How to Start a Business in Texas (Step-by-Step)

Texas is a powerhouse for entrepreneurs, consistently ranking among the top states for starting and growing a business.

As a professional tax consultant with years of experience guiding small business owners in the Lone Star State, I’ve seen firsthand how Texas’s pro-business climate, low taxes, and robust infrastructure can turn bold ideas into thriving enterprises.

If you’re launching a small business in Texas, this guide will walk you through every essential step of starting a business in Texas.

Start an LLC instead? See our guide on how to start an LLC in Texas.

Quick Summary

Step-by-Step Texas Business Formation Process

Here is a detailed, step-by-step guide to starting a business in Texas:

Step 1: Choose Your Business Structure

Choosing the right business structure is key to protecting your personal assets, handling business tax responsibilities, and running your business smoothly.

Here’s a breakdown for the different business structures.

Structure	Liability Protection	Taxation	Formation Cost	Ongoing Requirements	Best For
Sole Proprietorship	None	Personal income tax	Low	Minimal	Single-owner, low risk
General Partnership	None	Pass-through (personal tax)	Low	Minimal	Two or more owners, informal
LLC	Yes	Flexible: pass-through or corp	$300 (state)	Annual franchise report	Most small businesses
Corporation	Yes	Franchise tax, no state income	$310 (state)	Annual franchise report	Larger firms, seeking investors

• LLCs are popular for flexibility and liability protection.
• Corporations offer strong asset protection and investor appeal.
• Partnerships and sole proprietorships are easier to set up but offer less protection.

Step 2: Name Your Business

When forming a business in Texas, choosing the right name is an important step.

Here are specific name requirements for naming your business in Texas:

• The name must be unique and distinguishable from other registered businesses in Texas.
• LLC names must include "LLC" or "Limited Liability Company" at the end.
• Corporation names must include "Inc." or "Incorporated" at the end.

• LLP names must include "LLP" or "Limited Liability Partnership" at the end.

• LP names must include "LP" or "Limited Partnership" at the end.

• Nonprofit names must include "Incorporated" or "Inc." if registered as a corporation, or "Foundation" if it's a charitable organization.

• Sole proprietorships do not require a specific suffix, but if using a business name other than the owner’s personal name, a DBA (Doing Business As) must be filed.

• Avoid using prohibited words like "bank," "insurance," or "trust" unless you meet specific regulatory requirements.

Before you settle on a business name, make sure it’s available by checking the Texas Secretary of State’s database to avoid any conflicts with other businesses. Once you confirm that the name is available, you can reserve it for 120 days at a $40 fee.

Make sure the business name isn't already trademarked by checking the U.S. Patent and Trademark Office's database, and consider securing the domain name for your website at the same time.

Step 3: Register Your Business

To get your business officially up and running in Texas, you'll need to file with the Texas Secretary of State.

If you're forming an LLC or corporation, you'll need to file a Certificate of Formation either online or by mail. For sole proprietors and general partnerships, you’ll need to file an Assumed Name Certificate (DBA) with the county clerk [1].

Sole proprietors and general partnerships only need to file a DBA (Doing Business As) with the county clerk if they use a business name different from their own.

Limited Partnerships (LPs), Limited Liability Partnerships (LLPs), and corporations must file a Certificate of Formation Limited Partnership with the Texas Secretary of State.

Nonprofits also need to file a Certificate of Formation for a Nonprofit Corporation with the Secretary of State and apply for 501(c)(3) tax-exempt status with the IRS.

All Texas LLCs and corporations must have a registered agent with a physical Texas address (not a PO Box) who can accept legal documents during business hours.

You can serve as your own registered agent, hire a professional service, or designate another person. The registered agent information must be included in your Certificate of Formation filing.

Filing fees are $300 for LLCs, $310 for corporations, $25 for DBAs and Nonprofits, and $200 per partner for LLPs. If you file online, your paperwork is usually processed within 2-3 business days.

Step 4: Write an Operating Agreement

An operating agreement is a legal document that outlines how your LLC will be managed, including ownership percentages, member responsibilities, profit distribution, and decision-making processes.

Without an operating agreement, your LLC will be governed by Texas's default LLC laws, which may not align with your specific needs or intentions.

A well-drafted operating agreement helps prevent disputes between members, provides clarity on business operations, and strengthens your liability protection by demonstrating that your LLC is a separate legal entity from its owners.

Texas-specific considerations include ensuring your operating agreement complies with the Texas Business Organizations Code and addressing franchise tax obligations.

Step 5: Get Federal and Texas State Tax IDs

To start your business in Texas, you’ll need to apply for a Federal Employer Identification Number (EIN) through the Internal Revenue Service (IRS), which is free and can be done online.

Next, you’ll need to register for a Texas Tax ID with the Texas Comptroller for managing your business tax filings.

Key Texas Tax Information:

• Sales Tax: Texas has a state sales tax rate of 6.25%, but local jurisdictions can add up to 2% additional tax, making the maximum combined rate 8.25% in some areas.
• Franchise Tax: Texas businesses with gross receipts over $1.23 million annually must pay franchise tax, calculated at 0.375% of taxable margin for most entities or 0.75% for retailers and wholesalers.
• Property Tax: Texas has no state property tax, but local jurisdictions impose property taxes on business personal property and real estate.
• Unemployment Tax: New employers pay 2.7% on the first $9,000 of each employee's wages until they establish an experience rating.
• No State Income Tax: Texas has no personal or corporate income tax, providing significant savings compared to other states.

