How to Start a Business in Texas

Texas has established itself as one of the most attractive destinations for those looking to set up an LLC in the United States. This state, with the eighth-highest gross domestic product (GDP) in the world, surpassing even countries like Brazil, offers endless opportunities for businesses. Its tax regime is particularly favorable for entrepreneurs, and its legislation is designed to support business growth. It’s no wonder that over 3 million businesses have chosen to establish themselves in Texas.

For Mexican entrepreneurs, Texas is of particular interest. Its geographical proximity and the already large Mexican community make it an ideal place for those looking to insert their business into a growing economy. Texas is not only a favorable environment for businesses but also ranks third in the list of U.S. states with the highest number of new businesses in 2023, with over 50,000 businesses opened in the first half of the year. These numbers highlight Texas’s growing attraction as an epicenter of innovation and economic development.

In this blog, we will guide you step by step through the process of starting a business in Texas, from choosing the legal structure to obtaining the necessary licenses and permits.

1. Requirements for Starting a Business in Texas

• Franchise Tax: In Texas, businesses are subject to a franchise tax if their total annual revenue exceeds a certain threshold. For 2024, this threshold is set at $2.47 million. This tax applies to companies formed in Texas or conducting business activities within the state. It is essential to be aware of this requirement to meet tax obligations and avoid penalties.
• Capital Requirements: Unlike other states, Texas does not impose a minimum capital requirement to form a company. This means you can start your business with a relatively small initial investment, making it easier for entrepreneurs with limited capital to access the market.
• Naming Requirements: In Texas, as in many other states, there are specific requirements regarding the naming of your business. For example, the use of the word "bank" in the company name is only permitted with the approval of the Texas Department of Banking. It’s important to ensure that your business name complies with these regulations to avoid legal issues.
• Assumed Name Requirements: If your business plans to operate under a name different from the legally registered name, you must file an Assumed Name Certificate (DBA) with the county clerk in every county where you operate. This step is crucial to legally protect your business name and avoid conflicts with other businesses.
• Certificate of Formation Provisions: The Texas Certificate of Formation must include certain provisions that are not always present in other states, such as the specification of the number of authorized shares and their par value. Ensuring that this document meets all requirements is essential for the legal formation of your business.

2. Choose Your Business’s Legal Structure

The first step in starting a business in Texas is choosing the appropriate legal structure. The structure you choose will affect everything from how you register with the state to your business's legal liability and taxation. The most common structures include:

• LLC Disregarded (Sole Proprietorship): You are the sole owner of the business and are responsible for all debts and obligations.
• LLC Partnership: Similar to a sole proprietorship, but with two or more owners who share responsibility.
• Corporation: A legal entity separate from its owners, ideal for companies planning significant growth or seeking to attract investors.

Important Considerations:

• Liability Protection: An LLC or Corporation offers protection against personal liability, meaning your personal assets are protected if the business faces lawsuits or debts.
• Tax Flexibility: LLCs offer considerable flexibility in terms of how they can be taxed, allowing owners to choose to be taxed as an individual business or as a corporation.
• Attracting Investors: If you plan to attract investors, a Corporation may be the best option due to its clear structure and ability to issue shares.

3. Choose and Register Your Business Name

Once you’ve decided on your business structure, the next step is choosing a name that represents your company. The name must be unique and not already in use by another registered business in Texas.

How to Check Name Availability:

‍You can check the availability of your business name in the Texas Secretary of State’s database. This ensures that your name is not being used by another business and avoids potential legal issues in the future.

Reserve or Register Your Name:

If your name is available, you can reserve it or proceed to register it immediately. In Texas, you can reserve a name for up to 120 days before officially registering your business.

DBA Registration:

‍If you plan to operate under a name different from the legally registered name, you will need to register a DBA (Doing Business As). This is common for businesses that wish to use a trade name or brand name different from the legal name.

4. File the Certificate of Formation

To formalize your business in Texas, you will need to file the Certificate of Formation (also known as Articles of Organization for an LLC or Articles of Incorporation for a Corporation) with the Texas Secretary of State.

Content of the Certificate of Formation:

‍The Certificate of Formation includes basic information about your business, such as:

• Business Name: The name you have chosen and registered.
• Business Address: The physical address of the principal office.
• Owners and Directors: Names and addresses of the owners, directors, or key members of the business.
• Purpose of the Business: A brief description of your company’s purpose.
• Registered Agent: The person or entity that will receive legal notices on behalf of your business.

5. Obtain an Employer Identification Number (EIN)

An EIN (Employer Identification Number) is essential for operating your business, paying taxes, and hiring employees. It is similar to a Social Security number but for your business.

6. Open a Business Bank Account

Once you have your EIN and your business is legally registered, it’s important to open a business bank account to manage your company’s finances separately from your personal finances. This not only helps you maintain clear accounting but also protects your personal liability.

How We Can Help You Start Your Business in Texas:

• Business Formation Advisory: We guide you in choosing the right legal structure, filing documents, and complying with all legal requirements.
• Compliance Management: We ensure that your business complies with all local, state, and federal regulations, including tax registration and obtaining licenses.
• Tax Strategies: We help you develop tax strategies that maximize your benefits and minimize your tax burden.

Conclusion

Starting a business in Texas offers numerous opportunities, but it’s essential to follow all the necessary steps to ensure that your business complies with state laws and regulations. From choosing the legal structure to obtaining licenses and managing taxes, each step is crucial for establishing a solid foundation for your business.

If you have questions about how to start your business in Texas, contact us and receive a free consultation with our experts.