How to Start a Business in Texas

Step #1: Choose your business structure

First, consider whether you want to start an unincorporated business, like a sole proprietorship or general partnership, or an incorporated business, like an LLC or corporation. Each business type has its pros and cons. Starting an unincorporated business requires less paperwork and start-up money, but it won’t provide you any legal protection should your business be sued. Incorporating as an LLC or corporation helps protect your personal assets in the event of a lawsuit, and it can make your business appear more legitimate and professional.

Unincorporated business benefits

• Lower start-up costs. Sole proprietors and general partnerships don’t need to file a Certificate of Formation with the state, which has a pretty steep $300 filing fee.
• Fewer legal requirements. Sole proprietorships don’t have as many requirements as incorporated businesses. For example, they aren’t required to separate personal and business finances.

If you’re just starting out as a business owner and aren’t worried about the personal risks of getting sued or going into debt, starting as a sole proprietor might be just fine for you. But as your business grows, consider incorporating in order to protect your assets.

NOTE: While unincorporated businesses don’t need to file a Certificate of Formation with the Secretary of State, they still need a sales tax permit if selling taxable goods or services. And they may need to apply for other business licenses and permits.

LLC and corporation benefits

Business owners who care about protecting themselves from personal liability typically create an LLC or a corporation. These legal structures are similar in some ways: both provide liability protection and the ability to raise capital, and both can exist indefinitely. To choose the right entity type you’ll need to think about your long-term business goals, how you want to be taxed, and the level of formality with which you want to run your company.

If you’re starting a small company and you want an informal, adaptable business structure that will still provide liability protection, forming an LLC is a simple solution. If you have plans to greatly expand your business, bring in a large number of investors, or eventually make a public offering, a corporation may be a better choice.

Most small businesses opt to register as LLCs, for the following reasons:

• LLCs are simpler to run than corporations. They enjoy fewer operating regulations and record-keeping requirements than their corporate counterparts. For example, Texas statutes § 21.351- 21.372 detail the many shareholder meeting requirements and voting procedures for corporations. LLCs, however, aren’t required to have regular meetings at all.
• LLCs offer streamlined taxation. At the federal level, all business profits “pass through” to members’ individual income tax returns. Unlike a corporation, an LLC is not subject to federal corporate income tax—unless it elects C-Corp tax status. On the state level, Texas has no personal or corporate income tax. Plus, unless your LLC makes over $2.47 million per year, you won’t owe Texas franchise taxes.
• LLCs are adaptable. They can be organized in a variety of ways to suit your needs. The management structure laid out in the operating agreement largely governs how the company will be run. Members can run the business directly or appoint managers to operate more like a corporation.

That being said, there are a few reasons certain types of businesses do better as corporations, such as:

• Corporations were built for raising capital. If you plan to grow your company by seeking external funding and distributing ownership, corporations make it easy to do so. You can issue different types of stock based on profit distribution, voting rights or a combination of the two.
• Corporations have greater prestige. As corporations are the longest standing entity type, adding “Inc.” to your company name could help establish your company as viable in the eyes of your clients, vendors and investors.
• Corporations offer certain tax advantages. As profits increase, a corporate structure could increase your tax savings. Rather than having your dividends pass through to individual tax returns (as they would in a typical LLC), you can choose to leave them in the company, reducing shareholders’ personal income tax burden. Furthermore, salaries can be deducted from the company’s taxable income, lowering your company’s overall tax obligation.

Whether you’re starting an LLC or a corporation, we can streamline the process and help you cut through the red tape.

Step #2: Decide on a business name

Naming your Texas business is a fairly simple step, but there are two requirements you should be aware of.

• Your business name must include the appropriate corporate tag. If you’re forming an LLC, you should include the words limited liability company, limited company, or an abbreviation such as LLC. Names of corporations must include company, incorporated, limited, Co., Corp., Inc., or Ltd.
• Your business name must be distinguishable from other registered Texas entities. Your name cannot be too similar to the name of an existing Texas business.

To find out whether the name you want is available, you can do an online Texas entity name search or call or email the Texas Secretary of State’s office.

Step #3: Create a governing document

Creating a governing document is an essential step for LLCs and corporations. This internal document serves as an operating manual for how your company will be managed, how profits will be distributed, and how owners/members can join or leave the company.

Unincorporated businesses can also benefit from having a governing document. General partnerships typically have a partnership agreement, which establishes how the business will be run and how profits and losses will be distributed between the partners. You may want to seek advice from an attorney when drafting this agreement.

The governing document of an LLC is called an operating agreement (also referred to as a “company agreement”). Texas corporations are governed by their corporate bylaws. Your governing document should address the following questions, among others:

LLC operating agreement

• What is the ownership percentage of each member?
• Will the LLC be member-managed (with members equally taking part in running the company) or manager-managed (with an appointed manager or managers overseeing operations)?
• What was each member’s initial contribution to the company?
• What rights and obligations do members have?
• How will profits and losses be distributed?
• How can membership interest be transferred?

