Starting a Business in Texas – A Comprehensive Guide

How to Start a Business in Texas

Do you have a business idea and are ready to become a small business owner in the Lone Star State? This detailed guide is here to help you master the ins and outs of entrepreneurship in Texas. So, as you set out to launch a startup or expand your current operations, let this guide be your dependable companion in understanding the unique aspects of Texas’s business landscape.

Two primary benefits of establishing a business in Texas:The state capitol of Texas is pictured. This is where programs to start and grow a business are administered.

  1. Low taxes, reasonable regulations, and a pro-business government characterize a robust economy and a business-friendly environment.
  2. A vast and varied industrial landscape, including thriving energy, technology, and healthcare sectors.

Two primary challenges to starting a business in Texas:

  1. The state’s sheer size may pose logistical challenges, requiring careful consideration of location and transportation options.
  2. Weather-related risks, including hurricanes and tornadoes, may impact business operations and require adequate insurance and contingency plans.

Keep reading as we explore the intricacies of doing business in Texas, offering in-depth information on licensing, tax policies, and much more.

Regulatory Factors and Taxes in Texas

Texas is known for its business-friendly atmosphere, emphasizing limited government intervention and economic freedom. This approach has led to a simplified regulatory landscape, making it more manageable for businesses to comply with state and local rules. In addition, as part of their financial planning, Texas businesses should consider the state’s lack of corporate income tax, which is a significant advantage.

In Texas, there is a state sales tax rate of 6.25%. However, local sales tax rates may vary and can add up to an additional 2%. As a result, the combined state and local sales tax rate can range from 6.25% to 8.25%. Texas is ranked 13th on the 2023 State Business Tax Climate Index.

Businesses operating in Texas should also be aware of property taxes, which vary by county, as well as potential industry-specific taxes and fees.

A comprehensive understanding of Texas’s taxation landscape is crucial for businesses looking to thrive in the Lone Star State to ensure proper budgeting and adherence to state and local tax regulations.

What are the Different Types of Business Structures I Can Use?

There are five primary types of businesses. Each type of business entity is described below.

Sole Proprietorship

A business owned and operated by one individual with no legal distinction between the business and the owner. The owner is personally responsible for all debts and liabilities of the business.

Limited Liability Company (LLC)

A flexible business organization that combines the liability protection of a corporation with the tax benefits and simplicity of a partnership. Owners of an LLC are called members, and their assets are typically protected from the debts and liabilities of the business. Your Articles of Organization for an LLC let you control the rights of different members.

Corporation

A type of corporation allows for pass-through taxation, meaning that profits and losses are passed through to the shareholders and reported on their tax returns. S-Corporations are limited to 100 shareholders and must meet certain eligibility requirements.

C-Corporation

A separate legal entity from its owners (shareholders) means that the corporation can enter into contracts, own assets, and sue or be sued. C-Corporations are subject to double taxation, meaning that the corporation and the shareholders are taxed on profits.

Limited Liability Partnership (LLP)

A partnership that limits the personal liability of its partners. LLPs are typically used by professional service providers such as lawyers, accountants, and architects. Each partner is protected from the other partners’ wrongful acts, omissions, and negligence, but they may still be personally liable for their own actions.

Distribution of Businesses

Business Type Percent of Businesses in Texas
Sole Proprietorship 78-88%
Limited Liability Company (LLC) 12-22%
S-Corporation 4-8%
C-Corporation 2-6%
Limited Liability Partnership (LLP) Less than 1%

Yearly percentages in Texas are subject to variation, as the industry and the specific location of the business heavily impact them. It’s worth noting that the data may include registered companies from other states that conduct business in Texas.

What Is an EIN Number?

Definition of an Employer Identification Number – EIN

An Employer Identification Number (EIN), also known as a Federal Tax Identification Number or Federal Employer Identification Number (FEIN), is a unique nine-digit identifier assigned to U.S. businesses by the Internal Revenue Service (IRS). The primary purpose of an EIN is to help the IRS monitor a company’s tax account.

Do I Need One to Start a Business in Texas?

Acquiring an EIN is essential for starting a business in Texas, especially if you plan to run your venture as a corporation or partnership or intend to hire employees. Besides these scenarios, an EIN is also required for specific tasks, such as obtaining a business license, setting up a business bank account, or submitting tax returns.

How Do I Get One?

Securing an EIN is a straightforward process. You can apply online via the IRS website or mail or fax Form SS-4 to the IRS. Opting for the online application is the most convenient method since you’ll typically receive your EIN immediately after completing the application.For additional information or support, contact the IRS directly at

Phone: 1-800-829-4933 (for businesses)Website: https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers

How to Start a Business in Texas – Important Registration

Registering My Business Name

Contact the Texas Secretary of State’s office to register your business name in Texas. You can call them at (512) 463-5555 or visit their website at  https://www.sos.state.tx.us/ .

Registering a DBA (Doing Business As) If Relevant

Contact your local county clerk’s office if you need to register an assumed name (also known as a DBA) in Texas. A directory of county clerk offices can be found on the Texas Association of Counties website.

Website:  https://www.county.org/

Registering for Payroll State Payroll Taxes, Unemployment Insurance

To register for state payroll taxes and unemployment insurance in Texas, create an account with the Texas Workforce Commission (TWC).

Website:  https://www.twc.texas.gov/

Phone: 1-800-832-9394

Registering for Worker’s Compensation Insurance

If you’re in Texas and need workers’ compensation insurance, contact an insurance provider offering this type of coverage to register. If you use a  payroll service , they should be able to provide workers comp as well.

