Starting A Business In Texas Checklist: Your Comprehensive Step-By-Step Guide

A US state that is experiencing a boom in its economy recently, it's no wonder that you may be seriously considering starting a business in Texas. According to Business Insider , if Texas was its own sovereign nation, the lone star state would have the 10th-largest economy in the world. With one of the largest transportation networks in America, the nation's largest producer of wind-power, the fifth-largest producer of wine, and one of the largest producers of oil in the United States, business opportunities truly are bigger in Texas. So, how do you go about starting and registering a business in Texas? We’ve got your steps covered with this comprehensive checklist: STEP 1: Choose the type of legal business entity you want to open STEP 2: Register a business name in Texas STEP 3: Registering a DBA STEP 4: Register your business in Texas STEP 5: Your EIN number registration STEP 6: Getting your Texas business license and permits NEXT

STEP 1. Choose the type of legal business entity you want to open NEXT

You’ve probably thought long and hard about your business idea and which products or services you’d like to take to market. But often, new business owners might not give careful thought to the legal business structure. This is an important consideration before you launch right in to registering your business. Side Note: If you haven’t fully honed your business idea yet, or are looking for a little more inspiration, we’ve got just a resource just for you . Check out our 300 business ideas to help you develop that killer business idea. There are various kinds of business structures you can choose from, selecting one type over the other will have an impact on the amount of taxes you will need to pay, administration within the business that you will need to comply with and even the personal liability you may face. Type of business entities 1. Sole Proprietorship What is a sole proprietorship? This is your most common and simplest type of business structure. A sole proprietorship is an informal organisation with a single individual who owns all of the business’s assets and engages in business activities. Usually, a sole proprietorship is operated under the name of the owner. Why register a sole proprietorship in Texas? Because it’s the easiest type of business structure to form, it’s understandable why a sole proprietorship is a firm favourite with new business owners. But, before you leap into establishing a sole proprietorship, it is important to consider whether it is the right legal entity for your business, and where you would like to take your business in the future. The Pros Complete managerial control: As the single individual within your business, having a sole proprietorship means you have complete managerial control. Easy to form: We’ve mentioned this above, but it bears mentioning again that a sole proprietorship is easy to form because of its informal structure. Registration is free in Texas: In Texas, sole proprietors don’t have to pay registration costs. No franchise tax: In the state of Texas, a franchise tax is payable by certain types of business structures. In the case of a sole proprietorship, no franchise tax is payable. No corporate business taxes: Sole proprietors don’t pay 21% in corporate taxes on business profits. Instead, you would continue to file your personal tax returns while claiming any new income received from the business as pass-through taxes. The Cons Personal liability: As a sole proprietor, you will be personally liable for all of the debts and liabilities as there are no legal distinctions between personal debts and business debts . The business life is limited: The life of a business of a sole proprietorship is limited to the life of the business owner. You also can’t transfer your business ownership because you cannot transfer your tax identification number to another person or entity. Can’t take out a business loan: Because of being a sole proprietorship in an informal organisation, you won’t be able to take out a business loan. This means that any loans you may need will have to be taken as personal loans. If you default, lenders will be able to go after your personal assets. Informal can equate to unprofessional: Because your business isn’t formalised, potential customers may view your business as unprofessional. This may be fine if you really are running it from your garage – but when you’re trying to go after some big deals, it may be to your disadvantage. 2. Partnership What is a partnership? There are various kinds of partnerships that you can choose from, which include: General partnerships: Two or more individuals or businesses partners for purposes of carrying on a business for profit. A separate business entity exists, but creditors can still go after the partners’ personal assets to settle debts. In general partnerships the partners share equally in the assets and liabilities of the business. Limited partnerships: In a limited partnership the partners don’t have the obligations or duties of general partners. There are one or more general partners and one or more limited partners in the partnership and partners can be individuals, partnerships, corporations, or any other type of legal entity. Limited liability partnerships: This is a general partnership that has been registered with the Texas Secretary of State. However, the partner’s liability is not the same as a general partnership as partners are not generally individually liable for debts and obligations of the partnership which may have occurred from errors, omissions, negligence etc. Why register a partnership? The Pros Pooling of skills and capital: Entrepreneurship can be a lonely road to walk alone and partnering with others can help you tap into a wider array of skills and investment when launching a new business. Higher chance of success: Partnerships also allow for a higher chance of business success, however this is also contingent on who you have chosen to partner with and whether their skills – and personalities – help the business grow. Simple record-keeping: Unlike corporations, there are no requirements for record-keeping in a partnership. The Cons Personal liability: Generally, each partner is personally liable for the debts of the partnership, and each partner can also be personally liable for the actions of the other partners within the business. Personal tax return : Unlike a corporation, a partnership must file a tax return every year, then each partner must file a Schedule K-1 with their own personal tax return. 3. LLC (Limited Liability Company) What is an LLC? In recent years the Limited Liability Company, or LLC, has been gaining popularity. Simplistically, the LLC as an unincorporated business entity that shares the characteristic of both a corporation and partnership, but the plus side is that it offers greater flexibility than the more traditional business entities. Why register an LLC in Texas? As with any business structure, there are both pros and cons of operating an LLC as opposed to those more traditional business entities. In general, because it is seen to have more flexibility as a business structure, the LLC is considered to be more advantageous. Critically however is for you decide whether the pros outweigh the cons before deciding to register this kind of legal entity. The Pros of an LLC Your personal liability: The owners are not held personally liable for the debts of the business. LLC registration costs: Although the registration costs for an LLC are the same as for a corporation, they are, however, less than the cost of registering a limited partnership. Tax treatment is flexible: If there is only one member in your LLC, you will be taxed as a sole proprietorship. With two or more members, you will be taxed as a partnership. Less formalities: Unlike a corporation, there are less formalities for you to abide by, with no requirements to hold annual meetings or keep up-to-date with those laborious meeting minutes. Unlimited membership: With an LLC, you can have as many members as you please. There are no restrictions to the number of members. The Cons of an LLC There is a registration cost: Although it is cheaper to register an LLC than a limited partnership – there is still a registration cost to pay, whereas with a sole proprietorship or a general partnership there are no registration costs. Finding a registered agent: Unfortunately, you won’t be able to register an LLC on your own – you’ll need to have a registered agent to receive official documents on your behalf. This will mean additional costs for your business. Paying franchise taxes: In Texas, LLC’s must pay two kinds of taxes – sales tax and franchise tax. Sole proprietors and general partnerships are not subject to franchise tax, as long as the partners are all natural persons. 4. Corporation What is a corporation? Essentially, a corporation is viewed as a legal person with limited liability, perpetual duration and ownership interest that can easily be transferred. The owners are called shareholders and the managing of the business is by directors. Why register a corporation? Because a corporation provides shareholders with limited liability from the business’s financial obligations, creditors would be unable to go after your personal assets. A corporation will also protect shareholders from being liable for business partners’ actions. NEXT

