Texas is home to millions of private companies across all industries. In fact, there are more than 2 million small businesses registered in this state. They employ more than 45 percent of the private workforce and generate billions in revenue. What makes Texas so popular among entrepreneurs is the ease in starting a business as well as the low costs involved.
Small businesses thrive in Texas due to its low tax burden, excellent location, skilled workforce and affordable cost of living. This is where the popular brand Dr. Pepper was created back in 1885. Plus, the tech scene is booming, attracting more and more entrepreneurs.
What You Need to Register a Business in Texas
Compared to other states, it's a lot easier to register a business in Texas. You only need to complete a few basic steps, such as choosing a company name and location, obtaining the necessary licenses and researching the local employment laws.
The first step is to decide on a business structure. There are several options available, including:
- Limited liability companies (LLC)
- Limited liability partnerships
- Professional corporations
- Professional associations
- Real estate investment trusts
- Business trusts
- Sole proprietorships
- Public or private limited companies
A sole proprietorship, for instance, is the simplest way to register a business in Texas. It is usually operated under the name of its owner and makes no distinctions between personal and business debts. However, this business model has limitations and tax disadvantages compared to other entities. Additionally, it's harder to secure capital and requires increased liability.
For most entrepreneurs, an LLC is the way to go. This business structure is created by filing a certificate of formation with the Texas Secretary of State, which costs around $300. Unlike corporations, it does not require officers or directors and provides easy management. Its owners are called "members" and can be other legal entities, trusts, partnerships or individuals.
After you decide on a business structure, choose a name for your company. Keep it short and relevant. It cannot include any words or phrases that imply or indicate that your company is engaged in activities that it's not authorized to pursue. Also, check sections 5.054-to-5.059 of the BOC to see what specific terms must be used in your business name. Another option is to register your company under a fictitious name.
Register With the Secretary of State
Once you complete these steps, head over to the Texas Secretary of State website or visit a local Texas SOS office. The business registration documents can be submitted online as well as by fax, mail or hand delivery. How much you will pay depends on the type of legal entity you are forming.
Fill out the registration forms, pay the fees and submit your application. This can be easily done online through SOS Direct, a 24/7 service provided by the Texas Secretary of State. Even though it's not required to create an operating agreement in this state, it's advisable to have one. This document describes your company’s ownership and operating procedures.
Obtain an EIN
Next, apply for an Employer Identification Number (EIN) on the IRS website. Business owners may also fill out form SS-4 and bring it to a local tax office or send it by mail.
All businesses require an EIN. This number has the role in identifying a legal entity. Without it, you will not be able to file state and federal taxes. Obtaining your EIN is free of charge. As soon as you complete this step, open a business bank account.
Apply for Business Licenses and Permits
After you register a business in Texas, apply for the necessary licenses and permits. Contact the Business Permit Office to find out more about licensing requirements. These will depend on your industry and the products or services you're going to offer. This state doesn't require a general business license.
For example, if you're planning to open a health store, you may need approval from the FDA. Certain types of business activities, such as those related to agriculture, maritime transportation or wildlife, require federal licenses. Additionally, each state has its own licensing requirements.
As you'll see, most steps can be completed online. Texas SOS is available around the clock, which allows you to register your business anytime. Just make sure you comply with the law and obtain the required permits.