So you want to start a business in Texas? Join the club—literally 391,918 other people did the same thing last year. The good news is that Texas makes it surprisingly straightforward to get your business up and running, and you won't need to sell a kidney to cover the fees.
Why everyone and their cousin is starting businesses in Texas
Let's address the elephant in the room: Texas has no state income tax. Zero. Nada. This isn't some temporary promotion—it's written into the constitution. While your friends in California are forking over up to 13.3% of their income to the state, you'll be keeping that money to reinvest in your business or finally upgrade from ramen to actual food.
The numbers tell the story better than I can. Texas cranked out nearly 400,000 new businesses last year, and 89% chose the LLC structure. Why? Because LLCs in Texas are like the Swiss Army knife of business structures—flexible, protective, and they won't judge you for wearing pajamas to your home office.
Beyond the tax advantages, Texas offers something equally valuable: they actually want you to succeed. The state's GDP has blown past $2.6 trillion, and they've claimed the top spot for business climate two years running. It's like they're actively trying to make other states jealous.
Picking your business structure (without losing your mind)
Choosing a business structure is like picking a character in a video game—each has different abilities, and you can't change mid-game without some serious paperwork. Let's break down your options.
The LLC: Your new best friend
Think of an LLC as a protective bubble around your personal assets. If your business gets sued because your revolutionary taco-delivery drone crashed into someone's pool, your personal house and car stay safe. The filing fee is $300, which is basically the cost of a decent pair of cowboy boots in Austin.
Here's what you need to know about Texas LLCs:
- File Certificate of Formation Form 205
- Choose member-managed or manager-managed structure
- Name must include "LLC" or spelled out version
- Appoint a registered agent (more on this later)
- Operating agreement recommended but not required
The online filing system processes your LLC in 10-12 business days, or you can pay an extra $25 for next-day service if you're the impatient type. Compare that to the 70-72 days for mail filing, and suddenly that 2.7% credit card fee doesn't seem so bad.
Corporations: For the overachievers
Forming a corporation in Texas costs the same $300 as an LLC, but comes with more homework. You'll need to file Form 201, appoint at least one director, specify your authorized shares, and actually hold board meetings. Yes, real meetings, not just group texts.
If you want the tax benefits of an S-corp, you've got 75 days after incorporating to file Form 2553 with the IRS. Miss that deadline and you're stuck as a C-corp for the year, which in a no-income-tax state like Texas is about as useful as a screen door on a submarine.
Sole proprietorships and partnerships: The simple life
Going solo? A sole proprietorship requires zero state filing unless you want to use a business name other than your own. Just head to your county clerk's office with $15-50 for a DBA (Doing Business As) certificate. Your DBA is good for 10 years, which is probably longer than most gym memberships last.
The downside? You and your business are legally the same entity. If someone slips on a banana peel in your store, they can come after your personal assets faster than you can say "liability insurance."
Partnerships split the difference. General partnerships need no state filing, while limited partnerships require Form 207 and $750. Just remember that at least one partner needs to accept unlimited liability, so choose wisely.
The nitty-gritty of registration
Now for the fun part: actually filing your paperwork. Texas has dragged business registration into the 21st century with their SOSDirect online system, available 24/7 for insomniacs and procrastinators alike.
Naming your baby (I mean, business)
Before you fall in love with a name, check if it's available using the Texas Secretary of State's business search. Your LLC name needs to be distinguishable from existing businesses and include the required LLC designation. "Bob's Tacos LLC" works; "Bob's Tacos" alone doesn't.
Watch out for restricted terms. Want to include "bank" or "university" in your name? You'll need special approval from the appropriate regulatory board. It's like asking permission to use the good china—possible, but involves extra steps.
The registered agent requirement
Every LLC and corporation needs a registered agent with a physical Texas address. This can't be a P.O. box, no matter how fancy. Your registered agent receives legal documents and needs to be available during business hours, which rules out your cousin who's "between jobs" and sleeps until noon.
You can be your own registered agent, but remember that this information becomes public record. If you'd rather not have process servers showing up at your home, professional registered agent services run about $35-50 annually—less than your Netflix subscription.
Getting your federal tax ID
After Texas approves your business, head straight to the IRS website for your EIN. It's free, instant, and required for basically everything—opening a bank account, hiring employees, or convincing your spouse this business thing is legitimate. Skip the third-party services charging $100+ for what takes five minutes on the IRS website.
Texas taxes: The good, the bad, and the surprisingly reasonable
Let's talk taxes, because ignoring them won't make them go away (trust me, I've tried).
The franchise tax: Not as scary as it sounds
Texas's franchise tax only kicks in once your annual revenue exceeds $2.47 million. Below that threshold, you still file a Public Information Report but pay zero tax. It's like being invited to a party but not having to bring a gift.
If you do cross that threshold, the rates are reasonable:
- Retail/wholesale businesses: 0.375%
- Everyone else: 0.75%
You can reduce your taxable margin by deducting either cost of goods sold, compensation (capped at $450,000), or a flat $1 million. Choose whichever saves you the most money—the state won't judge.
Sales tax: Your new collection hobby
Once your Texas sales hit $500,000 annually, you become an unpaid tax collector for the state. The base rate is 6.25%, but local taxes can push it to 8.25% maximum.
