How to Start a Business in Texas: A Practical Guide

There are more of both the general populace and the types of small businesses that serve it because everything is bigger in Texas.

Almost 3 million businesses in Texas provide jobs for nearly 5 million Texans.

This is 99.8 percent of all enterprises in the state. Texas, including major cities like Houston, Dallas, and Austin, has become one of the best places in the country to start a company. Important requirements for starting a company in Texas are covered in this article.

1. Select a business venture.

Starting a small business in Texas requires you to first come up with a concept, whether it’s fully formed or still just a dream.

By analyzing your business plan and your strengths and weaknesses, you may get insight into the type of company you want to start, the products you want to sell, and the customers you want to attract.

2. Describe your Texas company.

You need a name for your business before you can launch it. The first piece of information you’ll need to provide to the majority of governmental organizations during the beginning procedure is your business name.

To quickly get ideas, use the site’s Business Name Generator. Once you’ve narrowed down your list of potential company names, check to see if any companies are already using them online.

The last step is to use the site’s domain name generator to determine if a good domain name is available.

The Texas Secretary of State name filings FAQ contains information on the regulations for business names in Texas. When you’re ready, you may use SOSDirect to reserve your company name online.

3. Write a company strategy.

The state of Texas may not require you to have a formal business plan. A business plan is also the best method to keep oneself organized, focused, and on track.

However, most bank loan officers will require one before approving a business loan.

In a business plan, the following are described:

• Business description
• market research
• Organization and management
• Services and goods
• segmenting customers
• marketing strategy
• Plan for logistics and operations
• fiscal strategy

An easy-to-follow, logical exercise in examining and outlining your business idea is writing a business plan.

Sites offer sample company plans that might assist you in getting started. See what’s possible by looking at some sample company plans for additional inspiration.

4. Choose a legal framework for your company and get it going.

You must pick a business structure that matches your concept, way of life, and business strategy while looking at how to start a business in Texas. In Texas, corporations (LLCs) and sole proprietorships are the three most prevalent company structure types.

Each has benefits and drawbacks. We’ll examine the fundamentals of each type and the preliminary actions required to set up your business.

Texas law on sole proprietorship

The sole proprietorship, an unincorporated business controlled by only one person, is the most straightforward business form accessible when looking into how to start a small business in Texas. The least amount of administrative labor is needed to begin going, and registration costs are reasonable.

You will be the sole owner and receive all earnings. There are several other things to think about, though:

You can end up paying more tax than with any of the other structures if you run a sole proprietorship because the money is shown as personal income on your tax return.

Your personal assets and business assets can be the same, so a sole proprietorship won’t provide you with any legal safeguards from creditors or legal action.

Do you need a single proprietorship?

A single proprietorship may be the best option for you if you make specific products or offer specialized services on your own and have no plans to grow your business to hire many people.

Handcraftsmen and service providers like financial advisors are two examples of great sole owners.

File a certificate of the assumed name

In Texas, to register a sole proprietorship under an assumed name, you must submit an assumed name certificate. This notifies the public that your business operates under a name different from your own and provides contact details for legal purposes.

You can obtain a federal tax ID known as an Employer Identification Number (EIN) for your business. Getting an EIN is similar to an individual’s Social Security Number (SSN) and is necessary if you plan to hire employees.

You can apply for an EIN online through a free registration process or via phone, mail, or fax, requiring your SSN (or ITIN) for sign-up.

LLC.

A Limited Liability Company (LLC) strikes a compromise between a corporation’s complexity and a single proprietorship’s ease of use.

Compared to corporations, LLCs may require less administrative labor, but since they are liable to both state and federal taxation, they may also require more paperwork to be completed.

Do you qualify for an LLC?

If you’re thinking about starting a small to medium-sized business with a few employees, an LLC might be the best option for you. Early-stage firms that want to get off the ground quickly may also find that an LLC is a viable alternative because it avoids the time and cost of immediately becoming a corporation.

Publish.

