If you’re thinking of starting a business, Texas can be an ideal location. Many entrepreneurs find Texas appealing, as its pro-business principles — like no personal and corporate income tax — make it a prime location for startups looking to gain an edge in competitive markets.
This article focuses on how to start a business in Texas, covering everything from selecting a business structure to accounting and tax obligations. We’ll also share how Mosey can help you stay on top of compliance.
What Are the Different Types of Business Structures?
Before you can officially build your business, you need to select a business structure. This process is vital, as it often affects your business liability, taxes, and management approach.
Here are the different structures that you can consider:
Limited Liability Company (LLC)
A limited liability company (LLC) is a business structure that protects its owners, called members, from personal liability for the company’s debts and legal issues. LLCs are flexible in management and taxation, allowing profits to be taxed on personal returns or as a corporation. You can also pay yourself from an LLC.
Starting an LLC in Texas offers personal liability protection and tax flexibility while benefiting from Texas’ lack of state income tax. However, Texas LLCs must pay an annual franchise tax, which may impact smaller businesses.
Sole Proprietorship
The sole proprietorship is the most common business structure, involving a business owned and operated by a single individual. It doesn’t require formal registration with the state, making it easy and inexpensive to start.
Sole proprietorships in Texas are ideal for small, low-risk businesses. That’s because the owner is personally liable for all debts and legal issues, putting personal assets at risk. Additionally, raising capital or expanding can be more challenging.
Corporation
A corporation is a formal business structure separate from its owners with strong personal liability protection.
In Texas, corporations can be established as either C corporations or S corporations. C corps are taxed as separate entities, while S corps allow profits and losses to “pass through” to owners’ personal tax returns, avoiding double taxation. Both types require formal registration.
Foreign Corporations
While not a separate business structure, foreign corporations in Texas are companies formed in another state or country that want to conduct business in the Lone Star State. To operate legally, these corporations must register with the Texas Secretary of State by filing a Certificate of Authority.
Foreign corporations are subject to Texas laws, including the state’s franchise tax. Failure to register can result in penalties, fines, and even an inability to operate in the state.
Partnerships
Partnerships are businesses owned and managed by two or more individuals with shared responsibilities, profits, and losses.
In Texas, partnerships can be general partnerships (GPs), limited partnerships (LPs), or limited liability partnerships (LLPs), each offering different levels of liability protection and management roles.
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How To Register Your Business Name in Texas
Selecting a unique and memorable business name is crucial, as it sets the foundation for your brand’s success.
To check the availability of your desired name, simply visit the Texas Secretary of State’s Direct portal. Once you’ve settled on a unique name, file the appropriate state form — such as an Assumed Name Certificate or a Certificate of Formation — depending on your business structure.
Additionally, if you want to operate under a brand name other than that of your legal entity, or your preferred business name is already registered with the state, you can register under a “Doing Business As” (DBA).
Why Is It Important To Obtain Licenses and Permits?
Depending on your industry and location in Texas, several business licenses may be needed to operate legally. Texas’ requirements can differ by sector, so knowing which permits apply to you is essential. Failing to obtain the proper permits can result in fines or delays.
For example, restaurants may need beverage permits from the Texas Alcoholic Beverage Commission, while construction companies may require contractor licenses. To determine the specific licenses your business needs, you can use the Texas Department of Licensing and Regulation’s (TDLR) website.
How To Open a Business Bank Account
Regardless of your business structure, it can be helpful to separate your personal and professional finances with a business bank account.
Opening a business account in Texas is a relatively straightforward process.
Select a Bank
First, choose a reputable banking institution that resonates with your industry and business needs. Depending on your situation, you may want to prioritize local or national banks.
Gather Necessary Documents
After that, it’s time to round up the paperwork you’ll need to open your account.
Generally speaking, these documents are:
- Your Employer Identification Number (EIN)
- Proof of business registration
- Personal identification for the account holder(s)
- Relevant licenses
- Partners agreement
- Articles of Incorporation
Submit Your Application
Finally, submit your application to the bank of your choice, either online or in person, depending on their process. Once your application is approved, you’ll receive account details and can begin managing your business finances.
What Are the Benefits of a Business Bank Account?
Distinguishing your business assets can be useful for several reasons:
- Better Control of Finances: With a business bank account, you may have an easier time controlling your expenditures and revenue.
- Legal Protection: Maintaining separate accounts is a good way to avoid grey areas when declaring assets or providing evidence should a legal dispute arise.
- Limited Liability: Personal liability and risk are significantly reduced when your wealth is not tied to your business accounts.
- Easier Tax Management: Having separate accounts also makes handling tax compliance, deductions, and audits more convenient.
- Professionalism: Finally, a separate business account fosters trust with partners and prospective investors, which can help you grow your company.
Why Do You Need To Get an Employer Identification Number (EIN)?
An Employer Identification Number (EIN) is a unique identifier issued by the IRS for your business. It allows your business to file taxes, hire employees, and open a business bank account. Almost all businesses need an EIN, except for sole proprietorships with no employees.
To obtain an EIN in Texas, you can apply with the IRS online, by mail, or by fax. The online application is the quickest method, and you’ll receive your EIN immediately upon completion. There is no cost to apply for an EIN.
How To Abide By Texas Labor Laws
If you plan to hire employees, it’s important to understand Texas labor laws, especially those pertaining to hiring regulations, salary requirements, workplace safety standards, and more.
For the most part, Texas follows federal guidelines for labor compliance. Even still, that can involve multiple overlapping laws. For instance, employers must comply with the federal Fair Labor Standards Act (FLSA), the federal Family and Medical Leave Act (FMLA), and more.
How Can an Employee Handbook Help?
A detailed employee handbook can serve as a centralized resource for employers and employees alike. This document can outline relevant labor laws and related company policies so that employers know what they’re responsible for and employees recognize their rights.
If you’ve never created a handbook before—or if yours needs an overhaul—Employee Handbooks from Mosey can help. In just a few minutes, you can build and maintain a fully compliant handbook with Texas labor laws. Our user-friendly employee portal even makes it easy to notify your workers about changes and collect signatures.
Launch your Texas handbook in minutes.
Everything you need to make a compliant handbook for all 50 states. Update policies with one click to see and apply changes.
How To Comply With Tax Obligations in Texas
One of the most attractive aspects of doing business in Texas is the absence of a state income tax for individuals and corporations. However, companies are still required to fulfill other tax obligations, such as the state tax permit and franchise tax.
Most businesses require a Texas State Sales Tax Permit if they sell goods or services subject to sales tax. Additionally, Texas imposes a franchise tax on businesses — essentially a tax on revenue — and most companies must file an annual report with the Texas Comptroller’s office.
For help with tracking tax compliance obligations, you can rely on Mosey. Automate payroll and sales tax registration by detecting state and local requirements as they’re triggered by your employees. We can even expand with your business, helping you stay compliant in all 50 states.
Let Mosey Handle State Compliance
Texas offers countless opportunities and resources to help bring your business venture to life. By understanding key financial practices and labor laws, you can build a strong foundation for your business in the Lone Star State.
That said, staying compliant with taxes, payroll, and state labor laws can be overwhelming — that’s where Mosey can help. Our compliance management platform makes it easy to abide by state and local regulations, allowing you to focus on growing your business.
Book a demo with Mosey today and level up your compliance efforts.
