How to start a business in Texas
If you’ve made the excellent decision to bring your business to Texas, you’ll have to make a few decisions, like how to structure your business, choosing a name and registering. We’ve made a cursory guide to help you through the basic first steps of starting your enterprise. This guide is not intended as official legal advice, and all companies are advised to consult both a lawyer and an accountant before you take any official proceedings with the State of Texas.
Deciding a Business Structure
The Three most common types of business structures are “Doing Business As”, Corporation, or Limited Liability Company.
- Doing Business as, or DBA, is just a fictitious name used to do business that is different from the legal, registered name.
- Corporation: This is a structure that has shareholders, directors and officers. The point of structuring your business as a corporation is if you plan on raising money to grow exponentially.
- Limited Liability Corporation, or LLC, is the most common type of registered business in recent years. The LLC Structure provides liability protection with lower taxes than a corporation.
Registering a Business
Every state has its own requirements for business registration. To register your business in Texas you may hire a professional Registered Agent to receive official documentation on behalf of your company. The Texas Secretary of State website has more in-depth information on registered agents: https://www.sos.state.tx.us/corp/registeredagents.shtml.
Although an officer, owner, or employee may serve as your entity’s registered agent, your entity cannot be its own registered agent. A registered agent can be a Texas resident or an organization that is registered/authorized to do business in Texas with a business office at the same address as the entity’s registered office. You may hire either a professional registered agent service to serve as your registered agent, or some attorneys and accountants offer this service to their clients. Your registered agent must have a physical street address in Texas.
You will need to register your business as a foreign or out-of-state entity if it was formed under, and the internal affairs are governed by, the laws of jurisdiction other than Texas. Entities formed in other U.S. states are foreign entities, as well as those formed outside the United States. The Texas Secretary of State’s office has published detailed information on registering as a foreign entity: https://www.sos.state.tx.us/corp/foreign_outofstate.shtml. It is important to consult their guide for the most up-do-date information as requirements may change at any time.
To form an LLC or incorporate in Texas you will need to file documents with the Texas Division of Corporations. For either an LLC or Corporation, you may additionally choose to file IRS Form 2553 with the United States Internal Revenue Service to elect S-Corporation Status. Whether or not S-Corporation Status would benefit your company is a question best answered by an accountant.
After filing your documents you will need to hold an Organizational Meeting to organize your LLC or Corporation. It is important to keep records of all meetings, even for 1-person LLCs, because of annual and ongoing documentation requirements.
If you choose to file a DBA certificate, it should be filed with the county in which the business is located. Each county has different procedures for registering a DBA; many let you search existing names and register online.
Other requirements
After registering with the State of Texas, you will need to obtain a Federal Employer Identification Number (FEIN or “EIN”). This is like a social security number for your company. It is required for Corporations and LLC’s, and is optional for DBA’s that do not have employees. If your DBA has employees an EIN is required. If you are a DBA without employees and do not obtain an EIN, you will be forced to use your Social Security Number documents. For this reason, it’s typically advised that you obtain an EIN to prevent identity theft.
You can apply online with the U.S. Internal Revenue Service (IRS) using IRS form SS-4 to obtain an EIN. If you are using a registered agent service, or your attorney or accountant is serving as your registered agent, they will typically obtain an EIN for you when your company is formed.
Your company will be subject to both United States federal tax laws and the corporate tax laws of the State of Texas. You can read more about tax laws from the State of Texas on the Texas Department of Taxation and Finance website: https://comptroller.texas.gov/taxes/. Because tax laws are subject to change it is recommended that you consult an accountant early in the formation of your business and continue to work with an accountant to be sure you are fully compliant with tax codes.
Opening Company Accounts
It is important to keep business and personal expenses separate, and therefore to open a bank and/or credit account for your business with the bank of your choice. You will need your filed paperwork registering your company, your EIN, and a company resolution authorizing your company to open the account. The company resolution will need to be signed by the owners, officers, members or directors of your company.
Obtaining Business Licenses and Permits
After registering your business, you will need to obtain authorization for your company to do business in your city or county. This involves registering for state taxes and permits. It is important to consult the county and city where you will operate for the latest information on requirements. The Texas.gov website is the business portal created by the Office of the Governor of the State of Texas to provide information covering revenues, services, and business licensing in Texas: Starting a Business in Texas | Texas.gov.
Your business may be subject to additional permits and/or licenses at the federal, state, or local level depending on the types of activities you conduct.
Employer Requirements
In addition to the responsibilities you have for registration, taxation, licensing and record-keeping, you will have additional obligations to your employees. These include labor, non-discrimination, safety, access, and new hire reporting regulations. For information on what employer requirements in the State of Texas may apply to your entity and which agencies publish the latest regulatory guidelines, it is recommended that you consult the Texas website’s section on Business Employer Requirements: Start a Business in Texas | Texas Economic Development | Office of the Texas Governor | Greg Abbott
Additional Resources
We are always available to answer more questions and help you every step of the way. We also recommend using Legal Zoom, which has great tools for starting an LLC.
