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Starting a business in Texas can be an exciting and rewarding endeavor. The state’s business-friendly environment, diverse economy, and supportive infrastructure make it an attractive place for entrepreneurs. However, navigating the legal requirements for starting a business in Texas can be complex. The Texas Economic Development and Tourism website offers some excellent general advice, but you will want to consult with a Texas corporate attorney to help you with the legal considerations. 

Step 1: Choose a Business Structure

The first step in starting a business in Texas is choosing the appropriate business structure. Your choice will affect your legal liability, tax obligations, and management structure. The most common business structures in Texas include:

  1. Sole Proprietorship
  2. Partnership (General Partnership, Limited Partnership, Limited Liability Partnership)
  3. Limited Liability Company (LLC)
  4. Corporation (C-Corporation, S-Corporation)
  5. Professional Corporation (PC)
  6. Nonprofit Organization

Sole Proprietorship

  • Definition: A business owned and operated by a single individual.
  • Liability: The owner has unlimited personal liability for business debts and obligations.
  • Taxation: Income and expenses are reported on the owner’s personal tax return.

Partnership

  • General Partnership (GP): All partners share management responsibilities and have unlimited liability.
  • Limited Partnership (LP): Includes both general and limited partners. General partners manage the business and have unlimited liability, while limited partners have liability limited to their investment.
  • Limited Liability Partnership (LLP): Offers liability protection to all partners while allowing them to participate in management.
  • Limited Liability Limited Partnership (LLLP): Offers liability protection to all partners with the flexibility and benefits of operating out of an entity taxed as a limited partnership. 

Limited Liability Company (LLC)

  • Definition: A hybrid structure combining the liability protection of a corporation with the tax benefits of a partnership (other than a limited partnership).
  • Liability: Members have limited liability for business debts and obligations.
  • Taxation: Can be taxed as a sole proprietorship, partnership, or corporation, depending on the number of members and elections made.

Professional Limited Liability Company (PLLC)

  • Same as LLC, but for licensed professionals. 

Corporation

  • C-Corporation (C-Corp): A separate legal entity with its own rights and liabilities. Offers limited liability to shareholders but faces double taxation (corporate income tax and shareholder dividends tax).
  • S-Corporation (S-Corp): Similar to a C-Corp but allows profits and losses to be passed through to shareholders’ personal tax returns, avoiding double taxation for an amount of money paid to the shareholders. 

Professional Corporation (PC)

  • Definition: A corporation for licensed professionals, such as doctors, lawyers, and accountants.
  • Liability: Provides limited liability for business debts but not for professional malpractice.

Nonprofit Organization

  • Definition: A corporation organized for charitable, educational, religious, or scientific purposes.
  • Liability: Offers limited liability to directors and officers.
  • Taxation: May be eligible for tax-exempt status if it meets certain IRS requirements.

Step 2: Register Your Business Name

Choosing a unique and appropriate business name is crucial. In Texas, you must ensure your business name is not already in use and complies with state regulations.

  1. Check Name Availability: Use the Texas Secretary of State’s online database to check if your desired business name is available.
  2. Assumed Name Certificate (DBA): If you plan to operate your business under a name different from your legal business name, you must file an Assumed Name Certificate, also known as a “Doing Business As” (DBA) certificate, with the county clerk’s office in the county where your business is located.

Step 3: Register with the Texas Secretary of State

Depending on your chosen business structure, you may need to register with the Texas Secretary of State.

  1. (P)LLC: File a Certificate of Formation with the Secretary of State.
  2. (Professional) Corporation: File a Certificate of Formation with the Secretary of State.
  3. Limited Partnership: File a Certificate of Formation with the Secretary of State.
  4. Limited Liability Partnership: File a Registration of Limited Liability Partnership with the Secretary of State.
  5. Limited Liability Limited Partnership: File a Certificate of Formation with the Secretary of State and a Registration of Limited Liability Partnership with the Secretary of State. 

Step 4: Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) is required for tax purposes and to open a business bank account. You can obtain an EIN from the Internal Revenue Service (IRS) by completing Form SS-4 online, by mail, or by fax.

Step 5: Register for State Taxes

Depending on the nature of your business, you may need to register for various state taxes with the Texas Comptroller of Public Accounts.

