
- Legal assistance
- Payroll setup
- Website and communication systems
- Marketing
- Payment-processing equipment
- Utility deposits
Some owners can act as their own registered agent if they meet Texas requirements and are comfortable placing an eligible address in public records. Others pay for outside assistance because they do not maintain a suitable Texas address or do not want to manage official notices themselves.
Avoid calculating the startup budget only through opening day. Include enough working capital to cover operating expenses while the business builds a reliable customer base.
Check the Business Name
A useful business name should be legally available, appropriate for the chosen structure and suitable for customers.
An entity name that is available in the Texas Secretary of State’s records may still create trademark concerns. State name availability does not automatically grant the right to use a name in every commercial context.
Before committing to signs, packaging or advertising, check:
- Texas entity records
- Federal trademark records
- Internet search results
- Domain availability
- Relevant social-media usernames
- Similar names used by local competitors
- Restrictions applying to regulated professions
LLCs and corporations must follow Texas naming requirements, including the use of an appropriate entity designation.
A name reservation is optional rather than mandatory for every business. According to the Texas Secretary of State’s current business filing fee schedule, reserving a name costs $40 and generally holds it for 120 days.
Understand Assumed-Name Requirements
An assumed name is sometimes called a DBA, meaning “doing business as.” It allows a person or entity to conduct business under a name different from its legal name.
The correct filing location depends on the type of business.
A Texas LLC, corporation or other Secretary of State filing entity may need to submit an assumed-name certificate to the state. The current state filing fee listed for an assumed-name certificate is $25.
Sole proprietors and certain partnerships generally address assumed-name requirements through the applicable county clerk. County procedures and charges can vary.
An assumed-name filing does not create an LLC, provide liability protection or establish exclusive trademark rights. Its primary purpose is to disclose the name under which the business operates.
Designate a Registered Agent
Texas LLCs and corporations must continuously maintain a registered agent and registered office in the state.
The registered agent receives lawsuits, government correspondence and other official documents on behalf of the entity.
The registered office must meet Texas requirements. It cannot simply be a mailbox service that does not qualify as a physical registered office.
The person or organization serving as registered agent must consent to the appointment. Business owners should maintain accurate agent and address information because missing an official notice can have serious consequences.
Prepare the Formation Filing
An LLC formation filing generally requests information such as:
- The entity name
- Registered-agent details
- Registered-office address
- Management structure
- Initial governing persons
- Business purpose
- Organizer information
- Effective date
Review every entry carefully. Correcting an error later can require another filing and additional fees.
The Secretary of State provides forms and filing information through its official business and nonprofit forms page. Businesses may also use the state’s online filing system when the filing type is supported.
A successful filing creates the entity, but it does not complete every tax, permit or operational requirement.
Obtain an Employer Identification Number
An Employer Identification Number is a federal tax identification number issued by the Internal Revenue Service.
Many LLCs, corporations and businesses with employees need an EIN. Even when it is not strictly required, a business may need one to open an account, complete tax documents or work with certain payment providers.
Apply directly through the official IRS EIN application. The IRS does not charge a fee for issuing an EIN.
Businesses should be cautious about websites that resemble government pages but charge for submitting an EIN application.
Form the legal entity before applying for its EIN. Use the entity name exactly as it appears on the approved formation record to reduce the risk of mismatched information.
Review Texas Franchise Tax Responsibilities
Many entities formed or registered in Texas are subject to the state franchise-tax system. A business may have a filing obligation even when it does not owe tax.
Requirements depend on factors including entity type, revenue and the applicable reporting year. Thresholds and filing procedures can change, so owners should use current information from the Texas Comptroller’s franchise tax page.
Some entities at or below the applicable no-tax-due threshold may not need to submit a No Tax Due Report for certain reporting years. However, they may still have other reporting obligations, such as a Public Information Report or Ownership Information Report.
Ignoring Comptroller correspondence can lead to penalties, loss of good standing and eventual forfeiture of entity privileges. Place tax deadlines on the business calendar as soon as the entity is formed.
Determine Whether a Sales Tax Permit Is Required
A Texas sales tax permit may be required when a business sells taxable goods or taxable services.
Not every service is taxable, and the treatment of mixed transactions can be complicated. A business selling products online may also have obligations based on where customers are located and how orders are fulfilled.
The Texas Comptroller provides official information and applications through its sales tax permit page.
