Texas is home to one of the best business ecosystems in the country and it has been ranked as the best state to start a business on numerous occasions.
Texas has the second-largest economy in the United States and the highest ranking for economic growth. Texas’ support for small businesses is clearly apparent in its low business licensing fees, absence of red tape, and ample supply of reasonably priced real estate.
Note that only a handful of states can claim a comparable lack of regulation, allowing businesses to be born almost immediately after conception, with only a small out-of-pocket investment. Everything in Texas is bigger, and that encompasses the state’s economy.
Texas has the nation’s second-largest gross domestic product, at $1.77 trillion. According to the US Census Bureau, the state has 3 million small businesses that hire 4.9 million people, and that equates to more than 45.1% of the private-sector workforce in Texas.
In the fourth quarter of 2021, the state’s economy grew at a rate of 10.1%, surpassing the nation’s rate of 6.9%, as published by the US Bureau of Economic Analysis. The regulatory environment in Texas is favorable to business development and growth. The absence of red tape allows entrepreneurs to develop strategies and grow more rapidly.
State laws are straightforward and simple to follow, which eliminates the need for entrepreneurs to hire outside experts to help them stay in compliance. Starting a business in Texas begins with registering your company and deciding on a structure.
You have the option of forming a sole proprietorship, an LLC, an S corporation, or a C corporation. You must also register your business name with the state and/or county where you aim to conduct business. In most cases, incorporated entities will first register with the Texas Secretary of State.
What Type of Business Structure Do You want to Operate in Texas?
In order to register a business name in Texas, you will be required to register your business with the state. You have the option to form an LLC or corporation or file for a “doing business as” name with the state’s business division.
Please note that the type of business structure you choose to form in Texas will determine how you register the business with the state. When we talk of business structure we are talking of sole proprietorships, general partnerships, limited liability companies (LLCs), and corporations.
Have in mind that when choosing a business structure, the factors you should consider will depend on what is important to you especially as it relates to your personal liability protection, tax liabilities, and paperwork to keep the company in compliance.
The required fees for a corporation are $300, while fees for an LLP are $200 per partner. Filing a DBA cost $25. Please note that the Texas Secretary of State charges a $300 filing fee, plus an additional state-mandated 2.7 percent convenience fee to file an LLC Certificate of Formation.
So also, it is important to note that it will cost $40 to file a name reservation application if you wish to reserve your LLC name prior to filing the Certificate of Formation.
Cost Breakdown for Registering a Business in Texas
- Texas LLC Initial Registration: $300
- Texas Corporation Initial Registration: $300
- Texas Non-Profit Initial Registration: $25 (includes the $5 Texas Registered Agent designation fee)
- Foreign LLC Initial Registration: $750 (this is to ensure that the LLC can obtain foreign qualifications)
- Foreign Corporation Initial Registration: $750 (this is to ensure that the Inc. can obtain foreign qualifications)
- Limited Partnership (LP) Initial Registration: $750
- Limited Liability Partnership (LLP) Initial Registration: $200 (Per Partner)
Is It Possible to Register a Business in Texas But Operate Somewhere Else?
Yes. It is possible to register a business in Texas but operate elsewhere; however, you may be forced to comply with the administrative requirements of each state you conduct business – a process known as “qualifying to do business” in the state.
The requirement to satisfy to do business in a state is determined by a number of factors. If you intend to conduct business in a state other than the one you formed your LLC or corporation, you must research the laws of the state you intend to provide your services or goods.
Steps to Register a Business in Texas
If you have plans to start a business in Texas or in any state in the United States, you will be required to register the business. Interestingly, the Texas state government makes it pretty easy for people to register their business names.
But before you proceed, you must determine that your business name is unique in the state and decide the type of business entity you want to establish. Basically, all that is required is to complete the necessary registration paperwork with the Texas secretary of state.
