How to start a sole proprietorship in Texas?

Sole Proprietorship in Texas

Texas presents just the right business and economic platform for entrepreneurs and new business owners to transform their ideas into business. Entrepreneurs prefer to start a sole proprietorship in Texas as the state constitutes a strong entrepreneurial spirit, which is one of the drivers of innovative thinking. The state is also home to innovation corridors, innovation districts, and business incubators that are integral to the $1.7 trillion economy of Texas. When you think in terms of business resources and support then state agencies like the Texas Economic Development Corporation, the North Texas Small Business Development Center, and the office of the Texas Secretary of State among others are instrumental in providing meaningful guidance on how to start a sole proprietorship in Texas.

What is a sole proprietorship in Texas?

A sole proprietorship in Texas is a type of entity that is owned and run by an individual. Since it is operated by a single person, there is no distinction between the business and the owner. This doesn’t imply that a sole trader is a one-man organization as they can hire employees. If you start a sole proprietorship in Texas then you can use a business name or a trade name, which is also known as DBA (Doing Business As) and is different from the legal name. If you search for a sole proprietorship in Texas, you will be surprised to find that most ong>home-based businesses and several internet-based businesses are sole proprietorships.

Important features of sole proprietorship in Texas

A sole proprietorship is considered as the most basic type of business. There are several features that make it beneficial to start a sole proprietorship in Texas especially if you are a first time business owner. The key features are:

• A sole proprietorship can be started from home or from a commercial space. The greatest advantage of this form of business is that it has less capital requirements and hence the overall cost to start a sole proprietorship in Texas is low.
• This is a single owner business and hence all operation and management related decisions will be made by the individual or the sole owner without any interference as faced in corporations and LLC’s
• If you are wondering how to start a sole proprietorship in Texas then as compared to other forms of business entities; you are not required to register with the office of the Secretary of State (SOS).
• There are no annual maintenance requirements and lower Compliance requirements with the office of the secretary of state and hence no recurring costs or filing fees.
• If you file a sole proprietorship in Texas then you will have to file the profit and loss report of the business along with your individual income tax return.
• A sole proprietorship business is not required to pay any unemployment or payroll tax.
• The profits earned through this form of business go to the owner or sole proprietor and doesn’t have to be split amongst shareholders or partners like in other forms of businesses.

Steps to Start Sole Proprietorship in Texas

Sole proprietorship is one of the simplest forms of business that one can undertake and this simplicity is in terms of formation and operation. To start a sole proprietorship in Texas, you will require fulfilling certain state-based requirements, which are almost basic in nature. We have considered certain aspects of the business and worked out a step-by-step approach that will provide an insight into how to start a sole proprietorship in Texas.

1. Prepare a business plan

A business plan is an integral aspect of any form of business whether a sole proprietorship or a business corporation. A business plan helps the business owner in identifying the areas to focus on in order to make the business operational and successful. Depending on the type of business activity, an entity may have several components and identifying them before you file a sole proprietorship in Texas can be highly beneficial.

• Executive summary: A summary of what you expect to accomplish through your business
• Company Description: This will include key information pertaining to the business, objectives, and target customers
• Market Analysis: The analysis covers an in-depth study of the market you wish to launch your product or services in
• Competitive Analysis: This section analyzes your competition in the current market or around the location of your company
• Products and Services: Detailed information pertaining to the product or services offered by your company
• Marketing Plan & Sales Strategy: This section focuses on the promotion of your products or services and throws light on how to achieve sales targets
• Financial Projections: This section focuses on the financial goals and expectations along with anticipated revenue in the first 12 months of business operation

2. Choose Texas business name

A business name is an integral part of any business as it is what prospective customers would recall. A business name helps in creating a brand image of the company. If you start a sole proprietorship in Texas then you can use your own name as the name of the business or choose to use a trade name, which is also known as a DBA (doing business as) name. Once you have identified a business name, you need to conduct a name search for sole proprietorship in Texas. You can check name availability with the Texas Comptroller of Public Accounts and also the Trademark Electronic Search System (TESS) of the U.S. Patent & Trademark Office.

3. File Assumed business name

An assumed business name is considered to be a business name, which is different from its legal registered name. It is also known as a DBA (Doing Business As) or fictitious business name and is often used to file a sole proprietorship in Texas. In order to ensure legal right of using this type of business name, you will need to apply for an assumed name certificate Texas using Form-503.

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4. Get EIN

EIN or Employer Identification Number is also known as the Federal Employer Identification Number (FEIN) and is a unique number that is assigned by the Internal Revenue Service (IRS) to business entities. According to the IRS, a sole proprietorship will require an EIN if the following are valid:

• If you have employees
• If you file tax returns related to Excise, Employment, Alcohol, and Tobacco and Firearms
• If you have a Keogh plan
• If you are involved with certain types of organizations like Non-profits, Estates, Trusts, or Farmers’ cooperatives among others

5. Obtain necessary licenses and permits

After you start a sole proprietorship in Texas, the immediate requirement would be a business license. Different states have different licensing requirements but the common factor is that without a license or permit, businesses cannot become operational. You can conduct a business activity search for sole proprietorship in Texas as the type of license and the fee varies according to the type of activity and location of the entity.

6. Open a bank account for your Texas business

To file a sole proprietorship in Texas means your company is not a separate identity legally. Hence, it becomes extremely important to open a bank account in the name of the business. This will ensure your personal account including expenses and gains are separate from that of the company. This type of account is also known as a checking account and it has certain benefits like:

• The account will help in keeping your company finances separate and organized
• A business bank account will legitimize your business
• It will organize your accounting records and create a clear audit trail
• The account will ensure easy filing of your tax return
• You can leverage business debit cards and enjoy overdraft protection

7. Report and pay taxes

One of the important aspects of the process of how to start a sole proprietorship in Texas is submitting reports and filing taxes. There are two types of annual reports in Texas and they are Public Information Reports and Ownership Information Reports. If you start a sole proprietorship in Texas then you may be required to file the Ownership Information Reports (OIRs). This report has to be filed with the Texas Comptroller’s office.

Ready to Start a Sole Proprietorship Business in Texas

A sole proprietorship also known as an individual entrepreneurship or sole trader is one of the simplest forms of Texas business. It is a type of unincorporated entity and you can start a sole proprietorship in Texas without having to register with the office of the Secretary of State. If you are wondering how to start a sole proprietorship in Texas then IncParadise can provide meaningful assistance by helping you in starting your sole proprietorship business in Texas.