Steps to start a business in Texas
Small businesses are integral towards helping states like Texas to achieve their state mission including creating a business-friendly environment while ensuring the overall state economy flourishes. Texas does offer many benefits but how do you incorporate in Texas? There are different approaches and aspects to be considered right from creating a business plan to naming your business and finally the process to register a business in Texas. Let us look at each of the guiding steps in detail.
1.Prepare a Texas Business Plan
Before you can register a business in Texas; it is necessary to prepare a business plan. A business plan is a type of written document that defines the primary and secondary objectives of a startup. The importance of a business plan lies in the fact that it incorporates several aspects of small businesses in Texas and the steps required to make the startup successful in terms of revenue generation and growth or expansion. A well crafted business plan often helps businesses in attracting investors. Since it is a framework of your company, it should include the following according to the Texas Governor’s small business handbook.
- Executive Summary
- Business set-up and structure
- Market analysis and competition
- An outline of the development and regulatory process
- Marketing plan along with sales strategies
- Operating Plan
- Strategic Financial Plan
- Launch and delivery plan
2. Attend Entrepreneurial Training or Development Programs in Texas
One important thing that helps you to start a business in Texas by providing the right platform, knowledge, skills, and resource assistance is entrepreneurial training or business development programs. There are training programs offered by the state as well as private institutions and then there are networks that create physical hubs for imparting education and skill based programs for startups. These networks have been created to assist modern day entrepreneurs planning to start a small business in Texas. The resources offered by them include:
- Access to mentors
- In-person and virtual events
- Dedicated program for women entrepreneurs
- Co-working space
- Private conference rooms
- Networking opportunities
The Governor’s Office of Small Business Assistance also offers a number of resources for the success of a new business. These include small business webinars where businesses can connect with industry-matter experts as well as support systems. There is also the Governor’s Small Business Forums, which are live events held across cities in Texas and provide the opportunity to network with other small business owners or entrepreneurs.
3. Choose a Business Structure for Texas Business
One of the most important decisions as a new business owner is selecting the right business structure. The type of structure you choose in order to start a business in Texas will have a wide variety of implications pertaining to the financial success of your business. The business structure for a small business in Texas should be chosen taking into consideration aspects like:
- Protection of personal assets
- Federal and state taxation
- Access to Capital
- Startup Costs
- Business management
- Continuity upon ownership change
- Business operations
- Transferability of ownership interests
- Structure flexibility
If you want to register a business in Texas then the most popular forms are limited liability companies and corporations (both C and S Corp). This is because these two forms of business have several advantages over other forms of entity like limited liability protection, tax exemptions, high credibility, attract investors, and even pass-through taxation.
4. Naming Your Texas Business
A business name is one of the most crucial aspects of a startup as it not only provides an identity to the company but also helps in the creation of value for prospective customers. Hence, it is important to ensure that the name you choose to register a business in Texas is not complex. Research studies have shown that simple and easy to remember names have higher brand recall value. While ideating a business name, it is important to ensure the name is compliant with various requirements as mentioned in TX Bus Orgs § 5.053 (2019). The subchapter B – General Provisions Relating to Names of Entities suggests that your chosen name should be distinguishable from any other name existing in the records of the Secretary of State. Once you have chosen the name, you need to search for business organization name availability with SOS Direct. If your chosen name is available then you can reserve the name for a period of 120 days by filing the “Application for Reservation or Renewal of Reservation of an Entity Name” with the office of the Texas Secretary of State.
5. Choose Your Location for Texas Business
If you are planning to start a business in Texas then one of the factors defining success is the location of the business. There are specific aspects that you need to consider when choosing a location. The most common aspects are:
- Targeted Audience
- Startup Cost
- Availability of skilled labor
- Rental rates and availability of commercial space
- Supply chain
- Visibility of the office
- Zoning regulations
- Parking facility
- Utilities and other related costs
There are several cities or locations within the state that offer a better business environment as compared to other cities. Some of the top locations where you can incorporate in Texas are:
- Dallas: More often than not, the growth and success of a business is dependent on the city where a business is being formed and operated from. Dallas is such an ideal city as it has low unemployment rates, diverse workforce, and is home to numerous Fortune 500 companies. Another important reason to register a business in Texas in the Dallas city is availability of affordable commercial real estate and its central location in the state makes handling transportation and logistics much easier.
- Houston: Famous as the home of NASA space center, Houston is home to over 1,000 information technology companies. It is one of the top cities in terms of location if you are planning to set up your small business in Texas. It is considered as the “center of technology entrepreneurship” in the state. It is also famously known as the world capital of the oil and gas industry and also has more than 10,700 manufacturing companies. The city boasts of an array of logistical as well as distribution channels that makes moving goods around the east and west coast as well as anywhere in the country easier.
- Austin: One of the cities that is one of the favorites amongst entrepreneurs and startups. The gross domestic product (GDP) of Greater Austin metropolitan statistical area was $159,361.291 million in 2019 and is ranked right at the top of the “2020 Tech Town Index Ratings”. The city has become a hotspot for innovation centers, leisure and hospitality, and R&D labs. When you register a business in Texas, Austin will play a key role in defining future growth of your company.