Even though you can register directly with the state of Texas, many online resources can perform the filing on your behalf, along with other business startup services. Owing to that, if you intend to start a business in Texas, here are the necessary steps to take;
Write Your Business Plan
A business plan serves as a responsive blueprint for your company. It is meant to describe in detail your company’s primary purpose and value proposition, as well as its structure, financing, and competitive advantages. The U.S. Small Business Administration (SBA) has some excellent business plan templates.
Select Your Business Location
The type of business you run will influence your choice of location. Examine the local zoning ordinances. Determine the feasibility of accessing your supply chain and customers, as well as the availability of employees.
Finance Your Business
You can fund your new business in a variety of ways, such as using your personal savings and borrowing money from friends and family.
You can also source for a microloan, a federal loan (via the SBA), or credit via personal financing. Crowdfunding, and angel or venture capital investors are other options. The SBA is known to provide a helpful guide to financing your business. Community Development Financial Institutions offer microloans (CDFIs).
Business Structure & Registration
This is when you decide the best structure for your company. Have it in mind that sole proprietorships and partnerships are expected to file their business name (DBA or assumed name) with the county clerk’s office in their home county.
If you choose to incorporate, the Secretary of State’s Office (SOS) website makes available directions and guidance on selecting the appropriate legal structure for you. You can also use the SOS website to register the new legal entity.
Business Tax Responsibilities
Identify the new company’s potential tax obligations with federal, state, and local tax authorities. The Internal Revenue Service is in charge of filing federal tax returns (IRS). The Texas Comptroller of Public Accounts handles state tax filings (CPA).
This online Marketplace Seller tax information is beneficial if you are going to conduct online business. Ensure to reach out to your county’s appraisal district or tax assessor-collector if you have questions concerning local business and property taxes.
Business Licenses and Permits by Business Type
In Texas, a general business license is not considered necessary. However, it is essential to identify the requisite federal, state, and local licenses, permits, certifications, registrations, or authorizations for specific business activity. Note that Texas Business Licenses & Permits Guide gives an overview of state permits and licenses necessary for individuals wishing to run a business in Texas.
Steps to Register a Business Name in Texas
When you launch a new company in Texas, you must register the name of your company. It is critical to accomplish this task correctly in order to avoid possible issues. When it comes to registering a business name in Texas, it is important to make sure the business name is unique and that no one else in Texas formed a company with it or has control of it online as a domain name.
This is why it is very important that you also check to see if your business name is available as a web domain (URL). Even if you don’t have a plan to create a business website immediately, it is important to buy and lock down the web address to prevent others from acquiring that domain name.
It is important to note that if the web domain is available then it is likely the name will also be available in a business search. Here is an overview of the process to assist you in understanding the required steps.
Create a Name for Your Texas Company
In order to register your business name in Texas, you will first get a name for your company. Consider the brand message you will like to convey to clients when creating a name for your company. Your company name will strongly influence the first impression customers will have of your company.
Decide on the Legal Structure of your Texas Business
You will have to choose your business structure prior to selecting your business name. Every business structure has its own set of requirements, challenges, and benefits. Taking into account all these factors will assist you in determining the best structure for your needs. Note that the registration process will vary based on the structure you choose.
Check Business Name Availability
The name you desire to utilize for your business could already be taken in some cases. To carry out an extensive business name availability search, you should undertake three types of searches:
- Trademark Search
- Texas Business Name Search
- Website Domain Search
File Your Texas Business Name Registration
It is time to register your business name once you have picked it, validated it, and confirmed it is the right name for you.
The procedure for registering your new business name will be determined by the business structure you choose. Have in mind that the procedure for registering your business name in Texas will differ dramatically based on the legal structure you select.
Sole Proprietorship Business Name
There is no legal difference between an individual and the business in a sole proprietorship. Owing to that, a sole proprietor in Texas will need to carry out business under their own name or a business name that includes their own name, such as “Michael’s Clothing Line.”
If you intend to keep operating your sole proprietorship under a more recognizable business name, you will then have to obtain a Texas DBA by submitting an Assumed Name Certificate. It is important to note that a state-level name search is not required for informal business structures such as sole proprietorships or general partnerships in Texas.
