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.
Market Research is highly important because it helps you to identify target customers by their age, gender, buying habits, income level, and location. This type of research will also help you to improve your service or product offerings, market price, and creation of brand image, marketing, and profitability. Market research is critical towards drafting a business plan and Helps you to understand how to start a sole proprietorship in Texas. The key areas of a business plan for such a simple form of business are:
- 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.
The assumed name certificate is effective for a period of 10 years since the date it was first filed. Once it expires, you need to renew it within six months from the date of expiration of original certificate pursuant to Texas Business & Commerce Code [TBCC] § 71.151. If you are wondering how to apply for and obtain an assumed name certificate Texas or a DBA then IncParadise can assist you with the process. As one of the leading Texas registered agents, we provide Doing Business As-DBA or Assumed Name Certificate services.
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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.
You will not only require business licenses and permits but your company needs to be compliant with local regulations and must have necessary zoning clearances. You will have to check with the city and county offices for information specific to zoning. If you are wondering how to start a sole proprietorship in Texas and obtain business licenses then you can check our “Business License Research Report” service. This research report contains a list of filing instructions, supporting document requirements, and fees for all business licenses and permits for your sole proprietorship business in Texas.
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.
As the owner of the sole proprietor, you will have to file profit and loss reports of your business through individual income tax returns. If your company has a single or multiple employees in Texas then you may be subjected to the Texas employment tax. You may also be required to file self employment tax and estimated tax for individuals.