Start a Business in Texas
Texas, also known as the “Lone Star State” is the second largest state in the U.S. The diverse geography of the state is considered as one of the factors driving a unique and wide array of industries. The state is known to have a business-friendly climate, which is an important factor if you are planning to start a business in Texas. The state’s popularity amongst the entrepreneurship community has grown over the years owing to the fact that it is home to highly skilled talent ensuring the needs of new and existing businesses are met.
Entrepreneur’s guide to form a business in Texas
Texas is a popular choice amongst entrepreneurs as it has inched forward towards being the 9th largest economy in the world and 2nd largest in the US based on its GDP. According to the IMF, Texas GDP in 2021 is $1.9 trillion, which is more than the GDP of Brazil ($1.8 trillion). The Lone Star State is also ranked first in the nation where business and economic growth prospects are concerned. If you are planning to start a business in Texas then as an entrepreneur or small business owner, you will be able to leverage the high-end infrastructure, competitive tax climate, skilled workforce, high quality of life, and business-friendly economic policies.
Modern day entrepreneurs prefer to incorporate in Texas due to the many benefits and advantages the state has to offer but it is never a walk in the park where a new business formation process is concerned. There are many stages of forming a new business right from creating a business plan to filing the right documents, to registering a business in Texas. Thus, we have created this guide for entrepreneurs and small business owners thinking of transforming their ideas into operational business in the state.
The guide will provide information on how you can set up your corporation, LLC, or any other form of business including creating business plans, entrepreneurial training or development programs in the state, obtaining a business license, hiring a reputable Texas registered agent, and choosing a business structure among others.
Why do companies prefer to register business in Texas?
The state of Texas has a business climate that is just perfect for entrepreneurs and small business owners. One fun fact is that top 25 Fortune 500 companies are headquartered in Texas and these include McKesson, ExxonMobil, AT&T, Dell Technologies, Phillips 66, Valero Energy, Sysco, and Oracle among others. If you are planning to start a business in Texas then it is important to first understand why the state is quite the first choice for new business formation. There are several key drivers that govern growth and success of a small business in Texas from a long-term perspective. Some of the key drivers include:
- Abundance of right talent: It is the people who drive the economy of Texas and this stands true when you look at the availability of skilled talent or dedicated professionals in the state. If you start a business in Texas then there will be no dearth of talent especially in cities like Austin, Dallas-Fort Worth, San Antonio, and Houston. There are almost 170 colleges and universities and 125 schools that offer a variety of tech programs. This ensures there is never any shortage of potential hires for a small business in Texas or medium sized enterprises.
- Significant tax benefit: Texas is one of the few states in the U.S. with a low tax burden. The state also does not levy any corporate income tax or state income tax. When you register a business in Texas, you will also be able to leverage the variety of tax incentive programs that are geared towards helping new businesses in boosting their bottom line. Some of the top programs include Research & Development Tax Credit, Ad Valorem/Property Tax Exemption, Sales and Use Tax Exemptions, Freeport Exemption, and Sales Tax Exemption or Franchise Tax Credit for Qualified Research.
- Platform for innovation: One of the important reasons for entrepreneurs to start a business in Texas is that the state provides just the right platform for innovation. Innovation by entrepreneurs not only aids in the economic activity of the state but also helps a new small business in Texas to become an integral part of that innovation. Innovation along with advanced technology has become a strong driving force for a wide array of industries including aerospace advancements in the NASA Johnson Space Center in Houston and the SpaceX South Texas launch site.
There are several other advantages and benefits that you can leverage once you incorporate in Texas.
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
The different types of business structures that you can create and operate in Texas are:
- Sole proprietorship
- General partnership
- Limited Liability Company
- S Corporation
- Limited Partnership
- Limited Liability Partnership
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.
We can assist you with new business formation in Texas!
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:
- Air Permits issued by the Texas Commission on Environmental Quality
- Alcohol Licenses and Permits by Texas Alcoholic Beverage Commission
- Egg Broker/Dealer/Processor Licenses issued by the Texas Department of Agriculture
- Food Handler License issued by the Department of State Health Services
- Milk and Dairy Facilities Licenses issued by the Department of State Health Services
- Retail Food Operation Permit issued by the Department of State Health Services
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.
