Read our 2024 guide to start your Texas business in 12 steps, from choosing a business idea and name, to selecting a business structure and creating a marketing plan.
Apr 11, 2024
This content doesn’t contain and isn’t meant to provide legal, tax, or business advice.* Starting a business is a great way to be your own boss and take on exciting new challenges—and there’s ample opportunity in Texas. That’s due to the state’s business-friendly tax environment.
“Texas doesn’t collect personal or business income taxes, and that’s one of the big advantages here for businesses,” says Steve Lawrence, Associate Dean of the University of Houston’s Bauer College of Business and Executive Director of the University of Houston Texas Gulf Coast Small Business Development Center (SBDC) Network. Although Texas is known as the Lone Star State, you won’t be alone as a business owner: There are 3.2 million small businesses in the vast state. And as the eighth largest economy in the world, Texas’s economic climate makes it highly attractive to entrepreneurs. If you’re considering Texas as the place to launch your business, here are some resources to help you get started.
Whether your business idea is fully formed or still at the dream stage, the first step on your small business in Texas checklist is to develop your idea. Take the time to examine and articulate the details of your idea:
Before you can start a business, you need a name for it. A business name generator is a quick way to find inspiration.
Once you’ve made a shortlist of possible business names, do a quick online search to see if any businesses are already using them. Next, search the US Patent and Trademark Office’s trademark database to make sure no one has already trademarked your preferred name. Lastly, consult a domain name generator to make sure a corresponding domain name is available.
There are some requirements for business names in Texas, which you can find by visiting the Texas Secretary of State name filings FAQs. Among the criteria for naming your business:
When you’re ready to reserve your business name, you can do so online through SOSDirect. The name can be reserved for 120 days (and renewed). The name reservation filing fee is $40.
The state of Texas does not require you to write a business plan. However, many bank loan officers will want to see one before granting you a business loan. Plus, a business plan is an ideal way to keep yourself on track, organized, and goal-oriented.
A business plan is a document that outlines:
Writing a business plan is a straightforward, methodical exercise in analyzing and explaining your business idea.
“Write a business plan that includes the total business framework, marketing, operations, and the finances. Lay it out in two segments: years one to two and years three to five,” explains Lawrence.
Next, have an experienced professional or mentor review it.
“Do not use family or friends, because they’re not going to give you an unvarnished, honest opinion.”
To get started, consider using a business plan template, or check out some business plan examples to see what’s possible.
When examining how to start a business in Texas, you’re going to have to choose a business structure matching your priorities and how much administrative overhead you can handle. Three popular types of business structures in Texas are sole proprietorships, limited liability companies (LLC), and corporations. Each has its advantages and disadvantages:
The simplest business structure available is the sole proprietorship, an unincorporated business owned by just one person. It requires the least amount of administrative work to get started, and it’s inexpensive to register. However, sole proprietors’ personal assets and business assets are the same under the law, which means a sole proprietorship offers no legal protections from debt collectors or court proceedings.
A limited liability company (LLC) is a type of business structure offering the simplicity of a sole proprietorship because it’s relatively easy and low cost to form. Additionally, it offers some liability protections separating your personal assets from your business assets. This protects your personal property from business lawsuits and debts. LLCs can also require less administrative work than more complex business structures like corporations.
The Texas Secretary of State does not require you to submit an operating agreement when you register an LLC. However, creating one may be a good idea, because it helps describe how your LLC will be managed, who the stakeholders are, and how profits are allocated. If you need help writing yours, operating agreement templates are available.
A corporation is a type of business structure owned by shareholders and able to issue stock. This legal entity fully separates the individual owners from the business and protects the personal assets of owners from lawsuits and debt collection. In Texas, there is no corporate income tax. Instead, there is a type of business tax known as the franchise tax.
Corporations are complicated business structures to start and maintain, with greater administrative requirements and regulations to adhere to. As a corporation, you are typically governed by a board of directors with bylaws. The primary advantage of a corporation structure is the ability to issue stock, which may attract investment and/or talent for your team.
To set up a corporation in Texas, follow these steps:
Corporate bylaws define how your corporation is structured and governed. They also include details such as annual meetings, quorum (minimum number of voting board members or stockholders), stock, and directors. Corporate bylaw templates are available online, if you need a starting point.
One of the requirements of a corporation is a board of directors to help to govern your company while providing valuable knowledge and experience. In Texas, directors can be elected, appointed, or designated according to your corporate bylaws, and you’ll need at least three people to serve on your board. Rules regarding directors are available in the Texas Business Organizations Code.
Stock is one of the things that makes corporations unique. By issuing stock, you are distributing ownership between stakeholders, which allows you to raise investment funds for development or operational projects while bringing potentially beneficial parties into your corporate community. Stock is usually issued at the first board meeting. The Texas Business Organizations Code provides details on how to issue stock.
As part of the startup process, you may want to register a fictitious name, also known as a DBA (doing business as). For instance, if you’re a sole proprietor, but you don’t want to publicly operate under your own name, a DBA allows you to choose a unique name for your business. The same goes for a corporation or LLC; if you don’t want to include the word “Incorporated” or “LLC” in your public-facing business name, you can use a DBA.
Registering a fictitious business name is meant to connect the true identity of a business owner with the name of the business they own, so stakeholders are able to pursue legal action or debt collection. File an assumed name certificate to secure your DBA in Texas.
An employer identification number (EIN) is a federal tax number functioning similarly to your Social Security number (SSN), except it’s for your business. As a sole proprietor, you are not required to get an EIN from the Internal Revenue Service (IRS).