Step 6: Open a Business Bank Account

To set up your business bank account in Texas, you’ll need a few business employer requirements like your Employer Identification Number, formation papers, operating agreement or bylaws, and a business plan if required.

Texas has plenty of banking options, including national banks like Chase and Bank of America, as well as local banks like Frost Bank and Texas Capital Bank.

Step 7: Obtain Required Licenses and Permits

In Texas, you don't need a general business license, but certain professions and activities are regulated, such as healthcare and auto sales.

Depending on your business, you may need specific industry permits from the business permit office, which you can find by checking the Texas Business Licenses & Permits Guide [2].

Step 8: Get Business Insurance

In Texas, having the right business insurance helps protect your business from unexpected issues. While workers' compensation is optional, you might still need it depending on your industry or contracts.

It’s a good idea to have general liability insurance to cover accidents or property damage that could happen during business operations.

Why Start a Business in Texas?

Starting a business in Texas comes with many perks, including:

1. Economic Advantages

Texas is a great place to start a business because there’s no state income tax, meaning you can keep more of your earnings.

Plus, the Texas Enterprise Fund offers cash grants to businesses that create jobs, helping you get started with financial support.

2. Market Opportunities

With over 30 million people living in Texas, it’s the second most populous state in the U.S. This means there’s a large customer base for almost any type of business.

The growing population also leads to higher demand for services in retail, construction, and many other areas, giving you a chance to tap into new markets.

3. Infrastructure Benefits

Texas has excellent infrastructure, including wide road, rail, and port networks like the Port of Houston, making it easy to ship goods and do business.

The state is also known for its strong internet and broadband access, making it easier to run an online business.

Employment and Labor Laws

• Hiring: In Texas, employees are considered “at-will,” meaning they can be let go at any time for almost any reason; unless it’s illegal.
• Minimum Wage: The state follows the federal minimum wage of $7.25 an hour, but some local areas may have higher pay rates. So, it’s a good idea to check local rules to ensure you legal structure is paying employees fairly.
• Workplace Safety: Texas follows OSHA standards to ensure workplaces are safe. The Texas Workforce Commission is a great resource if you need help understanding and meeting safety regulations. The Texas Workforce commission also administers unemployment benefits to eligible workers who lose their jobs through no fault of their own

Financing Your Texas Business

Here are some of the key options available to help you finance and grow your business:

1. State Programs: Texas offers various state-funded programs to help businesses grow, such as the Texas Product/Business Fund, Texas Enterprise Fund, Texas Economic Development Corporation, and Skills Development Fund. 
2. SBA: The Small Business Administration (SBA) offers several loan programs to help businesses across Texas. Programs like the SBA 7(a), 504, and microloans provide access to low-interest loans for working capital, expansion, and operational needs. 
3. Local Incentives: Grants from local incentives can help offset some of your startup or expansion costs and often come with incentives for job creation. 
4. Angel and Venture Capital: Texas has a thriving angel investor and venture capital (VC) scene, especially in cities like Austin, Dallas, and Houston.
5. Traditional Lending: In addition to state programs and Small Business Administration resources, Texas businesses can also access traditional lending options through local banks and credit unions.

Common Mistakes to Avoid

Starting a business can be tricky, and here are a few common mistakes to avoid:

• Not obtaining necessary licenses or permits.
• Failing to register for sales or franchise tax.
• Combining personal and business finances.
• Overlooking local zoning or health regulations.
• Not filing your employment tax.
• Inadequate insurance coverage.

Ongoing Compliance Requirements

To keep your business in good standing with the state, it’s important to stay on top of ongoing compliance tasks, such as filing annual reports and paying necessary taxes.

• Annual Reports: If you're running an LLC or corporation in Texas, you must file a Public Information Report every year. 
• Tax Deadlines: The franchise tax is due every year by May 15th, so be sure to mark this on your calendar.
• License Renewals: Business licenses and permits have expiration dates, so you’ll need to renew them regularly.
• Record Keeping: You’ll need to hold onto your financial, tax, and employment records for at least four years to help with audits, tax filings, and ensuring compliance with both state and federal regulations.

Texas Case Studies/Success Stories

1. Xenia Roastery (Austin)

Founded in 2020 by Justin McLaughlin, Xenia Roastery has quickly established itself in Austin’s coffee scene. Specializing in direct trade, single-origin coffees, the roastery sources beans from sustainable farms with a focus on ethical practices.

With guidance from the Tarrant Small Business Development Center (SBDC), Justin avoided early mistakes and successfully grew from a solo operation to a small, passionate team.

2. Clearwater Plumbers (Fort Worth) 

Founded in 2001 by Jeff Longspaugh, Clearwater Plumbers has grown from a family-run business into a successful $2 million company with 17 employees.

Jeff invested in advanced plumbing technology and created an in-house apprentice program, which helped him build a loyal customer base and foster business growth.

3. La Reina Auto Sales and Service (Dallas/Arlington) 

Founded in 2003 by Maria D. Aaron, La Reina Auto Sales and Service has grown into a respected business in the Dallas/Arlington area.

As a Hispanic woman in a male-dominated industry, Maria overcame significant challenges through resilience and adaptability, offering both car sales and repair services.

FAQs

Texas offers unmatched advantages for small business owners: tax advantages like no state corporate income tax, a pro-business climate, and a diverse, growing market.

By following these steps and staying compliant, you can build a successful business in the Lone Star State.

Embrace the opportunities, avoid common pitfalls, and remember - every big Texas success story started with a single step

---

References:

1. https://www.texas.gov/starting-business-texas/
2. https://gov.texas.gov/uploads/files/business/Texas_Licenses_Permits_Guide.pdf