How To Start A Business In Texas

Texas has about 3.5 million small businesses, which make up 99.8 percent of all Texas businesses and employ 5.1 million people. Texas also has no personal income tax. However, that doesn't mean starting or running a business is free from taxes, fees, or legal responsibilities. Depending on your business structure, revenue, location, and industry, you may need to file with the state, meet tax requirements, and obtain specific licenses or permits before opening.

If you are planning to launch a company in the Lone Star State, it is important to know what to expect before spending your hard-earned money or accepting customers. Use this guide as your roadmap to learn what each stage involves for starting a business in Texas, what it costs to plan, and what to check before you begin operating.

Quick Checklist: What You Need to Start a Business in Texas

Before we explain each step in detail, here’s a quick overview of what you need to start a business in Texas. Use this checklist to understand the basics, then read on for a closer look at each step, including the costs, paperwork, and requirements involved.

Step 1: Validate Your Idea and Write a Business Plan

Before you file anything to start a business in Texas, confirm there is demand for what you plan to sell or start. Talk to likely customers, look at who already serves your city, and estimate your startup costs and first-year revenue.

A written business plan keeps those numbers in one place. It also helps if you plan to apply for a loan or bring on investors. A short plan including things mentioned below is enough to start:

• Your offer

• Your customers

• How you will reach them

• What it costs to operate

• How you expect to make money

Remember, Texas is a big state, and local conditions vary a lot. For instance, a food truck in Houston faces different permits, competition, and rent than a consulting firm in Austin or a landscaping company in El Paso, so build your plan around your own city and county.

Step 2: Choose a Business Structure

Your Texas business structure decides how you are taxed, how much personal liability you carry, and how much paperwork you handle each year. These are the main business structure options in Texas. Read about each to decide which fits your goals.

a) Sole Proprietorship

This is the default structure if you start doing business without filing any paperwork with the state. You report business income on your personal tax return. The downside is that you have no personal liability protection. If the business takes on debt or faces a lawsuit, your personal assets are at risk.

b) General Partnership

A general partnership is a business owned by two or more people who share profits, responsibilities, and business decisions. In Texas, partners generally share personal liability for the partnership’s debts and legal obligations. You typically don’t need to file formation documents with the state to establish one, but you should create a partnership agreement outlining each partner’s role, contributions, and profit-sharing arrangements.

c) Limited Liability Company (LLC)

An LLC gives you personal liability protection while keeping things flexible. Your personal assets, like your home and savings, are generally separate from business debts. Most LLC owners report business income on their personal tax returns. Many business owners form an LLC in Texas because it is simpler to manage than a corporation.

d) Corporation

Corporations provide personal liability protection and can issue stock to raise money from investors. They require a board of directors, corporate bylaws, and more formal recordkeeping. Small businesses may qualify for S corporation tax status, which avoids the double taxation that C corporations in Texas can face.

e) Nonprofit

If your business advances a social cause without expecting financial gain, you may qualify to form a nonprofit in Texas. Nonprofits can apply for tax-exempt status once they are properly formed.

If you are unsure which business structure fits your goals, compare the different business types or speak with a tax advisor or attorney for guidance. Professional business formation services like Swyft Filings can also help you get set up correctly from the start.

NOTE: Keep in mind that an S corporation is a tax election, not a separate entity. You must form an LLC or corporation first and then file with the IRS.

Step 3: Check Name Availability and Register Your Business Name

Your legal name must be distinguishable from other entities already on file with the state. Search the Secretary of State's SOSPortal system before you commit to a name, and use our Texas Business Name Search perform guide if you want a walkthrough. Check domain names and social handles at the same time so your branding stays consistent.

A few related filings are worth knowing about:

• Name reservation: If you are not ready to file, you can reserve an available entity name for $40. It is optional.

• Assumed name certificate (DBA): If you want to operate under a name other than your legal name, you need an assumed name filing. For an LLC or corporation, the Secretary of State fee is $25 on Form 503. Sole proprietors and general partnerships typically file with their county clerk instead. Our DBA service handles this for you.

• Trademark: Forming an entity does not give you exclusive rights to a brand name. If your brand matters, consider trademark registration.

Step 4: Appoint a Texas Registered Agent

Every Texas LLC and corporation must designate a registered agent with a physical street address in Texas. The agent receives legal papers and official state notices on the company's behalf during business hours. A P.O. box does not qualify.

You can serve as your own agent if you are a Texas resident, or you can name another adult resident or a business entity authorized to do business in Texas. Many owners choose Swyft Filings' professional registered agent service to keep their home address off the public record and help ensure service of process is not missed.

Step 5: File Your Formation Documents with the Texas Secretary of State

Filing formation documents with the Texas Secretary of State is what officially creates your business as a legal entity. The specific paperwork depends on your chosen structure. For example:

• For an LLC, file a Certificate of Formation (Form 205). The filing fee is $300.

• For a sole proprietorship, no state filing is required.

• For a for-profit corporation, file a Certificate of Formation (Form 201). The filing fee is $300.

