How to start a business in Texas [Updated 2024]
Many business owners know Texas is a great place to start a business. The state has a favorable environment for rising enterprises and is considered one of the best in the US. With no state income or corporate taxes, entrepreneurs can keep most of their earnings. They can also easily access thriving business and tech hubs in Austin and Houston.
If you're planning to start your own business, it's essential to consider a few key things. First, you'll need to create a solid business plan, come up with a name, secure funding, and choose a suitable business structure. Depending on the nature of your business, you may also need to obtain licensing. Maximize your success by exploring tax credits and using a reliable payroll solution to stay compliant and avoid any run-ins with the Internal Revenue Service.
Ready to learn what you need to start a successful business in Texas? Follow along with our step-by-step guide.
1. Name your business
For entrepreneurs, picking the right business name is essential as it reflects your product or service to potential customers. It’s equally important to make sure that the name you select meets Texas regulations for your type of business. Here's what to keep in mind:
- Your business name must be unique, not use any of the restricted or prohibited words, and not be misleading, deceptive, or profane. Check for existing names by creating an account on the Texas Secretary of State website and paying $1 for every business entity search. The search fee is waived if an order or filing is submitted right after the search.
- If the name is available, you can reserve it for any filing entity for 120 days by requesting a name reservation with the Secretary of State. There's also no limit on reservation renewals. You can file your name reservation through SOSDirect. A name registration is valid for one year and may be renewed.
- Search the US Patent and Trademark Office to confirm your business name hasn’t been trademarked.
- Claim your business name in Texas for a $25 filing fee online or by mail.
This is also a great time to lock down your business idea’s social media accounts and a matching domain name for your business website.
There may be instances where you need to conduct business under a name that differs from the one registered with the state. In such cases, you must register a trade name, also referred to as a DBA or "doing business as." In Texas, it’s called an assumed name certificate, and you can file it with the county clerk in each county where you operate.
2. Explore your funding options
Entrepreneurs have many options for funding their businesses—from bootstrapping to seeking investors or small business loans. Texas offers various incentives, including grants and loans, to attract new businesses to the state. Here are some places to start if you’re looking for funding:
- Texas Department of Economic Development. The Texas Department of Economic Development provides various small business resources, such as microloans, green loans, credit initiatives, and more.
- Small Business Administration (SBA). The SBA’s Texas District Office has six offices in the state and state-specific resources to help small businesses grow and optimize opportunities.
- Federal grants and loans. The federal government also offers grant and loan programs targeted toward small businesses and startup costs.
- Community Development Financial Institutions. These nonprofit lenders offer favorable terms, such as low interest rates, advice, mentoring, and workshops. BCL of Texas and LiftFund are two examples of nonprofit lenders that focus on lending to disadvantaged businesses and entrepreneurs.
- Texas Workforce Training Grants. The Texas Workforce Commission (TWC) provides the Skills for Small Business grant, which supports businesses with fewer than 100 employees. It incentivizes new, full-time worker training and full-time worker skill upgrades.
- Texas Small Business Credit Initiative. Small businesses can access funding through the state's Small Business Credit Initiative, which has two programs: the Capital Access Program and the Loan Guarantee Program. These programs provide affordable loans and insurance for businesses to grow and create jobs.
3. Decide on your business structure
When starting a business, whether a tech startup, a nonprofit, or a corporation, choosing a business structure that aligns with your needs is vital. Your legal entity will affect how you handle taxes, separate personal and business assets, and other legal considerations. Once you file, you’ll receive a certificate of formation to officially and legally register your business. Whether it’s a sole proprietorship or a limited liability company (LLC), Texas has the following business entities to choose from.
Business type
What is it?
Pros and cons
Sole Proprietorship
Unincorporated business with a single owner
✔ There’s only one owner, but you can hire employees.
✔ All income earned by small businesses is considered the owner's personal income.
✘ The owner is responsible for any debts, liabilities, and taxes.