STEP 2. Registering a business name in Texas NEXT

Choose the right name for your business You might already have a business name floating around in your mind, or maybe you’re truly stumped when you get to this part of setting up a business. Finding the right business name shouldn’t be about pot luck, your business name will become an extension of your brand, what distinguishes you from your competitors and gives some indication of what you offer the market. So, spend a bit of time coming up with the right business name – but also don’t get stuck here. There’s more to running a business than choosing a name. And try to avoid these common naming mistakes: 1. Don’t overcomplicate your name Funny names or double entendrés could be tempting at first, but over-complicating your name will make it either harder for your customers to remember you – or worse – consider your business as unprofessional. First impressions count. Make sure you make the right one. 2. Avoid abbreviations Sure, you’ve heard of the likes of IBM, SAP and PWC, but these are global companies with massive marketing campaigns to drive brand awareness. As a start-up you might not have the budget to create market awareness around what your acronym stands for. 3. Don’t plagiarise Doogle, might sound like a great idea now – until it lands you in hot water with Google. Avoid borrowing, or modifying well-known company names, they will most probably find out and you could find yourself on the receiving end of legal letters. 4. Avoid naming the business after the founder We get it, they’re your business ideas and you want your company to be named after you. But consider the future of your business before you do. If you are planning to grow your business to a point where you can sell it, prospective buyers may find it less attractive to buy a business that will continue to be associated with the founder. While you come up with the perfect name for your business, it’s also important to check whether the name has already been taken or not. The last thing you want is to spend days coming up with the perfect name only to find that it’s already registered. Check the business name availability In Texas, businesses that are registered in the state are listed with the Texas secretary state’s office. The Texas secretary state’s office also handles the reserving of business names. To search for the business names of LLCs, you can conduct a free search by calling the Texas secretary of state directly on (512) 463-5555 or emailing the office at corpinfo@sos.texas.gov. You can also search for LLC and corporation business names on the Comptroller of Public Accounts Business Entity Database for free. However sole proprietorships and general partnerships names are not available on this database. These are registered with the County Clerk’s office in the county where the business is located. NEXT

STEP 3. Registering a DBA in Texas NEXT

When do you need a DBA in Texas? A DBA, or ‘Doing Business As’ is essentially your business’s, trade or assumed name and is necessary for you to conduct business under a name other than your own. In the state of Texas, LLCs, limited and limited liability partnerships and corporations must file a DBA with the Secretary State. If you will be operating a sole proprietorship or a general partnership, you don’t need to file with the Secretary of State, however you will need to file a DBA with the county clerk offices. a) How to register a DBA in Texas Name availability: Check that the name is available with the Texas corporate name database Corporations, LLCs, LLPs, and foreign corporate entities: You will need to use a state filing form. Sole proprietors and general partnerships: You will need to file with the county. NEXT

