Starting a Business in Texas

A How-To Guide To Opening a Business in the Lonestar State from PRIME Corporate Services

CNBC ranks Texas fourth on their 2021 list of Top States for Business, due in part to the strength of the workforce, business friendliness, and access to capital. The nation’s second largest state by area is also the ninth largest economy in the world, with a $1.9 trillion GDP that lands it just behind Italy ($2 trillion) and ahead of Brazil ($1.8 trillion). So whether you’re hustling in Houston or setting up for success in San Antonio, Texas is a great place to start a business. If you’re interested in setting up a business in Texas, you can find everything you need to know right here in our clear and simple How-To Guide.

(We’ve got all the 411 to get you started on the path to business success in Texas, but if you want to skip the required reading and get a faster start, reach out to one of our PRIME advisors for a free consultation.)

Six Easy Steps to Forming a Business in Texas

We’ve broken the business formation process into six basic steps:

Name your business and write a business plan
Choose a location for your business operations
Decide how you will finance your business
Choose a legal structure for your business and register your entity
Identify your business tax obligations
Obtain all necessary permits and licenses

Read on for more details about each step.

Step 1: Craft a Business Plan

You may have a great business idea, but if you don’t have a well thought-out plan to get you from idea to execution, you’re dooming yourself before you even start. Think of your business plan as a road map that will take you where you want to go—in this case, you’re trying to get your business set up, registered, and operating profitably as quickly as possible. Your business plan should outline the purpose of your business, the structure, the value proposition and competitive advantages, and your financing plans. If you need examples and templates to get you started, check the U.S. Small Business Administration (SBA)’s site or schedule a consultation with a PRIME advisor for personalized advice and one-stop help in setting up for your business in Texas.

What’s in a Name? (Quite a lot!)

One of the earliest and most important parts of your business planning process will be choosing a name* for your business. When you are registering a business in Texas, you will need to make sure your business name is available and that it follows the codes and regulations for naming businesses in Texas. Choose a business name that is meaningful to you and lends itself well to marketing efforts. Avoid names that are difficult to spell or pronounce, and make sure you can secure a domain name that works for your new Texas business.

If you are thinking about registering your business in Texas, you may be tempted to choose a name that has your Texas location in it. This can be a great strategy if your business is local and you want to emphasize that fact. For example, if your business specializes in creating customized t-shirts with Texas themes, Texas Tees might be a great name for your new entity. But if you’d like to design and print shirts for clients all over the country, you may want to consider a business name that isn’t so geographically specific.

*Note—although the business name is important, it’s ok if you choose a name now and later decide that you want to expand to new markets or do business under another name. A DBA allows you to legally operate your business under multiple names. You can check out this article for more information about DBAs, or schedule a consultation with a PRIME advisor for more information.

Step 2: Choose a Strategic Location

You already know you want to register a business in Texas, but do you know exactly where your business will operate? The right business location depends on the type of business you will be operating. Will you work from home or have an office with multiple employees? Will you have a brick and mortar retail shop in Austin, Houston, or another Texas city? Wherever you’ll be located, you’ll need to check zoning ordinances and assess the ease of accessing your supply chain and customers for the locations under consideration. If you’re going to be hiring employees, make sure there is an adequate workforce in the area you’re considering.

Step 3: Finance Your Business Smartly

When you’re setting up a new business, it’s important to know how you will fund your new enterprise. Many people start by using their own savings and soliciting funds from family and friends. You can also consider applying for a bank loan or a federal loan for your business through the SBA (Small Business Administration). Other options include crowdfunding and seeking cash infusions from angel or venture capital investors, and using personal debt or other personal financing options

Here at PRIME, we always counsel people to establish business credit and avoid using personal funds whenever possible. We even have a specialized program designed to help you access business credit quickly and efficiently. Whatever funding source you use when you set up your business, you’ll want to think through all the ramifications of your plan. Using personal funds may feel like it’s the easiest way to finance your business, but are you willing to risk your personal credit and assets? Seeking investors can also be appealing in some circumstances, but don’t forget that investors will want equity (a partial ownership stake), dividends (cash payments), or some other form of return on their investment. Giving up equity in your business will dilute your ownership and your control over your own business, so it’s important to be sure you are ready to take on outside investors.

No matter what mix of funding you decide to use when starting your business, there are three basic steps that all new business owners should take:

Open a business bank account: A business bank account protects your personal assets by separating them from your company’s assets. It also simplifies accounting and tax filing.
Obtain a business credit card: This will help you separate personal and business expenses and build your company’s credit history. A credit history is very important if you decide to take out loans or apply for grants.
Set up business accounting: A business accounting system makes annual tax filings much easier and helps you track the performance of your business. You can use a quality accounting software and manage the accounts yourself, or hire a business accountant to navigate all of your accounting and tax needs. If you’re looking for an expert, PRIME has an experienced staff of CPAs who specialize in helping businesses in Texas and around the country keep more of their earnings through smart tax planning and strategies.

