Texas is one of the best states in the country to start a business. It offers low taxes with several cities to choose from to make your business stand out from the rest.

While there are several benefits to starting a business in Texas, there are some ways that starting a business differs. The state has only a few requirements, but they’re essential. Here are eight steps to start a business in Texas.

Why Start a Business in Texas?

Starting a business in Texas can be a wise economic decision. There are many reasons to start a business in Texas, but some of the most important are: 

  • 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?

The cost of starting a business in Texas is reasonable compared to other states. There are few required items, such as the assumed name certificate and certificates of formation. The total cost to start a business can be under $500, including expedited service fees.

Step 1: Business Idea

The first step to starting your business is to work on your business idea. As you do this, try to think about how your small business will stand out from competitors or even businesses in a similar field. 

You can also consider writing a business plan. A business plan covers some of the most essential parts of business operation, such as a company description, company management, company organization, and funding. 

There are two 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 success.

Step 2: Entity

Second, you’ll want to choose 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: 

  • Corporation
  • General partnership
  • Limited liability company (LLC)
  • Limited liability partnership
  • Limited partnership
  • S Corporation (S Corp)
  • Sole proprietorship

There are a few things to know about business entities 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

Choosing a business name is another step in starting your small business in Texas. It’s 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 is different depending on the business entity chosen in the previous step. In addition, 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 use the assumed name. 

There are a few fees to remember whether you want to receive an assumed name certificate, reserve your business name, or transfer your business name reservation:

  • 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 (normal-looking) domain to go with it can be a bit of 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

Depending on the business entity you chose in Step 2, there are two registration options in Texas. First, if you operate your small business as a general partnership or as a sole proprietorship in Texas, you’ll file with the county clerk.

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

  • Corporation 
  • LLC
  • Limited liability partnership
  • Limited partnership
  • S Corp

There are a few registration fees to remember, and their amounts also vary depending on your business entity. Texas only requires a Certificate of Formation fee for a Texas which applies for most entities: 

  • 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 have a fee of $200 per partner.

You also have the option of registering to receive the certificate of formation online. Another option you’ll have during the registration process is about expedited services. You have the option to pay a $25 fee for expedited processing of a document you submit for filing.

Step 5: Licensing and Permits

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

If your small 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 service in Texas. The seller doesn’t charge sales tax in Texas.

Step 6: Taxes

Texas has a few requirements for small business taxes. First, there’s a 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 2020 and 2021, 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 $1,180,000 in annual revenue pay no franchise tax.
  • There’s an EZ Computation available for businesses with under $20 million total revenue threshold.
  • The EZ Computation Rate of 0.331%.

Franchise taxes are due on May 15, unless the date falls on a holiday or weekend. If the due date falls on a holiday or weekend, the due date will be the next business day.

Step 7: 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. 

Step 8: Reports

Texas has only one report requirement for its franchise tax. Annual reports have a due date of May 15. 

Other Considerations 

There are three additional considerations to keep in mind before starting your business in Texas.

First, consider business grants or loans. Federally, the U.S. Small Business Administration may help small businesses with COVID-19 pandemic related relief. There are four options available, and depending on when your small business opens 

  • Economic Injury Disaster Loan (EIDL)
  • Paycheck Protection Program (PPP)
  • Restaurant Revitalization Fund
  • Shuttered Venue Operators Grant (SVO)

Second, the state of Texas offers loans on behalf of the U.S. Small Business Administration. Depending on your small business 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

There are additional funding resources available for more specific industries within Texas. For example, if your business will work 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)

Third, you may want to think about their business location. For example, Texas is one of the largest states in the country, and certain areas specialize in certain industries. Finally, you may also want to look at how difficult it may be to gather supplies within a region of the state to avoid logistics problems. 

Start Your Texas Business with 1-800Accountant

Opening a small business in Texas is one of the best decisions a business owner can make. Although there are different rules and things to remember compared to other states, the business options, low costs, and low taxes make Texas an optimal place to start a business.

Opening a new business in Texas shouldn’t be difficult or stressful. Work with 1-800Accountant to get help from professionals when you are ready to start your Texas business.

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Written by Vincente Gomez

Vicente Gomez is a tax accountant for 1-800Accountant. He studied at Averett University where he received a double degree in accounting and ...