How to Start a Business in Texas (2022 Guide) – Forbes Advisor

Certain types of business entities must file paperwork with the state of Texas to become a legal entity. Once you know which business entity you want to use, filing the formation documents is a simple process. You can file formation documents through the Texas Secretary of State’s portal and receive a confirmation with the paperwork as soon as it arrives in the mail.

Choose the right business unit

There are many types of organizations that you can choose for your business. Each entity type comes with its own unique rules and potential tax or operating benefits. Choose from:

  • Limited Liability Company (LLC): Registering as an LLC is common for small businesses in Texas. This entity provides you with liability protection and also gives you a lot of flexibility in how you handle your business taxes. Learn more about how to set up an LLC in Texas. It is formed by filing a certificate of formation with the state.
  • C-Corporation: A C-corporation is the business entity of choice for public companies because of its ability to divide the business’s stock into multiple share types. It is not usually chosen by small businesses looking to start up unless the owners raise a large amount of capital. It is formed by filing a certificate of formation.
  • S-Corporation: When most people talk about a corporation, they are probably referring to the C-corp discussed above. There is another type of corporation, however, that offers tax benefits to owners. It comes from Subchapter “S” of the tax code and is a tax classification that avoids double taxation. Learn more about S-corporations. An S-corp is just a tax designation and is registered with the state like a C-corp.
  • Sole Proprietorship: A sole proprietorship is a business owned by one person. All responsibility and finances fall on the individual. There are no formation documents to file with the state to form this business.
  • Common Shares: If you choose to go into business with at least one other person, you can form a general partnership. There is no need to file anything with the state to form an organization. Both of you are liable for the debts of the partnership.
  • Limited Partnership: If you and one or more other people set up a business together, with at least one general partner and one limited partner, you can form a limited partnership after filing a certificate of formation with the state. Limited partners are only liable for their financial interest in the company while general partners are personally liable for the company’s debts.

If you are doing business under a name other than your name or the name of the company you formed by filing formation documents in the state, you will need to file a Doing Business Age, or DBA, with the state of Texas. It informs the state who is running the business and who is responsible for it.

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Find the right business name

Before you register your business with the state, you need to make sure the name is not being used by another business. You can conduct an online search to find out if your name is available at a cost of up to $1 per search. This is something you want to pay for so you can avoid delaying your application process and have confidence that you can legally purchase your domain name or create marketing materials with your chosen name.

Apply for a business EIN

An Employer Identification Number (EIN) is your business’s tax identification number that the federal government will use to identify your business. You can apply for an EIN online through IRS.gov. The process is simple, free and only takes a few minutes. It is necessary for certain business entities to be able to hire employees and for tax purposes.

Get step-by-step instructions on how to get an EIN.

Choose a registered agent

A registered agent is a person or organization that takes responsibility for obtaining important legal documents on behalf of your business. Any business that files formation documents with the state is required to have a registered agent.

If someone files a lawsuit against your business, the registered agent can get that document. You want your registered agent to be someone you can trust and check the mail. You can serve as the registered agent or hire a registered agent service to handle this responsibility on your behalf.

Apply for a business license

Once you have officially formed your business entity in the state of Texas, you should check which federal, state and local business licenses are required before you can operate. There are a wide variety of licenses required for different industries and professions. You should apply for these as soon as you have a registered name as it may take time to get them. Learn more about business licensing in Texas.

If your business sells taxable products or services, you need to apply for a sales tax permit to collect Texas sales tax.

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