Step 4: Choose an Entity Structure and Register Your Business

Choosing the appropriate structure for your business is critically important in ensuring your long term success and profitability. You can register a business in Texas as a sole proprietorship, a partnership, an LLC, or a corporation. Many small business owners start by operating as a sole proprietorship. In this situation, you are the only employee of the business—you keep all of the profits, bear all of the risk, and assume all of the liability. Another simple structure is a partnership, where two or more owners share all of the risk and rewards of the business. In Texas, sole proprietorships and partnerships need to register and file the business name (DBA or assumed name) with their local county clerk’s office.

No matter what business structure you choose, you will follow a few basic steps to register your business in Texas:

Choose a registered agent: A registered agent is an entity or individual that is legally designated to accept tax and legal documents on behalf of your business.
Obtain an Employer Identification Number (EIN): An EIN is a number assigned by the IRS to identify your business for tax purposes.
File formation documents: The required formation documents will be determined by the business structure you choose.

Although sole proprietorships and partnerships can be simple and easy ways to set up a business in Texas, they don’t provide any protection for you—the business owner. We’ve got lots of great information on our site about the benefits of registering as an LLC (Limited Liability Corporation), which provides protection for you and your assets by setting up your business as a separate legal entity. Registering as a corporation in Texas is another option, but incorporating requires much more stringent reporting and other requirements. Setting up your business as an LLC gives you both flexibility and protection, which is why PRIME advisors typically recommend the LLC structure. In the state of Texas, registering an LLC costs $300.

If you decide to set up your Texas business as an LLC or corporation, you can find information and register on the Secretary of State’s Office (SOS) website. Or reach out to a PRIME advisor and let us handle the entire process for you! We’ve got experts who specialize in setting up businesses in Texas, and we can make the entire process fast and painless.

Step 5: Don’t Forget Your Business Tax Responsibilities

Once you’ve registered your business in Texas, you will need to determine the tax responsibilities of your new business with all of the appropriate authorities. The Internal Revenue Service (IRS) handles federal tax obligations, while state tax filings are done through the Texas Comptroller of Public Accounts (CPA). On the CPA’s website you can also find information about your county’s appraisal district or tax assessor-collector, who can help answer questions about your local business and property tax obligations. If your business will be an online business, you can also access helpful Marketplace Seller tax information on the CPA site. Better yet, let PRIME’s tax team handle those details for you! Our CPAs will help you keep more of your profit in your pocket when tax time comes.

Step 6: Secure Your Licenses and Permits

Starting a business in Texas does not require a general business license, but certain types of businesses do require licenses, permits, certifications, registrations or authorizations. In fact, you might be surprised by the vast number of businesses listed in the Texas Business Permits Office Handbook that require permits or licensing of some form. Want to do taxes, open a forensic lab, or raise livestock? You need a permit! Want to open a brewery, a campsite, or a cleaning service? You guessed it…you need a permit. Our PRIME advisors also recommend that entrepreneurs looking to set up shop in Texas visit the Business Permit Office (BPO) website for comprehensive information on state permits and licenses required for business enterprises in the state.

You’ve Formed a Business in Texas…Now What?

Once you’ve taken care of all the startup details, you’re ready to focus on running a successful business and making money! You’ll want to consider several things as you move forward:

Staffing Up: If you need employees for your new Texas business, think about how you will attract qualified candidates and how you will handle compensation and benefits. You will also want to determine the applicable federal and state employer requirements. The Texas Workforce Commission’s businesses and employers webpage is a great resource for this type of information.
Insurance: Business insurance helps you focus on growing your business and allows you to manage risk. Different businesses may need different types of insurance, but everyone should consider General Liability Insurance. Other types of insurance to consider are Worker’s Compensation Insurance and Professional Liability Insurance.
Marketing: Once you’ve formed your business, you want to make sure people know about it! One of the first things you will want to do is create a website. Your website can be a simple landing page with contact and service information, or it can be a sophisticated communication and sales tool that is optimized for Google’s search engine. DIY options are plentiful and can be quite successful, but if you want a site that is truly optimized, you may want to consider hiring a professional. Once your site is built, you’ll want to consider other marketing tools, from social media, Google My Business, and email campaigns to old fashioned flyers and signs. In today’s digital world, digital marketing efforts can be especially important, and positive customer reviews on Google and other sites can be pure gold for your Texas business.

Starting a business in Texas can be a daunting process, but it doesn’t have to be painful. We’ve got a huge library of information and resources on our blog, and our advisors are just a click away for a free consultation. We’ll help you execute on your big ideas and bring your business to life!