However, if you plan on hiring employees, you can sign up for one using the free, online registration. You can also apply by fax, mail, or telephone. To register, have your SSN or Individual taxpayer identification number (ITIN) on hand.
A registered agent is a person or organization you designate to receive court documents on your behalf if your business is subject to legal action, such as a lawsuit or debt collection. In Texas, you cannot serve as your own registered agent. More information on registered agents can be found in the Texas Secretary of State Registered Agent FAQs.
Next, register your business by filing a Certificate of Formation. This document details the specifics of your company, such as entity name, registered agent contact information, mailing address, and other details. You can file your certificate of formation online via SOSDirect. Information is also available on how to file using alternate methods. Note: You must have your EIN before you can register with the state.
The filing fee for professional and for-profit corporations and LLCs is $300 and $25 for nonprofits. More information is available through the Texas Secretary of State website, and forms can be submitted via SOSDirect.
Texas is one of the few states that doesn’t collect corporate income taxes. Instead, LLCs and corporations in Texas are required to pay an annual franchise tax levied by the Texas Comptroller of Public Accounts.
Texas also imposes a flat-rate state sales and use tax on all retail sales transactions, while also allowing local jurisdictions to add on a separate small percentage (up to 2%) tax.
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No matter your business structure, type, and location, there is a good chance of needing to obtain a business license and permits. In Texas, a general business license is not required. However, licensing and permits may be required for certain industries and locations. For example, any business selling liquor needs to have a license from the Texas Alcoholic Beverage Commission.
Information on which industries require licenses and permits is available in the Texas Business Licenses & Permits Guide. Licensing and permits are administered by the Texas Economic Development & Tourism’s Business Permit Office. Additional application information is available through the Governor’s Small Business Resource Portal.
Even with the protections offered by an LLC or corporation, it’s still a good idea to have insurance for your business. The Texas Department of Insurance provides a wealth of information on your insurance options, which include:
As a business owner, it’s crucial you understand financial considerations such as keeping separate personal and business accounts. You may want to open a business bank account, apply for a business credit card, and consider getting a business accountant. Their expertise can help you keep your accounting books balanced and focused on financial accountability.
You might also need additional capital as part of your startup activities. A business loan from a bank is one option.
“The two most significant challenges for small businesses in Texas right now are a tight labor market and accessing capital,” says Lawrence.
Amid these pressures, Lawrence offers a couple finance best practices for business success:
Reduce debt, pay off loans, and make regular credit card payments. If you don’t have a credit card, get one and start making regular payments to establish credit—even if it’s only $10 or $20 a month. A good credit score makes bank loans easier, lowers interest rates, and improves your chances of leasing space or renting equipment.
Open a checking account and credit (such as credit card or lines of credit) at a bank, and get to know the banker, branch manager, or small business advisers at your local branch. A banking relationship is important for small businesses to access capital. “Just having a checking account is not a relationship,” Lawrence stresses.
A core part of marketing your business is your unique value proposition. Lawrence advises that you research how to differentiate your product from the competition.
“You must have a better price or better quality, your product or service has to be faster, bigger, or better than the others—it has to be differentiated in some way,” he says.
At this stage, it’s key to figure out the best marketing strategies to showcase your new operation and attract customers. You can accomplish this by taking the following steps:
Your brand image is often the first thing potential customers encounter, so it’s important to build a brand that is recognizable, attractive, and conveys the competitive difference of your products and services. Branding includes:
Building a website is a critical element to starting your business. For many potential customers, it’s the first place they learn about your company. Even without any development experience, you can launch your site. Consider using a platform like Shopify for a more streamlined process. To get started, gather the following:
Create a marketing plan to implement an effective strategy to promote your business and sell your products online. This document identifies your products and services, and the best sales channels and promotional activities for your target audience. Marketing plans can also help you stay on track and reach your business goals.
Marketing plans often include:
For more insight and inspiration, check out these marketing plan examples.
Texas is a unique place to start a business, with an economy experts say is driven by a triad of cities: Dallas, Houston, and Austin. With their diverse industries—including finance, transportation, utilities, technology, manufacturing, logistics, health care, and education—and top-ranked universities (from the University of Texas at Austin to Texas A&M University to Rice University), there are ample resources and opportunities to start and grow your business.
Here are a few tips Lawrence offers to get you on the right path for your startup:
*This post is for information only. You are responsible for reviewing and using this information appropriately. This content doesn’t contain and isn’t meant to provide legal, tax, or business advice. Requirements are updated frequently and you should make sure to do your own research and reach out to professional legal, tax, and business advisers, as needed. Businesses outside of Texas will have different steps and requirements. To sell products using the Shopify platform, you must comply with the laws of the jurisdiction of your business and your customers, the Shopify Terms of Service, the Shopify Acceptable Use Policy and any other applicable policies.
The amount of time it takes to start a business in Texas depends on how complex your business structure is, how many licenses and permits are needed, how quick you can assemble the required information, and processing times.
Starting a sole proprietorship is the simplest business structure to form in Texas, and may cost as little as $25 for filing the assumed name certificate. However, more complicated business structures and enterprises requiring multiple licenses and permits are likely to cost more than $1,000 to set up.
Sole proprietors typically pay income tax as part of their personal income, but since Texas doesn’t collect personal income taxes, sole proprietorships are exempt from state taxes. LLCs and corporations are subject to state taxation in Texas. State business taxes are collected via the franchise tax, a privilege tax imposed on businesses with revenues over a certain threshold.