Corporate bylaws

• Who are the directors/officers of your company?
• What are the powers/duties of directors/officers?
• How much stock will each shareholder receive?
• What was each owner’s initial contribution?
• How can the bylaws be amended?
• Who has a voting stake in the company?

Operating agreements, corporate bylaws, and partnership agreements are legally binding documents, so you may want to consult a lawyer before finalizing yours. Our business formation service includes a free, customizable LLC operating agreement or corporate bylaws, which are attorney-drafted and tailored to Texas business laws.

Step #4: Register your business

It’s time to make your business official! Sole proprietors and general partnerships don’t need to register with the Secretary of State, but you will most likely need to register for a sales tax permit, along with any other licenses and permits required for your industry. If you want to do business under an assumed name/DBA, you’ll need to register with your local county clerk.

To start an LLC or corporation, you’ll need to register with the Secretary of State by filing a Certificate of Formation, which costs $300. Submitting this document online through the Texas SOS Direct website is the easiest and fastest method. (Note: there is a small service fee when you file online, so your total will be $308.10). Online filings are generally processed by the state in 2 business days.

Or, you can print and fill out the paper Certificate of Formation form and send it to:

Secretary of State
P.O. Box 13697
Austin, TX 78711

Before registering an LLC or corporation, you’ll need to appoint a Texas registered agent to accept state and legal documents on behalf of your company. Our registered agent service is only $35/year and includes a free Texas business address to protect your privacy.

Step #5: Get an EIN

After you register your business, we recommend applying for a Federal Tax ID from the IRS (also known as an employer identification number or EIN). Having an EIN is required for multi-member LLCs, all corporations, and all businesses with employees. The IRS uses this unique number to identify your business for tax purposes, and a majority of banks will want to see your EIN before you open a business bank account. You can apply for an EIN for free on the IRS website.

Step #6: Obtain Texas business licenses

While a general state business license isn’t required to operate in Texas, you may need to obtain a local business license or a professional license.

The official Texas State website is a good resource for specific information regarding permit, license and registration requirements.

If you need to obtain or renew an occupational license, visit the Texas Department of Licensing and Regulation website. They provide dozens of links to Texas licensing programs, as well as downloadable applications and educational resources.

Your business may also need one or more permits to comply with city/county laws. The 2024-2025 Texas Business Licenses & Permits Guide, published by Texas Governor’s office, contains a comprehensive list of all permits you may need to operate your business in the Lone Star State.

Step #7: Look into business insurance

While not required for most businesses, it’s worth considering getting some form of business insurance. Common types of business insurance include:

• Workers compensation insurance. Workers’ compensation pays for medical care, lost income, and other expenses when a worker is injured on the job. It’s required for businesses in Texas that contract with government agencies.
• General liability insurance. This insurance protects business owners if they’re sued for accidental injury or damage, such as if a customer slips and falls at your store.
• Business owners’ policy. This insurance package combines general liability insurance and property insurance and can be a good choice for businesses that own or rent expensive property.

Many insurance companies offer business insurance plans. As with any type of insurance, it’s a good idea to shop around for the best rate.

Step #8: Hold your first company meeting

Holding an initial meeting with all members/owners of your company will give you a chance to finalize your business affairs and make sure you’re ready to open your doors. During this meeting you should:

• Ratify key documents, such as your operating agreement/corporate bylaws
• Confirm officers/members/directors (and agree on everyone’s salaries)
• Designate the bank branch where you will open your business account
• Give members/officers authorization to open this bank account
• Approve other relevant resolutions

Make sure to designate someone to take written minutes at this meeting, and keep the minutes in your company records.

Step #9: Open a business bank account

The next step in setting up your company is opening a business bank account. This account will allow you to keep your business transactions completely separate from your personal finances (and the accounts of other owners/members). With this account, you’ll be able to pay your employees, take in revenue and make purchases for the company.

In order to open an account for your business, banks typically need to see the following documents:

• Certificate of Formation
• Business License (if your business requires one)
• Federal Tax ID for your business (EIN)
• Operating agreement or corporate bylaws
• Initial Resolution Authorizing Opening of Accounts

Your business account must be opened in person by an authorized member/owner of your company. As requirements can vary from bank to bank, you’ll want to call ahead and make a list of what is required to open this account.

Step #10: Register with the Texas Comptroller

Sales and Use Tax

Most businesses need to register for the Texas Sales and Use Tax. You can learn more about this tax and register online, through the Sales and Use Tax page of the Texas comptroller’s website.

Public Information Report

Most registered Texas business entities (like LLCs, corporations, and LPs) need to file a Public Information Report with the Comptroller annually. This report is due on May 15 every year. Businesses that make over $2.47 million in revenue also file a Texas Franchise Tax Report.