How to Start Your Own Business in Texas
Just like starting a business requires capital, having information about incorporating a business in vital. Below are seven key steps that an entrepreneur should consider when starting a business in Texas.
Step 1: Decide on a Legal Business Structure
In the US, the most common legal business structures for small businesses are:
sole proprietorship
partnership
limited liability company (LLC), and
Besides, there are special versions of some of these structures. These include limited partnerships and S corporations. It will be best to consider the business entity structure that offers the type of liability protection you want. In addition, select the structure with the best tax, financing, and financial benefits for you and your business.
Step 2: Choose a Name for the business
For LLCs and corporations, it is essential to check that your name is distinguishable from the names of other business entities. Check with the Texas Secretary of State (SOS) if there is any business bearing a name you want to choose. You can check for available names by conducting a name search on the SOSDirect website. Moreover, you can reserve an available name for 120 days by filing an Application for Reservation or Renewal of Reservation of an Entity Name. Submit the form to the Texas SOS. It is imperative to note that there are certain name requirements for LLCs and corporations. One should include a word such as “LLC” for LLCs or “Company” for corporations.
Step 3: Create Your Business Entity
Sole proprietorship – You do not need to file any organizational documents with the state to establish a sole proprietorship in Texas.
Partnership – creating a general partnership in Texas does not require any organizational documents. However, forming a limited liability partnership often used by professionals, you must file a Registration with the Texas SOS.
LLCs – you must file a Certificate of Formation with the Texas SOS to create an LLC in Texas. You should also appoint a registered agent in Texas for service of process.
Corporations – while establishing a corporation in Texas, it is a requirement to file a Certificate of Formation with the Texas SOS. You should also appoint a registered agent in Texas for service of process. S Corporations should file IRS Form 2553, Election by a Small Business Corporation, with the IRS.
Step 4: Licenses and Permits
Tax Registration – it is a requirement to apply for a sales tax permit with the Texas Comptroller of Public Accounts (CPA). Generally, it is a requirement for any business operating in Texas to register with the CPA.
EIN – it is mandatory to obtain a federal Employer Identification Number (EIN) from the IRS. This is especially if your business has employees or is taxed separately from you. There may be other reasons why businesses should obtain an EIN. For instance, banks often require an EIN to open an account in the business’s name. Moreover, other companies you may do business with will require an EIN to process payments.
Regulatory licenses and permits may cover areas such as:
health and safety
the environment
building and construction, and
Specific industries or services
Step 5: Taxes and Reporting
Since Texas does not impose personal income tax, owners of some forms of business do not owe state tax on their business income.
Sole proprietorships – Sole proprietors should pay federal taxes on business income as part of their personal federal income tax returns.
Partnerships – Partners should pay federal taxes on partnership income. In addition, most Texas partnerships pay the state’s franchise tax. However, one may only owe the tax if total revenue exceeds a certain amount. Limited liability partnerships (LLPs) and some types of limited partnerships (LPs) must file an annual report with the SOS.
LLCs – members of an LLC should pay federal taxes on their share of LLC income as federal tax returns. LLCs are subject to the state’s franchise tax but only owe the tax if total revenue exceeds a specific amount. Unlike other states, it is not a requirement for LLCs in Texas to file an annual report
Corporations – a shareholder-employee with a salary should pay federal income tax on his or her personal federal tax return. The corporation itself is only subject to franchise tax.
It is vital to note that apart from Texas taxes, there are federal income and employer taxes. It would be best to check for more information about federal and employer taxes from the IRS website.
Step 6: Get an Insurance partner
For whatever type of business structure you choose, getting an insurance plan is a good idea. Even though insurance often is regulated at the state level, the types of business insurance plans available are similar across the fifty states. It is of paramount importance to get an insurance plan to secure your business from any possible risks in the future.
If you need more information about starting a business in Texas, do not hesitate to contact us. Our experts will be ready and available to help you out.