But, if you choose to register a trade name or DBA name, you will be required to search the state’s database to see if the name you settle for is exclusive and available.
Partnership Business Name
In Texas, general partnerships, like sole proprietorships, are expected to use a business name that contains the last names of the partners, such as “Michael, Doris, and Partners.” If you intend to conduct business under a different name, you will then have to file for an Assumed Name in Texas.
LLC Business Name
You will first file Articles of Organization with the Texas Secretary of State to register the name of your Texas LLC. Specific requirements must be filed when registering an LLC. For an LLC, your company name must typically involve a designator that aptly describes the company as an LLC, such as:
- “Limited Liability Company”
When it comes to naming your Texas limited liability company (LLC), you should make sure to choose a name that complies with Texas naming requirements and of course, a name that is easily searchable by potential clients.
Follow the naming guidelines for a Texas Limited Liability Company (LLC):
Before you can register your Limited Liability Company (LLC) business name in Texas, your name must include the phrase “limited liability company,” or one of its abbreviations or words: “LLC, L.L.C., Limited, Ltd., Company or Co.” Please note that your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
Restricted words (e.g., Bank, Attorney, University) may require additional paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
You can go through the Texas Secretary of State’s guidelines to get a full grasp of the naming rules in Texas.
- You should confirm that to know whether the name you want is available and is not already taken by doing a name search on the Texas Comptroller of Public Accounts website.
- You should confirm if the URL is available. It is advisable to check online to see if your LLC business name is available as a web domain. Even if you don’t have plans to create a business website immediately, it is advisable that you buy the URL in order to prevent others from acquiring it.
Corporation Business Name
You should first file Articles of Incorporation with the Texas Secretary of State to establish a Texas Corporation. The process of forming a corporation is referred to as “incorporation.” A Corporation in Texas, like an LLC, needs to provide a designator that clearly indicates that the business is formed as a Corporation, such as:
Registering a Texas Corporation
No doubt, settling for a business name is the first step in starting a corporation and it is important to choose a unique name that complies with Texas corporation naming requirements.
Texas Naming Guidelines for Corporation:
In order to name and get it right with naming your Texas corporation, your name must contain the word “corporation,” “company,” “incorporated,” or “limited” or an abbreviation of one of these terms.
So also, your name must be different from any existing business in the state and this includes Texas reserved names. In order to get a detailed list of all naming guidelines, you should visit the Texas Secretary of State’s Names of Entities page for more details.
Check Availability of Your Proposed Corporation Name in Texas
Before you can register your corporation in Texas, you are expected to check the availability of your proposed corporation name in Texas. Aside from that, your Texas corporation name must be unique and different from other business names in Texas. You make use of the Texas SOSDirect system to determine if the business name you settle for is still available.
Check the URL Availability
You should confirm the URL availability of your corporation. It is advisable to check online to see if your corporation’s business name is available as a web domain. Even if you don’t have plans to create a business website immediately, it is advisable that you buy the URL in order to prevent others from acquiring it.
Registering With the Texas Secretary of State
Lastly, after you have done all that is required on a name and business formation, it means that you are ready to file with the state of Texas. Interestingly, the Texas secretary of state offers an online portal for 24-hour service through SOS Direct.
You can also visit their office in Austin, Texas to register your business name. Whatever options you choose, you are required to complete all needed information, which includes the entity type, the full legal entity name, and pertinent address and owner information.
You will be required to submit all fees and it is important to note that the online portal is subject to credit card processing fees.
You will also be required to create your company’s operating agreement and initial meeting minutes establishing the company. Please note that you are not expected to file this with the secretary of state, but you are expected to maintain them with your company registration binder, and this is subject to review by the authority.
How to Register For a Sales Tax Permit in Texas
The first step in signing up for a sales tax permit is trying to ascertain whether or not you require one. Most often, if you have a physical presence in Texas or meet the requirements for economic nexus, you will have to obtain a sales tax permit.
