How to Start a Business in Texas
Starting a business in Texas is achieved by filing a Certificate of Formation with the Secretary of State. But there’s a bit more to it than that—as we’re sure you know.
Making well-informed decisions as you set up your Texas company will help pave the road to success and make it easier to manage your business affairs in the long run. These are a few of the questions you’ll need to ask yourself as you prepare to make your business official:
- Which entity type will work best for me?
- Should I serve as my own registered agent?
- How can I keep my business in compliance with Texas laws?
- Which Texas address should I list on my public documents?
In our handy 7-step guide to starting a Texas business we’ll address these crucial questions, and others. We’ll also go over the administrative tasks that need to be completed before you open your doors.
Lone Star is Here to Help
You know that old saying ‘many hands make light work’? It applies to starting businesses too.
We’re here to lighten your load and help you complete your paperwork so you can focus on building your new enterprise.
Or, if you’d rather submit your own paperwork, hire us as your Texas registered agent. We’ll send you the documents you need and walk you through the entire process to ensure your business gets approved.
If you have any questions that aren’t answered by this guide—or if you want to learn more about our services—please don’t hesitate to reach out. We’re always happy to chat.
7-Step Guide to Starting a Business in Texas
1. Select a Business Structure
Texas LLCs and corporations are formed the same way—by filing a Certificate of Formation with the Secretary of State. The filing fee is the same for each business type, and each offers excellent liability protection. So which is the better choice for you?
That’s a question answered by looking at the benefits of each and thinking about your future business goals. With an LLC, you get a business structure that is both customizable and low-maintenance, while a corporation may better accommodate rapid expansion and make it easier to raise capital.
Let’s take a closer look at how the two most common entity types compare.
Benefits of Texas LLCs
- Easier to maintain
LLCs are simpler to run than corporations, as owners have fewer formalities they have to adhere to. You won’t be required to appoint a board of directors, hold shareholder meetings or keep written meeting minutes.
- Greater flexibility
LLCs can be customized to meet your needs, both in terms of management and taxation. By default they’re taxed as partnerships—with profits passing-through to individual members’ tax returns—but you can also elect to have your LLC taxed as a corporation. You can use your operating agreement to set up your company in the way that works best for you, whether that means everyone sharing management duties or with managers in charge of daily operations.Start a Texas LLC
Benefits of Texas Corporations
- Easier to expand
An LLC is a great option for most small-to-medium businesses. But if your aim is exponential growth, a corporation may be a better choice. With this entity type, you’ll be able to add a large number of shareholders and issue stock to your employees. If you hope to one day take your company public, a corporation will allow you to do so.
- Greater prestige
There is a longstanding legal precedent for corporations, while the LLC is a relatively new entity type. Corporations are simply more well-known in the business world. For this reason, investors and venture capitalists may be more willing to bet on a start-up with a corporate structure.Start a Texas Corporation
2. Choose a Registered Agent (& Texas Business Address)
Every business entity in the State of Texas is required to have a Texas registered agent. Designating a registered agent gives the state and general public a guaranteed way to contact your business regarding legal matters. Your registered agent must have a Texas street address and be present at this address during business hours.
You can legally serve as your own registered agent, but if your business lacks a dedicated office or storefront, you’ll have to list your home address on the Texas public record where anyone can access it. If privacy is important, hire us to be your Texas registered agent and use our business address.
Lone Star Registered Agent provides local registered agent service—Texas business address included—for $50 per year. We help ensure that your company is in compliance with the State of Texas and receive any service of process on your behalf, all while keeping your privacy intact. We keep all of your important documents in your secure, online client account and send you annual reminders so you don’t miss any deadlines.
3. Complete & Submit the Texas Certificate of Formation
Now that you’ve decided on an entity type, business name and management structure, you’re ready to register your business with the State of Texas. This means filing a Certificate of Formation with the Secretary of State.
You can print and send your documents to the TX Secretary of State, but we recommend filing online through the Texas SOS Direct website, as it’s faster and more convenient. There is a $300 filing fee for both Texas LLCs and Texas corporations, but filing online will bring your total up to $308.10.
As we mention above, you’ll need to designate a Texas registered agent on your application. When you designate us, we list our Texas address for every member/director of your company, keeping everyone’s private addresses off of the public record.
If you want to make things even easier, you can hire us to prepare and submit your paperwork. Our business formation packages include local registered agent service, compliance tracking, secure digital document storage, ongoing customer support, and of course—our Texas business address.
4. Get an EIN & Any Licenses or Permits
An easy next step after your business is approved is obtaining a Federal Tax ID (EIN). This is essentially a social security number that is assigned to your business entity for record and identification purposes. Your EIN will be needed to file tax returns, open banking accounts for your business and pay your employees. If you plan on starting a business that is anything other than a sole-proprietorship, we recommend that you file for an EIN as soon as your entity formation has been confirmed. You can apply for an EIN on the IRS website, or you can hire us to obtain an EIN for you, for a small fee (just add our EIN service at checkout).
