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

Some business entities must file paperwork with the state of Texas to become legal entities. Once you know which business entity you want to use, filing the incorporation papers is a simple process. You can file the incorporation papers through the Texas Department of State’s portal and receive an instant confirmation with the paperwork in the mail shortly after.

Choose the right business

There are many types of components that you can choose from for your business. Each legal entity has its own unique rules and potential tax or operating advantages. Select from:

• Limited Liability Company (LLC): It is common for small businesses in Texas to register as an LLC. This legal entity gives you liability protection and a lot of flexibility in how you handle your business taxes. Learn more about how to set up an LLC in Texas. It is incorporated by filing a certificate of incorporation with the state.
• C-Corporation: A C corporation is the business entity of choice for public companies because of its ability to divide the business’s stock into multiple classes of stock. It is not preferred by small businesses looking to start up unless the owners have raised a large amount of capital. It is established by preparing a certificate of incorporation.
• S-Corporation: When most people talk about corporations, they most likely refer to the aforementioned C-corp. Although there is another type of corporation that provides tax benefits to its owners. This comes from subchapter “S” of the tax code, which is a tax classification that avoids double taxation. Learn more about S-Corporations. An S-corp is simply a tax designation and is registered with the state in the same way as a C-corp.
• Private Institution: A sole proprietorship is a business owned by one person. All responsibility and finances fall on the individual. There are no incorporation papers to file with the state to establish this business.
• General partnership: If you choose to go into business with at least one other person, you can form a general partnership. There is no requirement to file anything with the state to establish the company. You are both jointly liable for the debts.
• Limited partnership: If you and one or more other people form a business together, you can form a limited partnership after filing a certificate of incorporation with the state if you have at least one general partner and one limited partner. Limited partners are only liable for their financial interest in the company, while general partners are personally liable for the company’s debts.

You may need to file as a Doing Business As or DBA with the state of Texas, unless it’s your own name or the name of the company you formed by filing incorporation papers with the state. This informs the state who is running the business and who is responsible.

Find the right business name

Before registering your business with the state, you need to make sure that the name is not already being used by another business. You can conduct an online search to see if your name can be found for as little as $1 per search. This is something you want to pay so you don’t delay your application process and have confidence that you can legally purchase your domain name or create marketing materials under the name of your choice.

Apply for a business EIN

An Employer Identification Number (EIN) is your business’s tax identification number that the federal government uses to identify your business. You can apply online through IRS.gov. The process is simple, free and only takes a few minutes. This is important for tax purposes for certain business entities and for hiring employees.

Find step-by-step instructions on how to get an EIN.

Choose a registered agent

A registered agent is a person or entity responsible for receiving necessary legal documents on behalf of your business. Any business filing its incorporation papers with the state is required to have a registered agent.

If someone files a lawsuit against your business, the registered agent can receive that document. You want your registered agent to be trustworthy and someone who checks the mail. You can serve as a registered agent or you can hire the services of a registered agent to perform this responsibility on your behalf.

Apply for a business license

Once you have officially incorporated your business in the state of Texas, you must determine what federal, state, and local business licenses you need before you can operate. There are different licenses required for different industries and professions. You should apply as soon as you have a registered name as these may take time to obtain. Learn more about business licensing in Texas.

If your business sells taxable products or services, you will need to apply for a sales tax permit to collect Texas sales tax.