Limited Liability Company (LLC)
The entity can either have a single owner or be co-owned by multiple individuals who agree to an equal share.
✔ Setting up your business for loans and investment is easy, with minimal reporting and compliance requirements.
✔ There’s an option to choose how you are taxed, including being taxed as a pass-through entity.
✔ Structure protects your own assets from liability.
✘ You’re subject to self-employment taxes.
✘ Keeping personal finances separate from your business can reduce the risk of a judge linking them, but it's not a guarantee.
Limited Liability Partnership (LLP)
To be eligible, the business must be in accounting, law, architecture, engineering, or land surveying and have a managing partner.
✔ Each partner is only responsible for their own mistakes—you’re not liable for your partner’s negligence.
✘ In Texas, this entity is limited to certain professions.
Corporation
A legal entity that’s separate from its owners and managed by shareholders who elect a board of directors to oversee operations
✔ Investors find it more appealing due to its stricter regulations compared to LLCs.
✔ Corporations bear tax and legal responsibilities.
✔ It can be structured as an S-Corp or C-Corp (more common).
✘ While C-Corps in Texas aren’t subject to “double taxation,” shareholders do pay taxes on any dividends they receive.
Limited Partnership
Consists of one general partner who manages the business and at least one limited partner
✔ Liability is determined by the level of control each partner has over the business.
✔ You’re only taxed once.
✘ There are more compliance and paperwork boxes to check compared to general partnerships.
✘ If you’re the general partner, you have unlimited liability for any issues.
General Partnership
Where two or more people are both equally liable, and business profits are taxed as personal income
✔ All partners are eligible for pass-through tax treatment, allowing them to deduct business losses on their personal tax returns.
✔ This is less expensive and complex to set up than corporations.
✘ Partners share liability for mistakes and debts, which can impact investor interest.
4. Register your business in Texas
You can establish a sole proprietorship or a general partnership in Texas without registration. But if you choose any other business structure listed above, you must register your business and pay a filing fee before starting operations in Texas. The table below has specific details and costs for registering each type of business entity in Texas.
Business type
How to register
Costs
5. Decide on a registered agent
Every Texas business needs a registered agent—an individual listed on its statement of information who can receive tax and other legal documents on its behalf.
If you're a small business owner residing in Texas, you can serve as your own registered agent. However, if you're not a resident of Texas, you can employ a professional registered agent service. The cost depends on the duration of the engagement and the specific services you require. For instance, if you need 24/7 support, you may pay a higher fee. In Texas, several providers offer registered agent services, typically for between $100 to $300 a year.
6. Apply for an Employer Identification Number
Getting a federal Employer Identification Number (EIN) is crucial to hire your first employee as a small business. This nine-digit number is like a Social Security number for your business and is required to open a business bank account, pay taxes, and apply for loans.
Obtaining your EIN is a quick, free, and straightforward process. Just complete Form SS-4 and send it to the IRS. Your EIN will be assigned within a few weeks.
7. Get up to speed with Business Tax Credits
While the Lone Star state has no corporate tax, other ways exist to reduce your tax burden even further depending on your kind of business. Texas offers a few attractive tax credits for business owners statewide. Here are some to consider:
- Research and Development Tax Credit: This program provides a tax credit to businesses that invest in research and development activities in Texas.
- Relocation Expenses Deduction: Companies moving to Texas can deduct certain relocation costs if they didn't previously do business in the state.
- Renewable Energy Incentives: Texas incentivizes businesses to invest in renewable energy like solar and wind power.
- Texas Enterprise Zone Program (EZP): This program offers tax incentives and other benefits for businesses expanding or locating in designated enterprise zones.
- Chapter 380/381: This program offers tax incentives to businesses that generate employment opportunities in economically challenged regions of Texas.
- Franchise Tax Deduction for Business Relocation: This program provides a deduction against the franchise tax for businesses that relocate to Texas.