A sales tax permit can be procured by completing the registration process via Texas Online Sales Tax Registration Application System or by mailing the Sales and Use Tax Permit Application (AP-201 Form). Each location requires a separate permit; howbeit, registration requires the following information:
- Type of business entity: Sole Proprietorship, Partnership, Corporation, Limited Liability Company (LLC)
- Texas corporation’s file number from the Texas Secretary of State (only corporations or LLCs)
- The legal name of the business
- Federal Employer Identification Number (FEIN) with the IRS. You will use the SSN if the entity is a sole proprietorship with no employees
- Name, addresses, phone number, social security number, and title of owners/officers/members
- Physical address and mailing address
- Whether the business is home-based
- Expected monthly taxable sales
- North American Industry Classification System (NAICS) code
Before registering for a Texas sales tax permit, it is imperative to note that the phone number provided in the application is mandated by law to be made public. Owing to that, there would be so many calls from telemarketers; therefore consider getting a second phone number to reduce the number of calls.
Cost of Registering for Sales Tax Permit in Texas
Applying for a Texas sales tax permit is completely free. A bond may be necessary after the application has been filed and assessed. For more information on registering your business, ensure to reach out to the department of revenue in your state.
License and Permits Required to Do Business in Texas
A good number of Texas businesses require a combination of licenses and permits depending on location, industry, and business activity.
And because agencies on the federal, state and local levels have the authority to grant these permits, there’s no one place to find all the licenses your business will need. However, if you intend to start and grow a business in Texas, below are the top options to look out for!
General Business License
To be honest, there is no general Texas business license; however, many cities mandate businesses to be licensed in order to conduct business. Business license requirements differ depending on location and type of business.
Cost: Depend on location and type of business
Sales Tax Permit
Businesses in Texas that sell or lease tangible personal property or taxable services are expected to register with the Texas Comptroller for a Texas Sales Tax Permit (also known as a seller’s permit).
A wide range of professions in the state are regulated and must be registered before providing services. Therapists, tattoo studios, salvage brokers, food establishments, and numerous other occupations require licensing in Texas.
The Texas Department of State Health Services has more information, fees, and licensing requirements for professions. Aside from professional licenses from the Texas Department of Health Services, businesses in a broad range of industries, including daycares and salvage yards, also require a license.
Cost: Will vary depending on the license
Building & Zoning Permits
Based on the business’s location, it is critical to confirm if it requires an occupancy permit or must comply with zoning regulations.
Home-based businesses might have to apply for a home occupation permit, based on city regulations. If a facility is being built or renovated, a building permit from the city or county building and planning department may be required. Prior to actually installing signage, some municipalities may require a permit.
Cost: $435 – $2,299
Employer Identification Number (EIN)
Numerous businesses in Texas will have to apply for an EIN from the Internal Revenue Service (IRS) (also referred to as a FEIN, Federal Employer Identification Number, or Federal Tax ID Number).
The EIN is more or less the business equivalent of an individual’s Social Security number. Corporations, Limited Liability Companies, Partnerships, and Sole Proprietorships with employees are all expected to register. Without employees, sole proprietorships can use the owner’s Social Security Number.
Businesses in Texas that procure merchandise to resell need to obtain a Texas Resale Certificate in order to avoid paying sales tax on merchandise resold to customers. This certificate is sometimes called a Sales Tax Exemption Certificate or a Texas Sales and Use Tax Resale Certificate.
Cost: There is no cost for a resale certificate in Texas.
Assumed Name Registration
If your company will operate under a name that is different from its legal name, you must file for a Texas DBA, also known as an Assumed Name Certificate. Using an Assumed Name can help you to effectively brand your company, products, workforce divisions, and services.
Although not a business license, it is usual for Sole Proprietorships and Partnerships to register for an Assumed Name with the County Clerk’s Office in the county in which the business is based.
Cost: $15 and $25
If you want to start a business in Texas, you are in good fortune: the threshold for entry is low, and the resources available to you are plentiful. Although it is extremely hot down there in the summer, that is a relatively low price to pay to get your foot in the door of the small business world.