How to Start a Business in Texas: 10 Steps

It's a great idea to start a small business in Texas. The state offers everything a business owner could want: a diverse economy, a skilled workforce, and flourishing world-class cities that would make the perfect headquarters.

Whether you're in the planning stages or are nearing launch, there are a few steps you'll have to take to make your business official in the state. There are also fees and other vital details you should be familiar with before moving forward.

Use this blog as your free guide to starting your small business in the state of Texas.

Why Start a Business in Texas?

Some of the unique and compelling reasons to launch your small business in the state include:  

• Texas ranks as the best state to start a business. 
• Texas has no corporate income tax or personal income tax. 
• Texas also has one of the largest workforces in the country. 

How Much Does it Cost to Start a Business in Texas?

Be prepared to spend a couple hundred dollars while setting up your small business in Texas. The exact cost will vary and depends if you use an optional expedited service, which has a fee. 

10 Steps to Starting a Business in Texas

Step 1: Business Idea

The first step to starting your business in Texas is to develop your business idea. As you do this, envision how it will stand out from competitors and businesses in similar fields. 

You can also write a business plan. A business plan covers essential aspects of your business operation, such as a company description, company management, company organization, and funding. 

There are two types of business plans used by small businesses: a lean startup plan and a traditional business plan. Either business plan will provide a structure that you can use to propel your small business from an idea to a reality.

Step 2: Entity

Second, you’ll want to select your business entity. This may be the most crucial step in the process because it will determine your business structure. In Texas, you can choose from a: 

• C corporation (also known as a C corp)
• Limited liability company (LLC)
• Partnership
• Sole proprietorship
• S corporation (also known as an S corp)

There are a few things to know about business entities that are unique to Texas. First, general partnerships don't require partnership agreements to be in writing; there’s also no requirement to file the partnership agreement with the state. 

Step 3: Name

A name is one of the focal points of a small business, so it’s important to know the naming procedure within the state.

Naming your small business in Texas differs depending on the business structure you form as. For instance, the state allows you to operate a business using an assumed name, which doesn’t include a surname. 

For sole proprietors, the assumed business name won’t include the sole proprietor’s surname, and for general partnerships, the assumed business name won’t include the surname of all the partners. 

If you’re using an assumed name, you’ll file to receive the assumed name certificate with the county clerk where your business will operate. If you don’t operate your business in one location, you’ll file for the assumed name certificate in every county where you’ll operate. 

There are fees to be aware of when naming your business in Texas: 

• Name reservations within 120 days or a name renewal have a fee of $40. 
• An assumed name certificate has a fee of $25. 
• If you want an abandonment of an assumed name, there’s a fee of $10. 
• If you want a transfer of name reservation, there’s a fee of $15. 
• There’s no cost for a withdrawal of name reservation.

Finding a unique brand name and a usable domain to go with it can be a time-sink for new business owners. This free tool from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes.

Step 4: Registration

Once you've decided on your business structure, you must register with the state of Texas. This is a crucial step as it legally establishes your business.

If you operate your small business as one of the following entities in Texas, you’ll complete a Certificate of Formation with the Texas Secretary of State:

• Corporation 
• LLC
• Limited liability partnership
• Limited partnership
• S corp

The Certificate of Formation must include your business name, the purpose of your business, the address of your registered office, and the names and addresses of your owners. There are a few registration fees, but those are dependent on your business entity.

• Certificates of formation for all entities except cooperative associations, limited partnerships, and professional associations have a $300 registration fee.
• Certificates of formation for a limited partnership or professional association have a $750 registration fee. 
• Registration or renewal for limited liability partnerships has a fee of $200.

Step 5: Obtain an EIN

Once you've filed your Certificate of Formation, you'll need to obtain an Employer Identification Number, also known as an EIN, from the IRS. This is like a social security number for your business and is necessary for filing taxes, hiring employees, and opening a business bank account.

Step 6: Choose a Registered Agent

Another requirement for starting a business in Texas is choosing a Registered Agent. This is a person or entity designated to receive legal documents on behalf of your business. Your Registered Agent must have a physical address in Texas and be available during regular business hours.

Step 7: Licensing and Permits

A Texas business license isn’t a requirement, but the state has other license and permit requirements.

If your business will specialize in certain industries, such as cosmetology or motor fuel quality, you’ll need a state license or permit. To receive a license or permit in these industries, you’ll work with the Texas Department of Licensing & Regulation (TDLR). 

A sales tax permit is a requirement if your business: 

• Leases, rents, or sells taxable goods
• Provides taxable services; or, 
• Your business acquires taxable goods or services from out-of-state suppliers without a Texas Sales and Use Tax Permit

Use tax is a requirement for small businesses under a few circumstances. First, the buyer must consume, store, or use the goods or services in Texas, and the seller doesn’t charge sales tax in Texas.

Step 8: Taxes

Texas small business taxes have a few requirements. First, there’s a Texas franchise tax, a tax that companies pay to conduct business within the state. This tax is one that varies according to the annual revenue a company receives. For the years 2022 and 2023, the franchise tax rates are:

• Retail or wholesale businesses with more than $20 million in annual revenue pay a franchise tax rate of 0.375%.
• Businesses other than retail or wholesale with more than $20 million in annual revenue pay a franchise tax rate of  0.75%.

There are also tax-due thresholds which also differ according to annual revenue. 

• Businesses with under $1,230,000 in annual revenue pay no franchise tax.
• There’s an EZ Computation available for businesses under the $20 million total revenue threshold.
• The EZ Computation Rate is 0.331%.

Franchise taxes are due on May 15 unless the date falls on a holiday or weekend. Taxes are due the next business day if the due date falls on a holiday or weekend.

Step 9: Open Bank Account

Opening a business bank account lets you separate your personal finances from your business finances, making it easier to track expenses and income.

To open a business bank account in Texas, you will need to provide the bank with documentation that proves your business is registered, such as your Certificate of Formation or Certificate of Incorporation, your EIN, your business license, and other documents that the bank may require.

Step 10: Insurance

Business insurance in Texas is one of the last things to be aware of. The state doesn’t have a workers’ compensation insurance requirement. Commercial general liability insurance is also not a requirement, but it may be helpful to have as a business owner. 

Other Considerations 

There are other additional considerations to keep in mind before taking the steps to start a business in Texas.

Business Grants & Loans

Texas offers loans on behalf of the U.S. Small Business Administration. Depending on your industry, you may apply for grants and loans from the following organizations: 

• Non-Profit Lenders, such as BCL of Texas, LiftFund, and PeopleFund
• Product Development and Small Business Incubator Fund (PDSBI)
• Texas Angel Investors
• Texas Workforce Commission

Additional Funding 

There are additional funding resources available for more specific industries within Texas. For example, if your business works in the following industries, funding may be available with these Texas-based organizations: 

• Texas Department of Agriculture (which may be helpful for farm and ranch producers)
• Texas Film Commission (which may be helpful for the creative arts and film industries)
• Texas Music Office (which may be helpful for artists and music industry professionals)

Business Location

You may also want to think about your business location. For example, Texas is one of the largest states in the country, and certain areas specialize in certain industries. When considering your location, weigh how difficult it may be to source supplies within a region. 

Start Your Texas Business with 1-800Accountant

Starting your small business in Texas is exciting. Still, it can also be nerve-racking if you're inexperienced or a little rusty. This is why so many owners and entrepreneurs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their needs. 

Whether it's small business taxes, tax advisory, or any of our professional accounting services, we have the solution you need at a price that works within your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help your Texas small business.