How to Start a Business in Texas: Laws and Regulations to Know

The Lone Star State, with its robust economy and reputation for business friendliness, beckons aspiring entrepreneurs. However, before transforming your innovative idea into a thriving enterprise, establishing a legal foundation is crucial. In this article, we’ll take a look at how to start a business in Texas legally.

Choosing Your Business Structure in Texas

First and foremost comes selecting a suitable business structure—a choice that can be complex. Deciding factors might include taxation, liability protection, management style, and desired level of formality.

The Texas Secretary of State (SOS) lists several options. The SOS website also provides forms that meet the minimum state law requirements, and you can even file online through their SOSDirect portal. 

Here's a breakdown of the various business structures available in Texas, along with a few key points to consider.

Sole Proprietorship

• The simplest and most common structure

• Owned and operated by one person

• No formal filing is required, although a “doing business as” (DBA) alias may be needed for operating under an assumed name

• Owner has unlimited liability for business debts

General Partnership

• Two or more people come together to run a business for profit

• No state filing is required, but a partnership agreement is recommended (can be written or oral)

• Partners have unlimited liability for business debts and each other's actions

• Requires filing a DBA if operating under an assumed name

Corporation

• Established by filing a Certificate of Formation 

• Offers limited liability protection to owners (shareholders)

• More complex structure with formalities like a board of directors

• Subject to corporate taxes separate from the owner's personal income tax

• "S corporation" is a tax election for certain corporations with the IRS

Limited Liability Company (LLC)

• Created by filing a Certificate of Formation 

• Offers limited liability protection to members (owners)

• Provides flexibility in management structure (member-managed or manager-managed)

• Generally enjoys pass-through taxation, similar to a partnership

Limited Partnership

• Involves one or more general partners with unlimited liability and one or more limited partners with limited liability for business debts

• Requires filing a Certificate of Formation 

• Governed by a partnership agreement (written or oral)

• Requires filing a DBA if operating under an assumed name

Limited Liability Partnership (LLP)

• Special designation for existing general or limited partnerships seeking limited liability protection for general partners

• Requires registration with the Texas SOS

Choosing a Distinctive Name That Will Not Infringe on Another’s Trademark and Registering a Web Domain

Next comes naming your venture. Names are more than just catchy titles—once you have an idea, you should conduct an availability check. Conduct a thorough search using the tools provided by state authorities to ensure your desired name isn't already registered by another business in Texas. 

It is also important to confirm that the name you choose for your business will not infringe on the trademark of another business. You should work with a small business attorney to run a trademark search and file your own trademark application with the United States Patent and Trademark Office (USPTO).

And for most businesses, a website is an important tool—whether for conducting e-commerce sales or for providing information about the business. For these reasons it is important to secure a website domain (URL) registration—probably one that uses the name of your business. 

Licenses, Permits, and Regulatory Compliance

Although Texas fosters a business-friendly environment, licenses and permits are still required. Failing to obtain the necessary permits can result in penalties and halt business operations. 

On top of general business permits, certain professions or industries might have additional licensing requirements. For detailed information, consult with your small business attorney. 

Insurance, Taxes, and Banking

Although the above steps establish a solid legal foundation, there are additional aspects to starting a business in Texas. For one, don’t overlook insurance. Depending on your industry, business insurance can be crucial to protect yourself from unforeseen liabilities. 

Understanding your tax obligations as a business owner is also essential. For example, if you plan to hire employees or open a dedicated business bank account, you'll need to obtain an Employer Identification Number from the IRS, regardless of your chosen business structure.

It’s also advisable to open a separate business bank account. Commingling personal and business finances can create personal liability and accounting nightmares—and raise red flags for potential investors and lenders. 

Know the Laws with LegalFix

Starting a business in Texas can be an exhilarating journey. By prioritizing legal compliance from the outset, you'll establish a firm foundation for success. Remember, seeking guidance from a small business attorney can be invaluable for navigating complex legal matters and ensuring your business thrives in the vibrant Texas economy.

Whether you want to know how to start a business in Texas or just want a better understanding of how our legal system works, LegalFix is your go-to source for free legal information. You can find helpful articles and state-specific explanations of nearly 1,600 legal topics—or browse state and federal statutes to better understand the laws that affect you. Just visit LegalFix.com to find all this content—and check back often for more valuable legal products and services coming soon.