Before accepting sales, determine:
- Whether the product or service is taxable
- Which tax rate applies
- How invoices should display tax
- When returns must be filed
- What records must be retained
- Whether resale certificates will be accepted
- Whether local tax rules affect the transaction
Sales tax collected from customers is not ordinary business income. It should be tracked separately and remitted as required.
Research Licenses and Permits
Texas does not issue one general statewide license that authorizes every type of business. Requirements depend on the activity, location and industry.
Regulated fields may include:
- Construction trades
- Healthcare
- Childcare
- Food service
- Alcohol sales
- Transportation
- Real estate
- Cosmetology
- Financial services
- Professional occupations
- Environmental activities
A business may need approvals from state agencies, counties, cities, fire authorities, health departments or zoning offices.
The Texas Governor’s Office maintains information about business permits and assistance through the official Texas Business Permits Office.
Contact the city and county where the business will operate. Do not assume that entity registration authorizes a particular activity or location.
Confirm Zoning Before Signing a Lease
A commercial property can be available for rent without being approved for the intended use.
Before signing a lease, confirm:
- Permitted land use
- Certificate-of-occupancy requirements
- Building capacity
- Fire-code compliance
- Sign restrictions
- Parking requirements
- Accessibility obligations
- Food or health inspections
- Ventilation requirements
- Restrictions on outdoor storage
- Required construction permits
A landlord’s statement that a use “should be allowed” is not a substitute for confirmation from the appropriate local authority.
If improvements are required, determine who will pay, who will obtain permits and what happens if the necessary approvals are denied.
Check Rules for a Home-Based Business
Operating from home may reduce rent, but it does not remove regulatory requirements.
Possible restrictions may arise from:
- City zoning
- Deed restrictions
- HOA rules
- Apartment leases
- Mortgage terms
- Homeowners insurance
- Customer parking
- Signage
- Deliveries
- Inventory storage
- Noise or equipment use
A residential insurance policy may not cover business inventory, customer injuries or commercial equipment. Discuss the activity with an appropriate insurance professional before beginning operations.
Renters should review the lease and obtain necessary permission before receiving customers, employees or commercial deliveries at the property.
Open a Separate Business Account
An LLC or corporation should keep business money separate from personal funds.
A bank may request:
- Approved formation documents
- EIN confirmation
- Company agreement or bylaws
- Assumed-name documents
- Owner identification
- A business resolution
- Initial deposit
Use the business account for revenue, expenses, taxes and owner distributions. Avoid paying personal expenses from company funds.
Clear separation supports accurate bookkeeping and can help demonstrate that the entity is operated independently from its owners.
Establish Bookkeeping Before the First Sale
Waiting until tax season to organize financial records can lead to missed deductions, inaccurate returns and cash-flow problems.
Set up a system that tracks:
- Sales
- Sales tax collected
- Operating expenses
- Owner contributions
- Owner withdrawals
- Loans
- Payroll
- Inventory
- Equipment
- Contractor payments
- Accounts receivable
- Accounts payable
Keep receipts, contracts, invoices and bank records according to applicable retention requirements.
The bookkeeping method should allow the owner to see whether the business is profitable and whether enough cash is available for upcoming taxes and bills.
Plan for Federal Taxes
Texas does not impose an individual state income tax, but business owners can still have significant federal tax obligations.
Depending on the structure and tax treatment, these may include:
- Federal income tax
- Self-employment tax
- Payroll tax
- Estimated tax payments
- Information returns
- Corporate income tax
An LLC is a state-law entity and does not have only one automatic federal tax treatment in every situation. The number of owners and any tax elections can affect how income is reported.
Obtain tax advice before choosing an election solely because it is described as a way to save money. Payroll, filing and administrative costs may reduce the expected benefit.
Prepare Before Hiring Employees
Hiring creates responsibilities beyond agreeing on an hourly wage or salary.
A new employer may need to address:
- Work authorization verification
- Federal payroll registration
- Texas unemployment-tax registration
- New-hire reporting
- Wage and hour requirements
- Payroll withholding
- Workplace safety
- Employee records
- Workers’ compensation decisions
- Required notices
Texas employers generally fund the state unemployment-tax system; employees do not pay Texas unemployment tax through wage deductions. Current employer information is available from the Texas Workforce Commission.
Do not classify a worker as an independent contractor merely to avoid payroll obligations. Classification depends on the actual working relationship, not only the title written in a contract.