This document contains information on your company’s particular, including its legal name, phone number, address, etc. SOSDirect allows you to submit your certificate of formation electronically, while there are other options as well.

Decide on a registered agent.

One of the components of an LLC designed to shield your personal assets from liabilities is this one. The Texas Secretary of State’s Registered Agent FAQ has more details on registered agents.

Remit state taxes

The Texas Comptroller of Public Accounts levies an annual franchise tax on LLCs that they must pay. Due to the revenue threshold used in the calculation of this tax, depending on your annual income, you may be able to postpone paying it until your company generates a significant amount of sales.

Additionally, the State of Texas levies a flat-rate sales tax on the majority of sales transactions while also permitting local governments to tack on an additional tiny percentage tax. Determine the amount of sales tax you must collect before you start selling anything. 

Get a working agreement in place. 

Registering with the Texas Secretary of State for an LLC doesn’t necessitate submitting an operating agreement, but drafting one is advisable. An operating agreement allows you to define how your LLC operates, identify stakeholders, and outline profit distribution. Without one, default state laws apply.

Corporate structures aim to separate owners from company liabilities, safeguarding personal assets from lawsuits or debt collection. In Texas, corporations usually have lower tax rates compared to LLCs or sole proprietorships. They’re also easier to sell when exiting a business.

One significant advantage of corporations is their ability to issue stock, attracting capital, talent, and skilled workers. However, this advantage is balanced by increased administrative and regulatory demands, making the establishment and management more challenging compared to other business structures.

Does a corporation fit your needs?

You should consider forming a Texas corporation if:

• You want to get money from investors.
• You’re beginning a massive operation.
• Your objective is to grow a business and then sell it.
• You care a lot about the avoidance of legal trouble.
• receipt of a tax ID number as a business entity from the IRS (EIN)
• Corporations must apply for an employer identification number (EIN) with the IRS, just like LLCs do. Due to its similarity to your own Social Security Number, this number is crucial for later setup processes (SSN). Registration is free and is done online with a simple application that resembles an interview.

Company documents. 

The Secretary of State’s office and the general public can learn specific information about your corporation from a Texas Certificate of Formation. The information available is as follows:

• Your organization’s name
• Your place of business, and
• Whether your company is nonprofit or for-profit
• You can submit this paper using SOSDirect and learn more about it there.

Decide on a registered agent.

One method a corporate business structure is designed to shield your personal assets from liabilities is in the manner described above. The Secretary of State Registered Agents FAQ has additional details.

Establish corporate bylaws

You can outline the organization’s structure and governance in the corporate.

Hold a board meeting, elect directors, and appoint directors.

A board of directors that assists in governing your business while offering invaluable information and experience is one of the criteria of a corporation.

According to your corporation bylaws, directors may be elected, appointed, or designated in Texas, and your board must have a minimum of three members. 

Issue shares

One element that distinguishes corporations is stock. By sharing ownership among stakeholders through the issuance of stock, you can attract new members to your corporate community and raise investment capital for operational or development projects.

Typically, the first board meeting is when stock is issued. 

Remit state taxes

In Texas, corporations could be subject to the same state tax as LLCs. All corporations doing business in the state are subject to a yearly tax administered by the Texas Comptroller of Public Accounts, depending on revenue thresholds.

Additionally, your business will probably need to collect state sales tax from all consumer transactions.

Additionally, local governments may impose additional sales taxes on you based on the location of your firm.

5. Obtain business permits and licenses.

A basic business license is not needed in Texas; however, some businesses and locations can need licenses and permits.

For instance, the Texas Alcoholic Beverage Commission requires a license from any company that sells alcohol.

The Texas Business Licenses & Permits Handbook has comprehensive information on which sectors need licenses and permits. 

6. Research Texas insurance possibilities

Even while an LLC or corporation provides safeguards, it’s always a smart idea to get insurance for your company. Your insurance options are covered in great detail by the Texas Department of Insurance, which includes:

• Standard Liability
• Legal responsibility
• Employee compensation

7. Be aware of financial factors

It’s a good idea to keep some of your personal and corporate financial interests separate, regardless of how you want to launch your firm in Texas.