8. Stay on top of filing requirements and taxes
Texas is known for its business-friendly tax system. According to the Texas Comptroller of Public Accounts, all businesses in the state must file an annual report by May 15 each year.
If your business has to pay sales tax, you must get a sales tax permit from the Texas Comptroller of Public Accounts. You must show this permit at all locations where you sell taxable items. You can apply for the permit online here. It takes two to three weeks to process.
In Texas, there is no personal income tax. The franchise tax applies to all taxable entities established or operating in the state, except for sole proprietorships and single-member LLCs, which are both exempt.
Businesses must keep up with their state and federal tax returns. The amount of state tax you owe will vary based on your business structure, and you may be responsible for sales tax, payroll tax, and other taxes. For further information, visit the Texas Comptroller’s website.
9. Find a payroll solution
Hiring employees or contractors in Texas means sorting through a new set of state and federal regulations while growing your business. First, avoid penalties and fines by classifying your workforce correctly. Make sure you follow the local laws and rules about minimum wage, overtime, and work hours. In Texas, employees who work more than 40 hours a week are entitled to 1.5 times their regular hourly wage.
To simplify payroll management, consider using software like Rippling. It eliminates the manual payroll processing and ensures timely payments to both employees and contractors. With Rippling Time & Attendance, you can easily track working hours and get notified when employees approach overtime. Once you click "Submit," Rippling handles IRS tax calculations and net pay in seconds—giving you a hassle-free solution.
And if you’re hiring globally, Rippling has that covered, too:
- Pay your entire team in one pay run, even across different tax jurisdictions and currencies.
- Include hourly and salaried employees and contractors.
- Manage all of your people, systems, and data around the world in one place.
10. Support and scale your growing business with Rippling
When expanding to Texas, consider implementing HRIS software to simplify recruitment, onboarding, payroll, and benefits administration tasks. Managing a remote, growing workforce can be a complex and challenging task, but HRIS streamlines much of the work involved.
If you have plans to expand your business globally, using an HRIS early on can make scaling easier. Rippling can provide a comprehensive system to manage your entire global workforce as you reach that stage:
- Hire, pay, and easily manage your employees worldwide, from Texas to Italy.
- Stay compliant with local, state, and federal regulations and prevent infractions.
- Automate the administrative tasks related to employee benefits, such as health insurance enrollment, 401(k) management, commuter benefits, and COBRA administration.
- Easily maintain updated recruiting data and automate hiring processes.
- Have a single source of truth for HR analytics, policies, and more.
FAQs about setting up a business in Texas
Do I need a business license in Texas?
In Texas, a general business license is not mandatory. However, certain regulatory agencies may have licensing and permitting requirements depending on the type of products or services your business offers.
To ensure that all requirements are met, it's best to inquire with the Texas Department of Licensing and Regulation and the city government where you plan to operate.
Do I need a business bank account when launching a business in Texas?
Whether you need a separate business bank account depends on your business type. Sole proprietors may not need one, but specific business structures require separating personal and business expenses to protect against liability. It's a good idea to get separate business credit cards and bank accounts to avoid mixing personal assets with business finances.
Do I need to get business insurance?
Business insurance isn’t required by law in Texas. However, businesses with a contract with a government entity must provide workers’ compensation for each employee until the contracted project is complete.
Other types of insurance for liability protection that are strongly recommended include:
- General Liability Insurance: Covers businesses from financial losses arising from bodily injury or property damage claims
- Property Insurance: Recommended to protect commercial property from damage due to fire, vandalism, theft, etc.
- Professional Liability Insurance: Protects businesses against malpractice, errors, and negligence in services provided to customers if there’s financial harm
What are Texas’s state payroll taxes?
Texas only has one type of payroll tax, other than federal, which is the unemployment insurance tax. An employer's tax rate determines the amount of state unemployment insurance taxes they must pay. To calculate the Texas state tax rate, an employer multiplies their tax rate by the taxable wages. Texas doesn’t have a state income tax.
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