Review Insurance Needs
Entity formation and insurance address different risks. An LLC does not replace appropriate coverage.
Depending on the business, coverage may include:
- General liability
- Professional liability
- Commercial property
- Commercial auto
- Product liability
- Cyber liability
- Business interruption
- Employment practices liability
- Workers’ compensation
Coverage should reflect actual activities. For example, a business storing customer information has different risks from a retail shop holding inventory or a contractor working inside customers’ homes.
Read policy exclusions, deductibles and coverage limits carefully.
Protect Contracts and Payment Terms
Written agreements help define what the business will provide and when payment is due.
Depending on the transaction, a contract may address:
- Scope of work
- Price
- Deposit
- Payment schedule
- Changes to the work
- Customer responsibilities
- Delivery dates
- Cancellation
- Refunds
- Ownership of work product
- Confidentiality
- Dispute procedures
Do not copy a contract from an unrelated business and assume it fits Texas law or the intended service.
Businesses dealing with consumers may be subject to specific disclosure, cancellation or advertising requirements. Regulated industries may have additional contract rules.
Build a Realistic Startup Budget
The amount needed to start depends far more on the business model than the registration fee.
A home-based consulting business may begin with modest equipment and insurance costs. A restaurant, construction company or retail store may need a lease, renovations, inventory, inspections and employees before earning revenue.
Separate the budget into three categories.
One-Time Startup Costs
These may include:
- Formation filings
- Legal and accounting setup
- Equipment
- Furniture
- Initial inventory
- Lease deposits
- Construction
- Signs
- Website development
- Initial permits
Recurring Operating Costs
These may include:
- Rent
- Utilities
- Payroll
- Insurance
- Software
- Internet
- Accounting
- Marketing
- Inventory replacement
- Loan payments
Financial Reserves
Maintain funds for slow sales, unexpected repairs, delayed customer payments and tax obligations.
Starting with enough cash to register the business but not enough to operate it can leave an owner with a legally formed entity that cannot function.
Common Registration Costs
Typical government filing expenses may include:
- Texas LLC Certificate of Formation: $300
- Texas name reservation: $40
- Texas assumed-name filing for a state-registered entity: $25
- IRS Employer Identification Number: no fee
- County assumed-name filing: varies
- Local licenses and permits: varies
- Professional licensing: varies by occupation
Optional professional assistance, registered-agent services, expedited processing and payment-related charges can increase the total.
Verify every fee directly with the responsible government agency before submitting a filing.
Keep the Business in Good Standing
Registration creates ongoing responsibilities.
After starting a Texas business, owners should monitor:
- Franchise-tax filings
- Public or ownership information reports
- Registered-agent information
- License renewals
- Permit renewals
- Federal tax deadlines
- Payroll filings
- Sales tax returns
- Business records
- Insurance renewals
- Changes to ownership or management
Create a compliance calendar and keep copies of confirmation notices. Do not assume that receiving no tax bill means no report is required.
The Texas Comptroller provides an official franchise tax account status search that can help verify whether an entity’s right to transact business remains active.
Starting a Texas Business Checklist
Before opening, confirm that you have:
- Defined the business activity
- Selected an appropriate legal structure
- Checked the proposed name
- Completed required formation filings
- Addressed assumed-name requirements
- Designated a registered agent when required
- Obtained an EIN if needed
- Reviewed franchise-tax responsibilities
- Determined whether sales tax applies
- Identified state and local permits
- Confirmed zoning and occupancy requirements
- Opened a separate business account
- Established bookkeeping procedures
- Reviewed insurance needs
- Prepared appropriate contracts
- Addressed employer registrations
- Created a compliance calendar
- Budgeted for several months of operations
Starting a Texas business is more manageable when registration, taxes and operational planning are handled as separate parts of the same project. The formation filing creates the entity, but permits, bookkeeping, contracts, insurance and continuing reports help keep it operational.
Confirm the rules applying to the specific activity and location before accepting customers or signing major agreements. Early professional guidance may cost less than correcting an unsuitable structure, tax election or commercial lease later.
Note: This article provides general information only and does not constitute legal, tax, accounting, financial, insurance or business advice. Registration requirements, filing fees, tax rules and permit obligations can change and may vary according to the business structure, activity and location. Consult appropriately qualified legal, tax, accounting, financial, insurance or business professionals for advice about your specific circumstances.