If you want to become a business owner, starting a small business in Texas has its perks. It’s consistently ranked one of the best states to start a business because of its incentives for new small businesses.
It also has 150 statewide and local programs [PDF] for new business owners.
Want to take advantage of the business benefits of the Lone Star State? Here’s a complete guide to everything that should be on your checklist for starting a business in Texas.
Steps to starting a business in Texas
Once your business is open to the public, you will likely have little time to establish your foundation. To make sure everything runs smoothly, set up the basics for your business beforehand.
Get administrative paperwork and other business needs set before you open so you can stay focused on growing your business. Here are the key steps to starting a business in Texas that you should complete before you open your doors:
Write your business plan
Some business owners mistakenly think that a business plan is only necessary if you plan to secure business funds through investors or bank loans. However, writing a business plan is actually a valuable exercise that can help you think through everything you’ll need for your business.
It will be your roadmap for addressing common issues as they occur, and you’ll have a solid plan ready if you need additional financing down the road.
If you’re new to writing a business plan, the Texas Governor’s Small Business Handbook provides a helpful template [PDF] to get started.
Learn more about business plan essentials.
Decide on a legal structure
There are many legal structures for businesses in Texas, but the most common types are sole proprietorships, partnerships, LLCs and corporations.
There are pros and cons to each business structure. You’ll need to evaluate the cost and personal protection provided by each to decide which best fits your needs. A licensed account can help you with the tax implications of each option, as well.
Texas generally requires sole proprietorships and partnerships to register with their local county clerk’s office, while LLCs and corporations will register with the Secretary of State’s office.
Choose a business name
In Texas, your business name must be distinguishable in the Secretary of State’s records from all other business name registrations or name reservations (even if those businesses aren’t yet open).
Choose a business name that is unique and represents your business. Once you have selected it, you’ll need to file a reservation online or complete a paper form and submit it to the Secretary of State’s office.
Create your business entity
If you decide to structure your business as a sole proprietorship or partnership, forming a separate business entity is not required in Texas. Instead, sole proprietors or partners can conduct business using their own legal name or they can file an Assumed Name Certificate (also known as a “doing business as” or “DBA”) with their local county clerk.
To officially create a for-profit business in Texas, you must complete Form 201 to register your business with the state. It includes your legal structure, business name, any registered agents for your business (if necessary) and the purpose for your business.
The state also provides different registration forms for the formation of LLCs, nonprofit organizations, professional associations and other business entities.
Texas licenses and permits for small businesses
Texas does not require a general “business” license, but your business may be subject to certain licensing or permitting requirements depending on where you operate and the services you provide.
There are currently 39 industries regulated by the Texas Department of Licensing and Regulation that require business owners to obtain a license to comply with state laws. For example, general contractors, HVAC technicians and other construction trades are required to have licenses in Texas.
Beyond the 39 industries requiring professional licenses, over 300 additional types of businesses must have permits, certifications or other authorizations to operate.
The Texas Business Permit Office has compiled a comprehensive guide of all business types that require some form of permit or license along with the contact information for the regulating board for that industry.
How to register your business in Texas
Once you have taken the initial steps to plan your business, you’ll need to register it with the state. The process for registration will vary slightly depending on whether you need additional permits or licenses and which legal business structure you choose.
If you are forming a sole proprietorship or partnership, you will:
- Gather and complete the DBA form for each local area where you plan to operate.
- Submit the completed form with the $25 registration fee at each county clerk’s office.
- Follow-up with each local office to request a certified copy of your DBA once the form has been processed and your business name has been verified as unique.
If you are forming a legal business entity other than a sole proprietorship or partnership, you will:
- Gather and complete the correct form for the business structure you plan to create.
- Submit the completed form with the appropriate registration fee ($300 for LLCs and corporations, $750 for professional associations or limited partnerships and $25 for nonprofits) to the Texas Secretary of State’s office through the mail, in person or via the state’s online portal.
- Track the processing of your application through the online portal or by contacting the Secretary of State’s office. Once your application has been processed and approved, request at least two official copies of your registration paperwork and submit the $15 fee for each copy you request.
Texas business bank accounts and credit cards
When opening a new business, you want to keep your business transactions and funds separate from your personal transactions and funds. This will help you easily track income and expenses in your business and make sure that you are calculating taxes properly.
