How to Start a Business in Texas (2022 Guide) – Forbes Advisor | Business Insurance

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Some types of business entities must file documents with the state of Texas to become legal entities. Once you know which business entity you want to use, filing formation documents is a simple process. You can file formation documents through the Texas Secretary of State portal and get immediate confirmation with documentation that will arrive in the mail shortly after.

Choose the right business entity

There are several types of entities that you can choose from for your business. Each type of entity comes with its own unique rules and potential tax or operating benefits. Choose from:

  • Limited Liability Company (LLC): Registering as an LLC is common for small businesses in Texas. This entity gives you liability protection while giving you a lot of flexibility in how you handle your business taxes. Learn more about setting up an LLC in Texas. It is formed by submitting a certificate of formation to the state.
  • C Corporation: A C corporation is the business entity of choice for public companies due to its ability to split company stock into multiple types of shares. It is not generally chosen by smaller businesses looking to start up unless the owners are raising a significant amount of capital. It is formed by presenting a certificate of formation.
  • S Corporation: When most people talk about a corporation, they are likely referring to the C-corp mentioned above. However, there is another type of corporation that provides tax benefits to the owners. This comes from subchapter “S” of the tax code and is a tax classification that avoids double taxation. Learn more about S corporations. An S-corp is simply a tax designation and is registered in the same way as a C-corp with the state.
  • Single owner: A sole proprietorship is a business owned by one person. All responsibility and finances rest with the individual. There are no formation documents to file with the state to form this business.
  • General Partnership: If you choose to start a business with at least one other person, you can form a general partnership. There is no requirement to file anything with the state to form the entity. Both are responsible for the debts of the partnership.
  • Limited Liability Company: If you and one or more people go into business together, you can form a limited partnership after filing a certificate of formation with the state if you have at least one general partner and one limited partner. Limited partners are liable only up to their financial interest in the business, while general partners are personally liable for the debts of the business.
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You may also need to file a Doing Business As, or DBA, with the state of Texas if you will be doing business under a name other than your own name or the name of the company you formed when filing formation documents with the state . This notifies the state of who is operating the business and who is responsible for it.

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Find the right business name

Before you register your business with the state, you will need to make sure that the name is not already being used by another business. You can make a online search to find out if your name is available at a cost of up to $1 per search. It’s something you’ll want to pay for to avoid slowing down your application process and feel confident that you can legally purchase your domain name or create marketing materials with your chosen name.

Apply for a Business EIN

An Employer Identification Number (EIN) is your business tax identification number that the federal government will use to identify your business. You can apply for an EIN online through IRS.gov. The process is simple, free, and only takes a few minutes. This is required for tax purposes for certain business entities and to be able to hire employees.

Get step-by-step instructions on how to obtain an EIN.

Choose a registered agent

A registered agent is a person or entity that assumes the responsibility of receiving important legal documents on behalf of your company. Any company that files formation documents with the state must have a registered agent.

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If someone files a lawsuit against your business, the registered agent may receive that document. You want your registered agent to be someone trustworthy and to check mail. You can serve as a registered agent or you can hire a registered agent service to handle this responsibility on your behalf.

Request Business Licenses

Once you have officially formed your business entity in the state of Texas, you need to check what federal, state, and local business licenses you need before you can operate. There is a wide variety of licenses required for different industries and professions. You should apply as soon as you have a registered name because it can take time to get them. Learn more about business licenses in Texas.

If your business will sell taxable products or services, you must apply for a sales tax permit so you can collect Texas sales tax.