Every year, hundreds of startups flock to Texas, which is fast becoming one of the top locations to start a new business. Over the past decade, about 10,000 startups and tech companies moved from California, especially Silicon Valley, alone. In fact, Austin experienced a 41.4% jump in tech-industry employment between 2001 and 2013 due to the influx of new businesses, making it a top city for technology job creation and startup success. Startups aren’t just limited to Austin, though. Dallas has its historic “Telecom Corridor,” Houston and Irving are vibrant locations for energy companies, and cities near Fort Hood and Fort Bliss have more defense contractors and related startups than any other cities in the country. With the increasingly business-friendly tax structure and legislation, it’s no surprise that more startups are turning to Texas now than ever before.
If you want to join this trend with your own company and learn how to start a business in Texas, you can schedule a free consultation with a corporate lawyer from Priori's vetted network.
Key Steps to Starting a Business in Texas
1. Creating a Business Plan
All startups were once just an idea. To make your startup idea a reality, you need a business plan. Your business plan helps you overcome obstacles and plan for sustained success. Any business plan must include the “big idea” behind your business, as well as target market research, strategies for market penetration and growth, and estimated costs and sources of funding.
2. Financing Your Idea
Once you have the business plan in place, it’s time to look for sources of funding. You may be able to save or bootstrap for your startup’s seed funding, but most businesses eventually need outside funding. Common funding sources include venture capital investors, angel investors, crowdsourcing, small business loans, and even grants from organizations or government-affiliated entities like Texas Wide Open for Business or the Texas Enterprise Fund.
3. Incorporating in Texas
There are many incorporation options to make your company idea a legal entity, but the following are the most common entities registered in Texas:
- Sole Proprietorships. A sole proprietorship is the most common and simplest business structure in Texas. Unlike most business forms, you do not need to file incorporation documents with the state. You simply must register for an Assumed Name Certificate with the local county clerk’s office in counties where you plan to operate. It’s important to keep in mind, however, that a sole proprietorship does not limit your personal liability.
- Corporations. Corporations do actually create an individual tax entity and limit your personal liability. To incorporate as a C-Corp or S-Corp, you must file a Certificate of Incorporation and pay your $300 filing fee with the Texas Secretary of State.
- LLCs. Limited Liability Companies have much more flexible corporate structures and are typically taxed as pass-through entities. To incorporate as an LLC, you must file a Certificate of Formation and pay your $300 filing fee with the Texas Secretary of State.
- Professional Corporation or Professional Association. For any company providing professional services that requires licenses in Texas, professional corporations (or in the case of doctors, professional associations) offer many advantages. To incorporate as a professional corporation or association, you must file a Certificate of Formation and pay your filing fee with the Texas Secretary of State.
- General Partnerships. Like sole proprietorships, general partnerships do not have to be incorporated at the state level. You simply must register for an Assumed Name Certificate with the local county clerk’s office in counties where you plan to operate. It’s important to keep in mind, however that a general partnership does not limit your or your partners’ personal liability.
- Limited Partnerships. Limited partnerships are much like general partnerships, except that they allow certain partners to avoid liability by acting as silent investors. To incorporate as a limited partnership, you must file a Certificate of Formation and your partnership agreement and pay your $750 filing fee with the Texas Secretary of State.
- Registered Limited Liability Partnerships. Unlike general or limited partnerships, registered limited liability partnerships allow all partners to limit their liability. In a registered limited liability partnership, a partner is not individually liable for debts and obligations of the partnership arising from errors, omissions, negligence, incompetence, or malfeasance committed by other partners. To incorporate as a registered limited liability partnership, you must file a Certificate of Formation and your partnership agreement and pay your $200 per partner filing fee with the Texas Secretary of State.
4. Registering Your Company Name with the Texas Secretary of State or Filing an Assumed Name Certificate
All companies in Texas must formally register their name in order to use it in Texas. This step requires a bit of research, because no two companies in Texas can operate under the same name—even if they are in vastly different industries or fields. Unlike some other state laws or federal trademark law, registered names in Texas are exclusive across all areas of operation.
If you have an LLC, corporation, limited partnership, or registered limited liability partnership, this process is simple. You just need to file an additional form with the Texas Secretary of State at the same time you incorporate. This will register your name automatically throughout the entire state. If you have a general partnership or a sole proprietorship, however, you must file for an assumed name certificate both with the Texas Secretary of State and the County Clerk’s offices in each county where you plan to do business. This process must be repeated at least every 10 years (the maximum duration of any assumed name certificate). For this reason, some companies find it more convenient to choose alternate entities.
5. Fulfilling Tax Obligations
To fulfill your legal tax obligations, your new company needs proper tax IDs. First, you must register for an Employer Identification Number (EIN) or Federal Tax Identification Number with the IRS to pay federal taxes.
At the state level in Texas, there are no business income taxes, but depending on your type of business, you may still owe other Texas business taxes. The Comptroller of Public Accounts is the Texas entity that deals with state taxes in Texas, so you’ll need to check with them to see if you owe any taxes. The most common state taxes Texas businesses may owe include the following:
- Sales and Use Taxes. If your company sells taxable objects or services, you’ll need to register for a Texas sales and use tax permit and pay these taxes regularly.
- Franchise Taxes. If your company is not owned 100% by natural persons and makes at least $600,000 annually, you’ll need to pay franchise or margin taxes. To determine if this tax applies, LLCs and corporations file a Public Information Report annually. All other businesses must file an annual Ownership Information Report.
- Employment Taxes. All businesses must pay unemployment taxes with the Texas Workforce Commission on each employee they hire.
- Local Taxes. Most companies will also owe local taxes which are paid at the state level on any tangible personal property that is used to produce income. This property must be reported to the local county appraisal district for tax assessment every year.
6. Registering for Relevant Licenses, Permits and Registrations
While you may not need a general “business license” to operate in Texas, every company will need a number of local, state, and federal licenses, permits, and other registrations in order to comply with environmental, health and safety, and other relevant regulations. In order to determine which may apply to your industry and company, you can check with the Texas Department of Licensing and Regulation. It also may also help to speak with a licensing attorney or check with your local business licensing offices, as not all required licenses are issued at the state level.
7. Meeting Texas Business Employer Requirements
The final step towards starting your business in Texas is to meet all Texas business employer requirements. These include meeting all labor, safety, and wage obligations, registering hires within 20 days with the Texas Workforce Commission, and purchasing relevant business insurance.
What other legal issues do I need to consider when I start a business in Texas?
Starting a business is complicated. It would be impossible to address every legal issue relevant to how to start a business in Texas here. If you want to cover all your bases, it may help to discuss the legal issues that may affect your company with a Texas startup lawyer.
Is Texas a good state for a startup?
Texas has earned a reputation for being a state that is friendly to new business—and for good reason. With low taxes, excellent infrastructure, and few barriers to entry, Texas has been attracting startups over the past five years with more regularity. Austin, Houston, and Dallas/ Ft. Worth areas all have thriving startup communities, and there is a large skilled workforce—many of whom were educated at some of the top public universities located in Texas. As Texas Governor Greg Abbott puts it, “Austin is already a dynamic startup hub,” and the rest of the state is primed to be one too.