Opening a business bank account and business credit card can also help you take advantage of rewards programs and cashback offers that are only available to business owners.
Although the governor’s office in Texas can’t recommend specific banks, it does provide a list of the Top 100 Banks in Texas by asset size. The Texas Department of Banking also provides a comprehensive list of all state-chartered banks and holding companies.
The Texas Governor’s Small Business Handbook provides financial resources for nonprofit lending companies and other financial resources for small business owners.
Location and zoning regulations
Depending on what type of business you plan to open, you may need to comply with certain local zoning regulations. Zoning rules are typically set at the local government level, so the specific zoning ordinances that may apply to your business will vary based on where your business is located and whether you will have customers visiting your business location.
For example, restaurants or retail businesses that welcome customers must generally comply with the Americans with Disabilities Act (ADA) and local fire code regulations. You can search the local city or municipal government websites for additional regulations that may apply to your business.
Texas business insurance
Getting the right types of business insurance can help you avoid penalties, qualify for new business opportunities and protect your business assets after an accident or mistake. Texas is less strict than many states when it comes to insurance requirements, but it does have some in place.
Workers’ Compensation coverage
For most private employers in Texas, workers’ compensation insurance is optional. However, if your business performs work under government contracts with the state, you are required to provide workers’ compensation insurance for your employees.
Texas also encourages other employers to carry workers’ compensation insurance since it provides financial protection for you and your employees after a work-related injury. It can help pay for medical costs and lost wages.
Even though you may not be legally required to purchase this insurance, you will be designated a “non-subscriber” by the state if you elect not to. As a non-subscriber, you must file an annual notice with TDI, display notices in your workplace that you do not provide workers’ compensation coverage to employees and provide a copy of this notice to each new hire.
General Liability insurance
Most Texas businesses will not be required to carry general liability insurance, but it may be required for businesses in some industries, such as construction. Additionally, some of your customers or your commercial landlord could ask you to have coverage.
It can provide important financial protection against claims made by non-employees that your business caused an injury or property damage.
Commercial Auto insurance
Every driver in Texas is required to be covered by an auto insurance policy if they are driving a vehicle, regardless of whether it is for work or personal use.
If you have company cars, employees who make frequent deliveries or vehicles that are used in the normal course of your business (even if they aren’t company-owned), you will need commercial auto insurance.
Annual and ongoing business requirements in Texas
Once you become a registered business owner in Texas, there are certain ongoing requirements that you must maintain to stay in compliance with the law. Some must be completed quarterly or annually, while others may only require your attention every few years.
Business name regulations
If you are operating under a DBA as a sole proprietor or partnership, you’ll need to renew any DBA filings every 10 years to verify that your business is still active and open. Each DBA renewal is subject to a $25 fee, and you must file a DBA for every variation of your business name in every local area in which you are operating.
Separate business entities, such as corporations, LLCs and non-profits, do not have to renew the business registration as long as they file the applicable tax forms each year.
Taxes and reporting
Businesses in Texas must file both federal and state tax forms each year. Some will also be responsible for filing quarterly federal taxes. Since Texas does not have a personal income tax, owners of some forms of business will not owe state tax on their business income.
Businesses operating in Texas with over $1.18 million in profits are subject to the franchise tax. You must file the applicable state tax forms by May 15 each year. Texas also imposes a 6.25% sales and use tax on many businesses that sell finished goods. Some businesses providing taxable services are also subject to sales and use tax.
Depending on the local tax codes, your business may also owe business inventory taxes, sometimes referred to as property taxes. Businesses that own personal property, such as machinery or supplies, used to produce income may be subject to business inventory taxes in their local area.
If your business has employees, you have certain reporting responsibilities as an employer. The IRS requires that you complete an I-9 form to verify employment eligibility in the U.S. within three days of every new hire. You must also collect a federal tax withholding form (W-4) from each new employee and provide your employees with a federal tax and wage statement (W-2) at the end of each year.
In addition to the federal requirements, Texas requires all employers to submit new employees through the state’s New Hire Reporting Program within 20 days of the hire. If you pay at least $1,500 in wages to your employees or you have employed at least one employee for 20 weeks or longer, you must also register with the Texas Workforce Commission and pay the unemployment tax on your employees’ wages.
How Next Insurance helps Texas businesses get started
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If you have any questions, we have a team of Austin-based licensed insurance advisors who are ready to help.