6. Register Your Texas Business
Once you have selected the type of business structure, the next step would be to register the business in Texas. The process for registering a new business can vary from one state to another and the application and fee may differ according to the type of business but that is not the case in Texas. For example: If you are planning to incorporate in Texas then you will be required to file the Certificate of Formation: For-Profit Corporation pursuant 2019 Texas Statutes, Business Organizations Code (BOC), Title 2 – Corporations, Chapter 21 – For-Profit Corporations, Subchapter B. The filing fee for a corporation is $300. Similarly, if you were to form an LLC then you would be required to file “Certificate of Formation—Limited Liability Company” along with a filing fee of $300. The certificate of formation has to be filed with the office of the Texas Secretary of State.
The process to register a business in Texas may look complicated as you will need to submit several documents and ensure total compliance. Hence, a reliable Texas registered agent like IncParadise can help you with incorporation or startup formation. We have a team of experts, well-versed in Texas new business formation and they can provide you the required guidance.
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7. Get Your EIN
One of the important requirements when you start a business in Texas is the Employer Identification Number (EIN). It is also known as the Federal Tax Identification Number and is issued for identification of a business entity. Even if you register a Texas business online, you will need to apply with the Internal Revenue Service (IRS) for issuance of an EIN as it will be required when filing taxes or annual returns. Depending on the business structure chosen by you, an EIN may or may not be required. The Employer Identification Number for your Texas business may also be required when opening a business bank account, or for applying for loans.
8. Open a Business Bank Account for Texas Business
When you start a business in Texas, one of the important tasks should be opening a business bank account. You are probably thinking, “I already have a bank account then why do I need a business account?” The truth is that having a business bank account will simplify your ledger keeping and ensure business and personal expenses or gains are not mixed. Such accounts are also known as business checking accounts and you can open one before or after you start a business in Texas. The benefits of having a separate bank account for a small business in Texas are:
- The business records will be highly organized
- A business checking account will help in simplifying your tax returns
- It will help in building a business credit rating
- Such an account will make you or your business look professional
- You can avail of low cost electronic transactions and competitive interest rate on your business profit
- You will be able to set up credit acceptance or retail point of sale systems
- A business bank account can have multiple signers
9. Obtain License and Permits
You can start a business in Texas in some of the high growth and innovation based industries like Advanced Manufacturing, Aerospace, Aviation & Defense, Energy, Biotechnology & Life Sciences, and the information and computer technology industry among others. However, one of the important criteria for conducting business in the state is applying for and obtaining a business license. Only when you have acquired a license, can your business become fully operational.
You can apply for a business license after you register a business in Texas. The state does not have any general business license but licenses and permits are issued at the city or county level. Once you register your startup, you will receive the certificate of formation from the office of the Texas Secretary of State and this is often considered as the “general business license”.
The type of business license or permit required by your company will depend on the type of activity. Let’s look at an example to understand this.
If you are planning to start a Food Manufacturing or Distributing business then you may require some or all of the below mentioned licenses and permits:
Along with the permits or licenses, you will have to ensure compliance with Fire Regulations, Zoning Regulations, Industrial and Hazardous Waste Regulations, Organic Food and Fiber Regulations, Meat Products Processing Regulations, and Transportation Regulations among others.
Texas business licensing can look quite complex and you may have to conduct your own research regarding permits and licenses required according to business activity. Hence, we at IncParadise have created a Business License Research Report service that provides comprehensive filing instructions, filing fee, list of supporting documents for all business licenses and permits in Texas.
Identify, and apply for the right Texas business licenses and permits!
10. Register for Taxes
One of the important aspects to consider when you start a business in Texas is taxes. When you apply for and obtain an EIN, it makes the process of filing annual returns easier. As compared to some of the other states, taxes in Texas are quite low and there is no corporate income or personal income tax. The taxes that may be applicable for a small business in Texas are:
- Franchise tax: The franchise tax is a type of tax that is levied on a state level. This tax is applicable to different forms of small business in Texas including corporations, limited liability companies (LLC), business associations, general, limited and limited liability partnerships, professional associations, business trusts, joint ventures and other forms of legal entities operating in Texas. If you register a business in Texas and qualify for franchise tax then you will have to file returns with the Texas Comptroller of Public Accounts (CPA).
- Sales and use tax: If you are operating your business in the retail industry then you may be required to file sales and use tax returns. Texas imposes a 6.25 percent tax on all businesses involved in retail sales, lease and rental of goods, and other taxable services like information services, telecommunication services, and amusement services among others. The sales and use tax has to be filed with the Texas Comptroller of Public Accounts (CPA).
11. Annual and Ongoing Requirements
Once you register a business in Texas, there are annual and ongoing maintenance requirements by the state that every business needs to be compliant with. Once you register a Texas business online, the annual requirements are:
- Public Information Report: One of the most important annual requirements is the “Public Information Report”. In some states, it is known as the annual report and in other states it is referred to as the statement of information. The Public Information Report is also known as the Ownership Information Report and has to be filed with the Texas Comptroller of Public Accounts. It has to be submitted annually on or by May 15 each year. For example: If you register a business in Texas on July 31, 2021 then your Public Information Report will be due on May 15, 2022. It has to be filed by corporations, LLC’s, limited partnerships, or professional associations pursuant to Texas Tax Code – TAX § 171.203..
Apart from the Public Information report, you will need to file state taxes like sales and use taxes, and renew business licenses or permits as a part of annual maintenance and compliance requirements.