How to Start a Business in Texas: Complete 2025 Guide

Why Start a Business in Texas?

Texas consistently ranks as one of the best states for business due to several advantages:

• No State Income Tax: More money stays in your business
• Business-Friendly Regulations: Streamlined processes and minimal red tape
• Large Market: Second-largest state economy in the US
• Skilled Workforce: Access to talent from major universities
• Low Cost of Living: Affordable operations compared to other major states
• Strategic Location: Central location for national distribution

Step 1: Choose Your Business Structure

Select the legal structure that best fits your business needs:

Popular Business Structures in Texas:

• LLC (Limited Liability Company): Most popular, flexible structure ($300 filing fee)
• Corporation: Good for growth and investment ($300 filing fee)
• Sole Proprietorship: Simplest but no liability protection
• Partnership: For businesses with multiple owners
• Professional Entity: For licensed professionals (lawyers, doctors, etc.)

Step 2: Register Your Business Name

Ensure your business name is available and reserve it:

Name Requirements:

• Must be distinguishable from existing Texas businesses
• Cannot contain restricted words without proper licensing
• Must include required designators (LLC, Inc., Corp., etc.)
• Cannot imply government affiliation

Name Search and Registration:

• Search existing names at SOSDirect.sos.state.tx.us
• Reserve your name for 120 days ($40 fee)
• File "Assumed Name Certificate" if using DBA ($25 fee)

Step 3: File Formation Documents

Submit the required paperwork to the Texas Secretary of State:

For LLCs - Certificate of Formation:

• Business name and registered agent information
• Business purpose (can be "any lawful business")
• Management structure (member-managed or manager-managed)
• Duration (perpetual is standard)
• Filing fee: $300

For Corporations - Certificate of Incorporation:

• Corporate name and registered agent
• Number of authorized shares
• Board of directors information
• Business purpose
• Filing fee: $300

Step 4: Appoint a Registered Agent

Every Texas business must have a registered agent:

Registered Agent Requirements:

• Must be available during business hours (9am-5pm, Monday-Friday)
• Must have a physical Texas address (not a P.O. Box)
• Can be yourself, an employee, or a professional service
• Receives legal documents and official correspondence

Step 5: Obtain an EIN (Federal Tax ID)

Get your Employer Identification Number from the IRS:

• Required for most businesses, even without employees
• Free directly from IRS.gov
• Needed to open business bank accounts
• Used for tax filing and business licensing
• Can apply online, by phone, fax, or mail

Step 6: Get Required Business Licenses and Permits

Texas licensing requirements vary by business type and location:

State-Level Licenses:

• Sales Tax Permit: Required if selling goods or taxable services
• Professional Licenses: For regulated professions
• Alcohol Permits: For businesses selling alcohol
• Food Service Licenses: For restaurants and food businesses

Local Licenses:

• City business license or permit
• County permits (varies by location)
• Zoning compliance certificates
• Fire department permits
• Health department permits

Step 7: Understand Texas Tax Requirements

Texas has specific tax obligations for businesses:

State Taxes:

• No State Income Tax: Major advantage for businesses
• Franchise Tax: Annual tax on most business entities
• Sales Tax: 6.25% state rate, plus local taxes
• Property Tax: Varies by county and city

Franchise Tax Details:

• Applied to LLCs, corporations, and some partnerships
• Based on margin (revenue minus certain deductions)
• No tax due if annual revenue under $1.23 million
• Due annually by May 15th

Step 8: Open a Business Bank Account

Separate your business and personal finances:

Required Documents:

• Certificate of Formation from Secretary of State
• EIN confirmation letter from IRS
• Operating Agreement or Corporate Bylaws
• Personal identification
• Initial deposit (varies by bank)

Step 9: Get Business Insurance

Protect your Texas business with appropriate coverage:

Essential Insurance Types:

• General Liability: Protects against third-party claims
• Workers' Compensation: Required if you have employees
• Property Insurance: Covers business property and equipment
• Professional Liability: For service-based businesses
• Commercial Auto: If using vehicles for business

Step 10: Comply with Employment Laws

If hiring employees, understand Texas employment requirements:

• Register for unemployment insurance with Texas Workforce Commission
• Obtain workers' compensation insurance
• Set up payroll tax withholding
• Comply with federal and state wage laws
• Display required workplace posters
• Follow Texas employment discrimination laws

Ongoing Compliance Requirements

Keep your Texas business in good standing:

Annual Requirements:

• File Franchise Tax Report by May 15th
• Update registered agent if changes occur
• Maintain registered office address
• Keep corporate records up to date
• Renew business licenses as required