Starting a small business in Texas is an exciting venture, offering opportunities in a state known for its robust economy, entrepreneurial spirit, and business-friendly environment. However, to ensure your business is set up correctly, it’s important to follow the official steps required by the U.S. government and the state of Texas. Whether you’re opening a retail store, a service-based business, or an online venture, understanding the legal requirements is crucial for long-term success.
In this guide, we will walk you through the necessary steps to launch your business in Texas, covering everything from business structure to tax requirements, ensuring you meet both federal and state guidelines.
1. Choose a Business Idea and Structure
The first step in starting your business in Texas is deciding on the type of business you want to open. This could be anything from a local restaurant to an online consultancy. Once you have your idea, you need to choose a business structure. The most common business structures in Texas are:
- Sole Proprietorship: A simple business structure where you are the sole owner and responsible for all aspects of the business.
- Partnership: A business owned by two or more people who share profits and liabilities.
- Limited Liability Company (LLC): A more complex structure that separates your personal assets from your business liabilities.
- Corporation: A business structure that is separate from its owners, offering the highest level of liability protection.
Choosing the right structure will depend on factors such as liability protection, tax implications, and how much control you want to have over the business.
2. Register Your Business Name
In Texas, you are required to register your business name with the state if you are using a name other than your own. This is known as a “Doing Business As” (DBA) name, and it must be filed with the Texas Secretary of State if your business is operating as a sole proprietorship or partnership. If you form an LLC or a corporation, your business name will be registered as part of the formation process.
Steps to Register a Business Name:
- Check the availability of your desired business name using the Texas Secretary of State’s online database.
- File a DBA registration with the county clerk in the county where your business is located.
- If forming an LLC or corporation, the business name will be filed when you submit your formation documents to the state.
3. Obtain an Employer Identification Number (EIN)
An Employer Identification Number (EIN) is a unique number issued by the Internal Revenue Service (IRS) to identify your business for federal taxes. Almost all businesses need an EIN, even if they don’t have employees. It is used for tax purposes, opening business bank accounts, and applying for business licenses.
How to Apply for an EIN:
- Apply online on the IRS website for free.
- Alternatively, you can submit Form SS-4 via mail or fax.
4. Register for State Taxes
Texas does not have a state income tax, which is a major advantage for business owners. However, depending on the type of business, you may still need to register for various state taxes, including:
- Sales Tax: If you sell taxable goods or services, you must collect state sales tax from your customers. You need to register with the Texas Comptroller of Public Accounts to obtain a sales tax permit.
- Franchise Tax: Most businesses operating in Texas are subject to a franchise tax, which is a tax on the business’s revenue. This tax is filed with the Texas Comptroller.
- Employment Taxes: If you have employees, you’ll need to register for state unemployment insurance (SUI) tax and Texas State Withholding Tax.
Steps to Register for State Taxes:
- Visit the Texas Comptroller’s website to register for sales tax, franchise tax, and other applicable taxes.
- Complete the Texas State Tax Registration form and submit it online.
5. Obtain Necessary Permits and Licenses
Depending on the nature of your business, you may need to obtain certain permits or licenses to operate legally in Texas. These licenses are typically issued by federal, state, or local agencies.
Types of Licenses and Permits You May Need:
- Health Permits: For businesses in the food industry or health-related fields.
- Professional Licenses: If your business involves professional services (e.g., legal, medical, financial), you may need a professional license issued by a state board or agency.
- Building Permits: If you’re opening a brick-and-mortar location and plan on renovating or constructing a new building, you may need permits from your local city or county.
To check which licenses and permits you need:
- Visit the Texas Department of Licensing and Regulation (TDLR) website.
- Use the Texas Business Permit Office to search for the required permits for your specific business.
6. Open a Business Bank Account
Once you have your EIN and business structure in place, it’s essential to open a business bank account. A separate business account keeps your personal and business finances distinct, which is important for liability protection and tax purposes.
What You’ll Need to Open a Business Bank Account:
- Your EIN
- Your business formation documents (e.g., LLC or corporation certificate)
- A copy of your DBA registration (if applicable)
- A valid ID and proof of address
7. Set Up Accounting and Record-Keeping Systems
Proper record-keeping is crucial for running a small business in Texas. Keeping track of your income and expenses will help you manage your cash flow, file taxes correctly, and assess your business’s financial health.
You should:
- Choose accounting software like QuickBooks, Xero, or Wave to manage your financials.
- Set up a system for tracking receipts, invoices, and tax documents.
- Maintain accurate financial records for at least 7 years, in line with IRS requirements.
8. Hire Employees (If Applicable)
If your business will have employees, you must comply with federal and state employment laws. This includes:
- Registering for Employer Taxes: As mentioned earlier, register for state and federal employment taxes.
- Posting Requirements: Texas employers are required to display certain labor law posters at their place of business.
- Workers’ Compensation: Although Texas doesn’t require employers to carry workers’ compensation insurance, it’s highly recommended for protecting your business and employees.
Steps to Hire Employees:
- Report new hires to the Texas New Hire Reporting Program.
- Set up payroll and ensure proper tax withholdings.
9. Comply With Local Zoning and Safety Regulations
Local zoning regulations dictate where certain types of businesses can operate. If you’re operating a physical storefront or office, you must ensure that the location complies with zoning laws.
You should:
- Check with your local city or county zoning office to ensure your business location complies with zoning regulations.
- Adhere to local safety codes, including fire safety and building codes, if applicable.
10. Stay Compliant with Ongoing Requirements
After launching your business, you must stay on top of compliance to ensure continued success. This includes:
- Filing annual reports for LLCs and corporations.
- Paying franchise taxes on time.
- Renewing business permits and licenses as required.
Let’s Start Your Business in Texas
Starting a small business in Texas can be a rewarding endeavor if you follow the right steps and stay compliant with both federal and state regulations. By choosing the right business structure, registering your business name, obtaining an EIN, and securing the necessary permits and licenses, you can ensure that your business operates legally and smoothly.
Whether you’re looking to open a storefront, offer professional services, or launch an online business, Texas offers numerous opportunities. By taking the time to plan and follow the steps outlined in this guide, you’ll be on your way to building a successful business in the Lone Star State.