Some Important Quick Resources for Texas Business
In the stage between ideating and transforming your ideas into a small business in Texas, you will require information pertaining to various aspects of company formation. Hence, it is important to find the right guidance and resources that will not only help you to start a business in Texas successfully but also achieve company objectives. We have created a list of resources that are targeted towards helping new businesses, entrepreneurs, and startups.
Texas Secretary of State
The office of the Texas Secretary of State is governed by the Texas Constitution and its primary role is to administer the Texas Election Code while maintaining public filings. The website of SOS provides an encyclopedia of information and guidance on various areas of new business formation and operation. It provides information on business services like startup information or how to start a business in Texas, forms for registration or incorporation in Texas, filing options, fee schedule, Texas business law, Texas registered agent information, and notary public & apostille among others.
The contact information for Texas Secretary of State is:
- Texas Secretary of State
James Earl Rudder Office Building
Austin, Texas 78701
Phone: (512) 463-5555
Fax: (512) 463-5709
Website – https://www.sos.state.tx.us/
Texas Comptroller of Public Accounts
The primary duty of the Texas Comptroller of Public Accounts is to collect all forms of tax revenue that is owed to the State. They are responsible for collecting 60 applicable taxes in the state right from the sales tax to the minor tax fees like the battery sales fee. If you are planning to register a business in Texas then you can find information and guidance on Texas tax rules and laws, different forms of taxation applicable to a small business in Texas, tax training resources (seminar, webinar etc.), Sales Tax Permit Application, eSystems or online filing, tax fee, and refund information among others. The contact information for Texas Comptroller of Public Accounts is:
- Texas Comptroller of Public Accounts
Lyndon B. Johnson State Office Building
111 East 17th Street
Austin, Texas 78774
Texas Department of Licensing and Regulation
The Texas Department of Licensing and Regulation (TDLR) is a state agency that is responsible for licensing as well as regulating different types of businesses, occupations, equipment and facilities in the state. When you start a business in Texas, you will need to apply for and obtain different licenses and permits and TDLR can provide you the required information, guidance, and help regarding the same. You can refer to their detailed list of licenses and understand the process of applying for or renewal of such licenses. The contact information for Texas Department of Licensing and Regulation is:
- Texas Department of Licensing and Regulation (TDLR)
Austin, Texas 78701
Phone: (512) 463-6599
Official Government website for the State of Texas
The official government website (Texas.gov) for the state of Texas provides guidance and information pertaining to Government Services Directory, professional and occupational licensing, online payments, license renewal, state news, and how to start a business in Texas guide. You can use the website for resources before or after you register a Texas business online. The contact information for Texas.Gov is:
Official government website (Texas.gov)
Texas Department of Economic Development
The Texas Department of Economic Development is also known as the Texas Economic Development Corporation (TxEDC) and its primary objective is to promote and market the state of Texas nationally as well as internationally in a manner that it becomes the best place for a business to form, locate and expand. If you are planning to register a business in Texas then this department can provide detailed information and resources of various aspects of a startup. You can find resources and information on business incentives, Enterprise Zone Programs, opportunity zones, moving your company, webinars and events for small business in Texas, trade and export, and target industry clusters among others. The contact information for the Texas Department of Economic Development is:
- Texas Department of Economic Development
P.O. Box 12428
Austin, Texas 78711
Phone: (512) 936-0100
Ready to Start a Business in Texas
Texas is considered a haven for entrepreneurs and new businesses as it offers a pro-business climate. The state has passed a new legislation that will provide tax relief of $4 billion for new and existing businesses. You can register a Texas business online or offline and we at IncParadise can provide meaningful assistance. We are one of the most reputable Texas registered agents with experience and expertise in new business formation. We have helped thousands of businesses in Texas to successfully form an LLC or a business corporation.
Once you register a business in Texas, you will have to ensure compliance through annual maintenance. IncParadise can help you to maintain compliance as we offer several additional services like filing the annual report, getting an EIN, S Corporation filing, and foreign qualification among others