STEP 4. How to register a business in Texas NEXT

1. The cost to register a business In Texas, the filing of an Assumed Name Certificate with the county clerk’s office will come with a small fee – each county charges its own fee. For LLCs, corporations and limited partnerships, filing with the Texas Secretary or State will incur a fee for each Assumed Name Certificate of approximately USD30. 2. Steps to register a business How to register an LLC in Texas a) Elect a Texas Registered agent For an LLC, you are required to nominate a Texas Registered Agent. The registered agent that you nominate must be a resident of Texas or a registered agent service that is authorised to do business in Texas. You can also elect either yourself or someone within your company. b) File the Texas Certificate of Formation Next, you will need to file the Certificate of Formation with the Secretary of State, either via mail or online . The filing fee is approximately USD300. c) Draft an operating agreement Operating agreements aren’t required by the state of Texas, but experts stress that you have one in place. Your operating agreement outlines how you will run your LLC and sets out the rights and responsibilities of your managers. Should you decide not to draft an operating agreement, state LLC law will govern how your LLC operates. How to register a partnership a) . General Partnerships: You will need to file a DBA registration with the Texas Secretary of State. b). Limited Partnership : Limited Partnerships must file a Certificate of Limited Partnership. c). Limited Liability Partnerships: Complete a Registration Application with the Texas Secretary of State. d). Limited Liability Limited Partnerships: File an Application for Registration of an LLP with the Texas Secretary of State. How to register a corporation a) File a Certificate of Formation Similar to an LLC, corporations must file a certificate of formation with the Texas Secretary of State. The certificate must include the following: The corporate name and address The name and address of the registered agent The nature of the business The number of shares the corporation is authorised to issue The name and address of the organiser The names and addresses of board of directors The effective date of certificate b) Appoint a Texas registered agent As with an LLC – corporations will need to appoint a Texas registered agent, whether this be a corporation or an appointed individual within your organisation. NEXT

STEP 5. Your EIN number registration NEXT

What is an FEIN or EIN number? The Employer Identification Number (EIN), or the Federal Tax Identification Number (FEIN), is used to identify your business entity. In most instances, business will need an EIN to operate. These businesses include: Any business with employees. Any business that operates as a corporation or a partnership. Any business that pays employment, alcohol, tobacco or firearms tax returns. Without your EIN number you won’t be able to apply for a business bank account, business licenses or file a tax return. How can you apply for an EIN number? You can apply for your EIN number through the Internal Revenue Service online . The service is free. The IRS also advise that you check your state as well to verify if you need a state number or charter. NEXT

STEP 6. Get your business license in Texas a) General licenses and permits The Texas state doesn’t require you to have a general business license, but there are several regulatory agencies that do require you to have certain licenses and permits dependent on the type of product or service that you offer. Very specific professions also need a state level license, which you can find more information on at the Texas Department of Licensing and Regulation (TDLR). b) Local permits Specific permits may also be required from the local government in the area that your business will be located in. Each municipality will have its own regulations, so it is best to check first with them to ensure that you comply with their requirements. Some of the common permits required include: Alarm permit Building permit Health permit Occupational permit Signage permit Zoning permit To find out which permits and licenses you may need, contact the local county or the city government for additional requirements you may need to meet. c) Texas sales and use tax permit The state requires you to have a Texas sales and use tax permit if you are an individual, partnership, corporation or other legal entity operating a business in Texas and you: sell tangible personal property in Texas; lease or rent tangible personal property in Texas; or sell taxable services in Texas. You can apply for a sales tax permit using the Texas Comptroller Texas Online Sales Tax Registration Application System . Alternatively, you can print an application from or print an application from the Texas Sales and Use Tax Forms webpage and mail it to the Comptroller. Important contact details Internal Revenue Service (IRS) Website: www.irs.gov Address: 825 E. Rundberg Ln., Austin, TX 78753 Phone : (512) 499-5127 Texas Comptroller of Public Accounts Website : https://comptroller.texas.gov/ Address : Lyndon B. Johnson State Office Building, 111 East 17th Street, Austin, Texas 78774 Texas Department of Licensing and Regulation (TDLR). Website : https://www.tdlr.texas.gov/ FIRST SLIDE

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Starting A Business In Texas Checklist: Your Comprehensive Step-By-Step Guide

Looking to start a business in the lone star state? This checklist covers everything you will need to know to set up and register a business in Texas.

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