Getting a sales tax permit is free and takes 2-4 weeks. File on time and Texas rewards you with a 0.5% discount on the tax collected. It's not much, but it'll cover your coffee budget.
Property tax: The catch
Remember that no-income-tax thing? Well, property taxes averaging 1.8% of assessed value help make up the difference. Your business equipment, furniture, and inventory all count as taxable property. The good news? Plenty of exemptions exist for manufacturing equipment, R&D materials, and renewable energy gear.
Industry-specific hoops to jump through
Most Texas businesses don't need a general business license, but specific industries have their own rules. It's like a choose-your-own-adventure book, but with more paperwork.
State-regulated professions
The Texas Department of Licensing and Regulation oversees 39 industries with fees ranging from $45-300. Some highlights from their greatest hits:
- Electricians need 12,000 hours experience
- HVAC contractors choose Class A or Class B
- Cosmetologists need 1,500 training hours
- Massage therapists require 500 hours
Professional services like doctors, lawyers, and accountants must form professional entities (PLLCs or professional corporations) where all owners hold appropriate licenses. No mixing accountants with yoga instructors in the same PLLC—the state's not that flexible.
Food and beverage businesses
Opening a restaurant? Buckle up for a regulatory road trip. You'll need permits from the Texas Department of State Health Services, your local health department, and possibly the fire marshal if you're feeling ambitious with that flambé station.
Want to serve alcohol? The TABC processes licenses in 30-35 days, assuming you've dotted every i and crossed every t. Beer-only permits are simpler than full bar licenses, but neither is exactly a walk in the park.
Banking and insurance: Adult responsibilities 101
Time to put on your grown-up pants and handle the boring-but-critical stuff.
Opening a business bank account
You'll need your EIN, formation documents, and ID for anyone who'll sign on the account. Texas has plenty of business-friendly banks, from national chains to regional favorites like Frost Bank. Expect to deposit $100-1,000 to open an account, with monthly fees of $10-25 unless you maintain certain balances.
Pro tip: Choose a bank that plays nice with your accounting software. Manually entering transactions is about as fun as a root canal.
Insurance: Because stuff happens
Texas is the only state where workers' comp is optional, yet 72% of businesses buy it anyway. Why? Because without it, injured employees can sue you personally, and Texas removes your standard legal defenses. Suddenly that premium doesn't seem so expensive.
Other insurance to consider:
- General liability: Average $42/month
- Professional liability: Average $71/month
- Property insurance: Varies wildly
- Commercial auto: If using vehicles for business
Timeline reality check
Want to open next week? Let me introduce you to reality:
Same day stuff:
- Get your EIN online
- Reserve your business name
Within two weeks:
- File LLC or corporation paperwork
- Open bank account after EIN arrives
Two to four weeks:
- State approves your entity
- Sales tax permit arrives
- Insurance policies activate
One to three months:
- Professional licenses process
- Complex permits clear
- You question your life choices
Plan accordingly and build buffer time into your launch date. Murphy's Law loves new businesses.
Rookie mistakes that'll make you facepalm
Learn from others' pain and avoid these classics:
The name game disasters
Falling in love with a name before checking availability leads to heartbreak and wasted filing fees. Using restricted terms without permission gets your application rejected faster than a bad pickup line. Forgetting to include "LLC" in your LLC name? That's a paddlin' (or at least a rejection).
Tax troubles brewing
Even if you're below the franchise tax threshold, you must file that Public Information Report by May 15. Miss it and enjoy your $50 late fee plus potential administrative dissolution. It's like forgetting your anniversary, but with legal consequences.
Entity selection regrets
Choosing a corporation for "tax reasons" in a no-income-tax state makes zero sense unless you specifically need corporate features. Operating as a sole proprietor to save $300 puts everything you own at risk. That's like refusing to buy insurance because you're a "careful driver."
Ongoing compliance amnesia
Your registered agent quits? Update it within 10 days. Move your business? Update that too. Corporations must hold actual meetings and keep minutes, even if it's just you talking to yourself. The state takes this seriously, unlike your New Year's resolutions.
Success stories to inspire your journey
Texas attracts everyone from tech giants to taco trucks. Tesla, Oracle, Apple, and HP all chose Texas for major operations, citing no income tax, reasonable regulations, and access to 15.5 million workers.
But it's not just big names. Austin's ICON pioneered 3D-printed buildings after starting in 2016. Houston's Cart.com hit unicorn status with $1 billion valuation. Sage Geosystems raised $17 million for geothermal energy. Your business could be next.
Resources that actually help
Skip the expensive consultants and use these free resources:
Texas Secretary of State Business Division
- Phone: 512-463-5555
- Email: corpinfo@sos.texas.gov
- SOSDirect: Available 24/7 online
Small Business Development Centers (free counseling):
Your action plan starts now
Texas makes starting a business refreshingly straightforward, but "straightforward" doesn't mean "instant." Budget $500 for basic LLC formation if you DIY, or $2,000-10,000 if you want hand-holding from professionals.
Create a checklist, starting with choosing your entity type and ending with your grand opening party. Remember that every one of those 391,918 businesses that formed last year started exactly where you are now—excited, slightly overwhelmed, and ready to build something great.
Welcome to Texas business ownership. May your profits be high, your taxes be low, and your registered agent always answer their phone.