  1. Sales and Use Tax Permit: If you sell tangible goods or certain services, you must obtain a Sales and Use Tax Permit.
  2. Franchise Tax: Most businesses in Texas, including LLCs and corporations, are subject to the state franchise tax.
  3. Employment Taxes: If you have employees, you need to register for state employment taxes, including unemployment tax and withholding tax.

Step 6: Obtain Necessary Licenses and Permits

Depending on your industry and location, you may need various licenses and permits to operate legally in Texas. Common licenses and permits include:

  1. Professional Licenses: Required for certain professions, such as healthcare, legal, and financial services. Check with the relevant licensing board for your profession.
  2. Business Licenses: Some cities and counties require a general business license to operate. Check with your local government for specific requirements.
  3. Zoning Permits: Ensure your business location complies with local zoning regulations. You may need a zoning permit or variance.
  4. Health and Safety Permits: Required for businesses in industries such as food service, manufacturing, and construction. Check with local health and safety departments for specific requirements.

Step 7: Open a Business Bank Account

Separating your personal and business finances is essential for legal and tax purposes. Open a business bank account to manage your business finances effectively. You will need your EIN, business formation documents, and any applicable licenses or permits to open an account.

Step 8: Comply with Employment Laws

If you have employees, you must comply with federal and state employment laws. Key requirements include:

  1. New Hire Reporting: Report new hires to the Texas New Hire Reporting Program within 20 days of hire.
  2. Workers’ Compensation Insurance: Texas does not require most private employers to carry workers’ compensation insurance, but it is highly recommended to protect your business and employees.
  3. Employee Handbook: Create an employee handbook outlining company policies, procedures, and employee rights. This helps ensure compliance with employment laws and sets clear expectations for employees.
  4. Anti-Discrimination Laws: Comply with federal and state anti-discrimination laws, including Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), and the Texas Commission on Human Rights Act (TCHRA).

Step 9: Maintain Ongoing Compliance

Starting a business in Texas involves ongoing compliance with various legal requirements. Key areas to monitor include:

  1. Annual Reports: Certain business entities, such as LLCs and corporations, must file annual reports with the Texas Secretary of State.
  2. Franchise Tax Reports: File annual franchise tax reports with the Texas Comptroller of Public Accounts.
  3. License and Permit Renewals: Keep track of renewal dates for any required licenses and permits.
  4. Recordkeeping: Maintain accurate and up-to-date records of all business transactions, financial statements, and legal documents. This is essential for tax compliance and legal protection.

Additional Considerations

Intellectual Property Protection

Protecting your intellectual property (IP) is crucial for maintaining a competitive edge and safeguarding your brand. Common forms of IP protection include:

  1. Trademarks: Register your business name, logo, and any distinctive branding elements with the United States Patent and Trademark Office (USPTO) to protect them from unauthorized use.
  2. Copyrights: Protect original works of authorship, such as written materials, music, and software, by registering copyrights with the U.S. Copyright Office.
  3. Patents: If you have invented a new product or process, consider applying for a patent with the USPTO to protect your invention.

Data Privacy and Security

In today’s digital age, data privacy and security are critical concerns for businesses. Ensure compliance with relevant data protection laws, such as:

  1. Texas Identity Theft Enforcement and Protection Act (TITEPA): Requires businesses to implement safeguards to protect sensitive personal information and notify individuals in the event of a data breach.
  2. General Data Protection Regulation (GDPR): If your business handles personal data of EU residents, ensure compliance with GDPR requirements.
  3. Cybersecurity Measures: Implement robust cybersecurity measures to protect your business and customer data from cyber threats. This includes using secure networks, encrypting sensitive data, and providing regular training for employees on data security best practices.

Securing Your Investment: Getting Assistance from Texas Corporate Attorneys

Starting a business in Texas involves navigating a complex landscape of legal requirements. By choosing the right business structure, registering your business name, obtaining necessary licenses and permits, and ensuring compliance with tax and employment laws, you can establish a solid legal foundation for your business.

Additionally, protecting your intellectual property and implementing strong data privacy and security measures are essential for safeguarding your business’s assets and reputation. Regularly reviewing and updating your legal compliance practices will help you stay ahead of regulatory changes and avoid potential legal pitfalls. Consulting with legal and financial professionals can provide valuable guidance and ensure that you meet all legal requirements for starting and operating a successful business in Texas. With careful planning and attention to detail, you can set your business on a path to growth and success in the vibrant Texas economy. Contact us today to learn how we can help you.