To keep your records in order and your attention on the path to success, you might want to open a company bank account, apply for a business credit card, and think about hiring a business accountant.

Additionally, you might require additional funding for your business efforts. One choice is to obtain a business loan from a bank.

You might also think about sites Capital, which might be able to assist you in getting access to money rapidly.

8. Promote your company

You should think about taking the time to explore how you’re going to exhibit your new company to customers as part of your business launch operations.

Brand your company.

Build a brand that is recognizable and appealing, and that communicates the competitive advantage of your products and services provider, as your brand image is frequently the first thing that potential buyers see. Branding consists of the following:

• Your business’s logo. To create a simple logo, try Hatchful.
• Brand’s official colors and graphics. Color harmony is quite easy to achieve with a palette.
• A memorable phrase or slogan. For ideas, visit the site Slogan Maker.
• Official typefaces or fonts.
• Voice and tonality
• branding character and positioning.
• A fantastic way to incorporate your individual creativity into your business is through branding.

Pros and cons of doing business in Texas

Pros:

• The climate in Texas is conducive to business and has earned the state a national reputation in this regard. Entrepreneurs and established firms alike benefit from the low tax rate and few restrictions placed on them by the government.

• Consumer Market Size: Texas is a great place to do business if you’re looking to reach a large number of people.

• Strategic Location: Texas’s central location makes it an ideal base from which to serve the entire country through wholesale and retail distribution.

• Oil and gas, technology, healthcare, and other sectors all contribute to Texas’ robust economy. Since several sectors are represented, the likelihood of a global economic slowdown is diminished.

• Because of the state’s large pool of educated and experienced workers, firms in Texas have an easier time filling open positions.

Cons:

• Some people may find it difficult to adjust to the warm and humid weather of Texas.

• While the state of Texas as a whole has a strong transportation system, some regions may lack the necessary infrastructure to support growth.

• Hurricanes, floods, and tornadoes are just some of the natural calamities that Texas regularly experiences. Damage to property and disruption of company activities are two possible outcomes of natural catastrophes.

• Texas is home to many large corporations, making it difficult for smaller enterprises to develop a name for themselves in the state.

• When compared to other states, Texas’s labor laws provide fewer safeguards for workers, making it more difficult for them to assert their rights and for employers to comply with a tangle of regulations.

Examples of startups in Texas

• Bumble: A dating app that was founded in Austin, Texas, in 2014.
• Hypergiant: An AI company founded in Austin, Texas, in 2018 that provides AI solutions to government, healthcare, and other industries.
• BigCommerce: An e-commerce platform that was founded in Austin, Texas, in 2009.
• Main Street Hub: A social media marketing company that was founded in Austin, Texas, in 2010.
• Aceable: An online education platform that offers courses in driver’s education, real estate, and other fields. It was founded in Austin, Texas, in 2013.
• LeanDNA: A supply chain analytics software company that was founded in Austin, Texas, in 2014.
• Vrbo: A vacation rental platform that was founded in Austin, Texas, in 1995.
• AlertMedia: A mass communication software company that was founded in Austin, Texas, in 2013.
• HighRadius: A fintech company that provides cloud-based software solutions for accounts receivable and treasury management. It was founded in Houston, Texas, in 2006.
• Cerebri AI: An AI company that offers customer experience analytics solutions. It was founded in Austin, Texas, in 2016.

Conclusion

In conclusion, starting a business in Texas can be a rewarding and profitable venture for entrepreneurs.

Entrepreneurs can establish a successful business in the state by following the necessary steps, such as choosing a legal structure, registering the business, obtaining necessary permits and licenses, setting up finances, and creating a marketing plan.

Texas also provides a supportive environment for small businesses with various resources available to help entrepreneurs at every step of the way.

With a strong economy and a business-friendly atmosphere, Texas is an excellent place for entrepreneurs to start and grow their businesses.

Questions and Answers (FAQs)

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