• For a nonprofit corporation, file a Certificate of Formation (Form 202). The filing fee is $25.

The form typically asks for your entity name, registered agent and office address, a mailing address, who will govern the company, and an organizer's name. You can file online through SOSPortal or by mail. Credit card payments may carry a small processing fee, and the state offers optional expedited handling for an extra charge, so check the Secretary of State's current fee schedule before you file.

Step 6: Create an Operating Agreement or Corporate Bylaws

Texas does not require you to file an operating agreement or corporate bylaws, but you should have one. It spells out ownership percentages, voting rights, how profits are split, and what happens if an owner leaves. Banks and lenders often ask to see it, and it helps courts respect your business as a separate entity.

If you form an LLC, create an operating agreement using professional services or a free operating agreement template that explains ownership percentages, members’ responsibilities, voting rights, profit distribution, and what happens if a member leaves.

If you form a corporation, prepare customized corporate bylaws that outline how the company will be governed, including directors’ and officers’ roles, shareholder meetings, and decision-making procedures. Keep these documents in your records to clarify responsibilities and support proper business management.

Step 7: Get an EIN

An Employer Identification Number is your business's federal tax ID. You need to apply for an EIN if you are planning to hire employees, open most business bank accounts, file business tax returns, and, in most cases, apply for permits. There is no fee from the IRS to apply for an EIN online, and the process takes about 10 minutes.

Multi-member LLCs and corporations must have one. Single-member LLCs and sole proprietors without employees can sometimes use a Social Security number, but an EIN keeps that number out of vendor and client paperwork.

Step 8: Register for Texas Taxes and Get Licenses and Permits

This step surprises many first-time owners, because Texas has no personal income tax but still taxes businesses in other ways.

Texas Franchise Tax

Most LLCs, corporations, and partnerships doing business in Texas are subject to the franchise tax, which the Comptroller administers. Do not let the word "tax" worry you, though. For the 2026 and 2027 report years, the no-tax-due threshold is $2,650,000 in annualized total revenue. If your revenue is at or below that number, you generally owe no franchise tax.

Above the threshold, the rate is 0.375 percent of taxable margin for retail and wholesale businesses and 0.75 percent for everyone else.

The part many owners miss is the filing. The annual report is due May 15 each year, and entities below the threshold must still file the required Public Information Report or Ownership Information Report. Missing it can lead to penalties and, eventually, loss of your right to do business in Texas.

Texas Sales and Use Tax Permit

If you sell, lease, or rent taxable goods or services, you need a sales and use tax permit from the Texas Comptroller before you make your first sale. Registration is free through the Comptroller's permit application. You can also use our seller's permit registration service. The state sales tax rate is 6.25 percent. Cities, counties, and special districts can add up to 2 percent, for a maximum combined rate of 8.25 percent.

Employer Registrations

If you hire employees, register as an employer with the Texas Workforce Commission for state unemployment tax, and verify workers' compensation rules for your industry with the Texas Department of Insurance. Texas generally lets private employers decide whether to carry workers' compensation coverage, but that choice carries legal consequences if an employee is injured.

Business Licenses and Local Permits

Texas does not issue a single general business license. Whether you need one depends on your industry and location. Licensed trades and professions, such as cosmetology, contracting, and many health and real estate fields, are regulated by state agencies, and cities and counties may require their own permits for signs, food service, or home occupations. Use our how to apply for a business license in Texas guide to figure out what applies to you. You can even use our business license research service, where we will find which licenses apply to your business and how to apply for them, all in a custom report.

Step 9: Open a Business Bank Account

Keep business and personal money separate from day one. Mixing them is one of the easiest ways to weaken your LLC's liability protection and one of the hardest things to untangle at tax time. Bring your formation documents, EIN confirmation, and operating agreement to the bank. For tips on choosing an account, read our guide to starting a business bank account.

What Is The Best Business Structure In Texas?

The right business structure depends on your goals, how many owners are involved, and how you want to handle taxes.

• Most small business owners in Texas choose an LLC because it offers personal liability protection, flexible management, and pass-through taxation without the formal requirements of a corporation. If you are a solo entrepreneur or freelancer, a single-member LLC is often the simplest path.

• If you plan to raise money from investors, a corporation may be a better fit because corporations can issue stock. Nonprofits are appropriate for organizations focused on a social or charitable mission.

• Sole proprietorships are the easiest to start but carry the most personal risk because there is no separation between you and the business.

Conclusion

With no personal income tax, a high franchise tax threshold that means most small businesses owe nothing, and a strong state economy, Texas is an excellent place to start and grow a business. The business formation process involves several steps, from choosing a structure and filing paperwork to getting your EIN and staying compliant.

Working through each step in order helps you avoid delays and costly mistakes. Swyft Filings has helped over 600,000 businesses with formation and compliance. We handle the paperwork so you can focus on building your business. Form your LLC, corporation, or nonprofit in just a few minutes and start operating in Texas with confidence.