If your business is in a specific industry or profession you may also require a license in order to legally conduct business in our state. Here are the industries which are regulated by Texas state agencies:
- Food (TX Department of Agriculture)
- Banking (TX Department of Banking)
- Consumer Credit (TX Office of Consumer Credit Commissioner)
- Fire Prevention/Fireworks (TX State Fire Marshall)
- Insurance (TX Department of Insurance)
- Transportation (TX Department of Transportation)
- Wildlife (TX Parks and Wildlife Department)
The Texas Department of Licensing and Regulation has a long list of occupations which they oversee, including electricians, massage therapists and barbers. If your profession requires a license in Texas, you must complete your training and obtain your license before registering your business.
Depending on the nature of your business, you may also need one or more permits to legally conduct business in Texas. For a comprehensive list of all permits you may need in order to establish, operate, or expand your business enterprise in the state, check out the 2020 Texas Business Licenses & Permits Guide, published by Texas Governor’s office. (This guide includes licensing information for a variety of professions as well.)
5. Open a Bank Account
Before you have your grand opening, you’ll want to open a business bank account to keep your business and personal transactions separate. In order to open a bank account for your Texas LLC or corporation, the bank will likely need to see the following paperwork:
• Certificate of Formation
• Business License (if your business requires one)
• Federal Tax ID for your business (EIN)
• Operating agreement or corporate bylaws
• Initial Resolution Authorizing Opening of Accounts
Different banks have different requirements, so we recommend calling ahead and making a list of what the bank manager will need to see in order to set up your business account.
6. Organize Your Company
To organize your company, you’ll want to create a governing document and hold your first meeting.
Creating a governing document is an essential step for every Texas business. You aren’t required to file this document with the state, but you should keep it in your business records. If you’re forming an LLC, you’ll create an operating agreement (also known as a “company agreement”). If you’re forming a corporation, you’ll create a set of corporate bylaws.
Your governing document should clearly describe the ownership and management of your company to eliminate any future confusion.
Your operating agreement/bylaws should first address the ownership of your business. An operating agreement will lay out the ownership percentage of each member, as well as their initial investment in the company (an investment does not have to be monetary). Corporate bylaws will include the amount of stock every shareholder will receive, in addition to their initial contribution.
Also make sure to include any guidelines for how ownership can change over time, such as how new shareholders or members can buy in, or how current owners can sell their shares.
Texas LLCs can be member-managed, with all members equally involved in decision-making, or manager-managed, with an appointed manager (or group of managers) handling daily operations. Your operating agreement should describe your preferred management structure. It should also explain the rights and obligations of members/managers.
Your corporate bylaws should list your initial Board of Directors and designate individuals to serve the roles of President, Secretary and Treasurer. Make sure to include the specific duties of each position so that everyone has a clear idea of what is required of them.
If you need help creating your governing document, we’ve got you covered. Our Texas LLC service includes an operating agreement, and our Texas incorporation service comes with corporate bylaws. Both documents are completely customizable and free of charge.
Your business will want to officially approve your governing document at an official meeting. Even if you’re forming an LLC or corporation with just one other person, you’ll want to have an official meeting once your business is approved.
Use this initial meeting to ensure your business affairs are in order, by:
• ratifying key documents, such as your operating agreement/corporate bylaws
• confirming officers/members/directors (and agreeing on salaries)
• designating the bank branch where you will open your business account
• giving members/officers authorization to open this bank account
• approving other relevant resolutions
Make sure to designate someone to take written minutes at this meeting, and keep the minutes in your company records.
7. File Your Texas Franchise Tax Report
Texas entities do not have the annual reporting requirements (and accompanying fees) that exist for businesses in many other states. That said, taxable entities in Texas must complete the Texas Franchise Tax Report every year in order to remain in good standing with the state.
This tax is based on your company’s margins. If your revenue is under the $1,180,000 limit, then your business does not owe any franchise tax. But keep in mind that even if you owe nothing, you still need to submit the report by the deadline of May 15 (note: the 2020 deadline has been extended to July 15).
If your revenue is over the threshold, the Texas Comptroller’s Franchise Tax page is a good resource for finding the latest tax rates. Or, for a quick estimation of what you owe, click here to download a free Franchise Tax calculator.
To file and pay online, you’ll first need to create a profile on the TX Comptroller’s eSystems page. Then click “WebFile/Pay Taxes and Fees” and follow the instructions to begin the filing process.
You can also download the Franchise Tax Report forms from the Comptroller and submit them by mail to the following address:
Texas Comptroller of Public Accounts
PO Box 149348
Austin, TX 78714-9348
Filing your report late could result in late fees or your business being automatically terminated by state. We don’t want that to happen, which is why we post your tax due date in your online account so you always know when it is coming up. We also send periodic reminders to ensure you don’t forget.
We can’t wait to help you start your Texas business! Sign up with us today and receive all the tools and resources you need to build, grow and maintain your business in Texas.