Starting A Small Business In Texas

Two women small business owners in Texas pack up orders on a table.
| 11.11.22
Susan G.

Texas is the second largest state by land mass (and, no, California isn’t the state that beat Texas. That would be Alaska!) but could be the number one state by opportunity. The saying may be, “Don’t Mess With Texas,” but you should mess with starting a new business there! Join the over three million small businesses in Texas today. We’ll tell you how!

How To Start A Small Business In Texas

Decide what products or services your small business will offer. For some people, this is the real challenge. Before registering for a new business, you’ll need to settle on a central business idea. What is your strongest idea? Typically, it is the idea that fits a need in your community. Is your community a food desert? A small grocery store could be the answer. Are there lots of busy people who aren’t home much? Pet sitting or house cleaning could fit the bill. Whatever you decide, ensure there is a market for your idea.

Come up with a great name for your small business. Once you’ve looked at the market for your business idea, you’ll have a good idea of what kind of name might work. Law offices commonly have last names as part of their business name in order to help communicate trust and formality. Cleaning businesses typically use someone’s first name, like Sandy’s House Cleaning, or a catchy, memorable name. What would work for your business?

Know about Texas business taxes. First off, Texas’s term for business tax is franchise tax, which means franchise tax doesn’t apply to profit itself. Businesses with annual revenue of up to $20 million pay a franchise tax of 0.331%. The good news is that small businesses with annual receipts of less than $1,180,000 pay no franchise tax! Regardless, Texas franchise tax information can be found on the Texas Comptroller's site. You’ll be able to find all the information you need there! Regarding federal business taxes, we’ll point you to the good old IRS.

Figure out your business structure. Yup, it is getting real. We’re going deep with the business terms here. It feels early in the process, but now is the time to decide your business structure. If you read through this and you’re still not sure, talk it through with an attorney! These are the general choices to consider:

  • Sole Proprietorship. The easiest to establish, Texas does not require sole proprietors to file any organizational documents to get started. With this business structure, you own the business outright, including any liability.
  • Partnership. Establishing a partnership as your Texas business structure is also easy because Texas does not require partnerships to file any organizational documents. A partnership is when two or more people own a business. If you want to start your partnership on the right foot, put together a written partnership agreement for all partners to sign. A partnership agreement helps cut to the chase if there is a dispute.
  • Limited Liability Partnership. You’ll need to register with the Texas Secretary of State to start a limited liability partnership. You’ll want this business structure if it is important to you to be protected (personally) from any professional malpractice of any partners. This is a common choice for law, accounting, and healthcare businesses.
  • Limited Liability Company (LLC). When creating an LLC, start by filing a certificate of formation with the Texas Secretary of State. You’ll also need to appoint a registered agent for service of process who will be responsible for accepting legal documents served on your business. Consider drafting an operating agreement setting out how your LLC will operate. Why choose an LLC for your business in Texas? An LLC means owners like you will not be held responsible for the debts of the LLC. For example, if the LLC goes bankrupt, your personal assets can’t be pursued to settle a bankruptcy. That is how your liability is limited in an LLC!
  • Corporation. Most small businesses are not corporations. Where owners of an LLC have equity in the business because of initial investment, corporate owners are shareholders or stockholders. To start a corporation in Texas, file a certificate of formation and appoint a registered agent. After that, it is a world of by-laws and tax implications!
  • S Corporation. I bet you thought we were done, but no! There is one more business structure type to know about. According to the Texas Secretary of State, “An ‘S’ corporation is not a matter of state corporate law but rather a federal tax election. A for-profit corporation elects to be taxed as an ‘S’ corporation by filing an election with the Internal Revenue Service.” With an S Corporation, you and any other owners report company revenue as personal income. 

Secure licenses and permits. There are different licenses and permits to consider depending on what services your business will provide or what products you will sell. Here’s a quick rundown of what you need to know.

  • Texas tax registration. If you’re engaged in business in Texas, the Comptroller of Public Accounts (CPA) wants you to submit a registration. Details are on the CPA site, including the documentation you’ll need to have ready. You’ll need to obtain a sales tax permit from the CPA if your business will sell anything that is taxable.
  • Industry-specific, professional and occupational licenses. If you’re a barber, property tax professional, massage therapist, podiatrist, or electrician, for example, Texas requires you to have industry-specific licensing. Over 25 industries need licenses in Texas. Check for yours here.
  • Employer Identification Number (EIN). While obtaining an EIN is not strictly required, you’ll want to have one if you open a business bank account or other necessary business contracts. You will be required to have an EIN if you have employees or you don’t pay business taxes on your personal income tax. It’s easy to obtain an EIN online!

Choose a location for your Texas small business. Now that your new business is totally legit, you can focus on a location for it. What location would be most meaningful for your customers? That is the primary concern. Other considerations include:

  • Local zoning laws and association rules.
  • Parking for employees and customers.
  • Maintenance requirements.
  • Proximity to highways and dining options.
  • Cost.
  • Possibility to expand.
  • Neighboring businesses.
  • Foot traffic.
  • Crime and safety.

Obtain business insurance. Sometimes, you’ll need to obtain business insurance before choosing a location. This is because some lease agreements require general liability insurance coverage at a minimum. Plan to complete this step in concert with your location step. Depending on your type of business, your location, and whether you’ll have employees, you may need a business owner’s policy or general liability policy, workers’ compensation, professional liability insurance, hired and non-owned automobile insurance, and cyber insurance. There may be other add-on policies you’ll want to cover your tools and equipment or other facets of your business.

Open a business bank account and credit card. It is important to get your business finances organized from the get-go. Your best bet is to open a bank account and a credit card dedicated to all of your business transactions. Come tax time, you’ll be able to keep track of what you need, and you’ll also be able to do some reporting on the state of your business as needed. You could also consider applying for a small business loan at this step, but you’ll need to put together a business plan first.

Get down to business. You’re all set with setting up your business, so it is time to start promoting it and making some money! Come up with a marketing plan for your small business—it’s not as complicated or expensive as it sounds. Get the customers rolling in and enjoy the thrill of owning your own business! 

Owning a small business is lots of work and lots of rewards. Texas is the perfect place to start your new business. The Lone Star State is full of possibilities for you. We tip our hats to you and wish you success!

About the Author

B2Z Insurance is a small business insurance company that provides coverage for on-the-go business owners: simple explanations, easy application, digital quotes, and mobile claims. A product that is easy-to-use and helps you assess the unique coverage needs of your business with confidence—freeing you up to grow your business.

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