Registering for Collecting Sales Tax

To register for sales and use tax in Texas, create an account with the Texas Comptroller of Public Accounts.  This is considered a state tax, plus local taxes for some specific parts of Texas.

Website:  https://comptroller.texas.gov/

Phone: 1-800-252-5555

Registering for Franchise Tax

Businesses operating in Texas should register for franchise tax through the Texas Comptroller of Public Accounts.

Website:  https://comptroller.texas.gov/

Phone: 1-800-252-1381

Registering to Pay Property Tax

In Texas, contact your local county appraisal district. A list of county appraisal districts can be found on the Texas Comptroller of Public Accounts website.

Website:  https://comptroller.texas.gov/taxes/property-tax/county-directory/

Permits for Starting a Business in Texas

Texas economy includes many successful industries.  Pictured is AT&T Stadium home to a thriving sports franchise and successful businessDo I Need a Business Permit to Operate a Business in Texas?

At the State Level:  Depending on the business type and industry, certain businesses in Texas might need state-level permits or licenses. To determine if your business requires a state-level permit or license, consult the Texas Department of Licensing and Regulation (TDLR).

Website:  https://www.tdlr.texas.gov/

Apart from state-level permits, local permits or licenses might be required based on your business location and industry. The Texas Wide Open for Business website offers resources to help you identify the specific permit requirements for your enterprise according to your site and industry.

Website:  https://businessintexas.com/

Conduct thorough research to acquire all the essential permits and licenses before operating your business in Texas.

Check With Your City: Reach out to your city’s business licensing office to learn about any special permits needed to run your business. They will supply you with the necessary information and guidance.

Check Federal Requirements. Your county may have particular rules and licensing requirements for businesses within its jurisdiction. Obtaining this information from the appropriate county office or website is vital to comply with all regulations.

Check With Your State: Besides city and county requirements, your state may have specific regulations and permit requirements for businesses operating within its jurisdiction. Contact the Texas Department of Licensing and Regulation or visit their website for more information on permits and licenses required for your business.Bear in mind that requirements can differ significantly depending on your business type and location. Therefore, verifying with all relevant authorities is essential before starting your business in Texas

How do I learn about any special permits I need for my business?

When starting a new business in Texas, it’s crucial to identify the necessary special permits or licenses for your specific industry. The requirements for each company may vary based on factors such as location and size. Therefore, conducting comprehensive research on the required permits within your area is essential to avoid legal issues and potential fines.

Several channels can help you gather this information, including contacting the Texas Department of Licensing and Regulation (TDLR), which offers resources and assistance for businesses concerning licensing and permit requirements. You can also explore their website to review specific regulations or schedule a consultation with one of their experienced staff members for further guidance.

Another valuable resource is your local chamber of commerce or small business development center. These organizations often assist entrepreneurs in navigating the complexities of regulatory compliance.

Financing Options for Entrepreneurs in Texas

Securing adequate financing is essential for launching and expanding a successful business in Texas. Entrepreneurs can access various funding options, including federal, state, and local resources.

Financing a New Business

Determining the optimal financing option for your business can be challenging, but it’s crucial for the success and growth of your enterprise. Your choices include loans, grants, and investments from angel investors. In-depth research and planning can help you identify the most appropriate funding sources for your business objectives.

SBA Loans and Microloans

The United States Small Business Administration (SBA) provides several loan programs to support emerging entrepreneurs in establishing and growing their businesses. Microloans are small-scale loans, typically short-term, and intended to offer quick access to funds for small businesses.

Website:  https://smallbusinessplans.com/sba-microloans-for-small-businessess-and-startups/

In Texas, microloan intermediaries such as LiftFund and PeopleFund offer microloans to eligible businesses. These intermediaries also deliver additional support services like business coaching and training.

SBA Microlenders in Texas

Here are some of the SBA Microlenders in Texas for those seeking financing opportunities for small businesses:

LiftFund

2007 W. Martin

St. San Antonio,

TX 78207

888-215-2373

info@liftfund.com

https://www.liftfund.com/

PeopleFund

2921 E. 17th St., Building

D, Suite 100 Austin,

TX 78702

888-222-0017 info@peoplefund.org

https://www.peoplefund.org/

State and Local Grants and Incentives

The Texas Governor’s Office of Economic Development and Tourism encourages business growth within the state through various grants and incentives. Notable programs include the Texas Enterprise Fund, which offers cash grants to businesses planning significant job creation and capital investment in the state. Additionally, the Texas Small Business Grant Program supports small businesses through grants that help to create jobs and foster economic development.

Angel Investor Groups

Angel investors are individuals or groups that provide capital to startups in exchange for ownership equity or convertible debt. Numerous angel investor networks in Texas actively support local businesses, such as Central Texas Angel Network, Houston Angel Network, and North Texas Angel Network. Connecting with these networks can offer valuable networking opportunities and potential funding for your business.

Remember that securing funding is only one aspect of starting a prosperous business. Investigating and evaluating all financing options is critical to finding the perfect match for your venture.

Benefits of a Well-Structured Business Plan

A well-structured business plan offers numerous advantages for entrepreneurs. First, a well-conceived plan helps you define your objectives and address your business’s challenges. Additionally, a strong business plan serves as a roadmap to communicate your vision to stakeholders and partners and guide your team.

Meeting Lender and Investor Expectations

Lenders and investors typically require a detailed business plan before providing financial support to your venture. A well-crafted plan demonstrates your commitment and expertise, showcasing your understanding of the market, financial projections, and strategies for achieving success. A robust business plan can significantly increase your chances of obtaining the necessary funds to start and grow your business in Texas by meeting lender and investor expectations.

Where Can I Find a Mentor to Help Me Succeed?

Establishing a business in Texas may present difficulties, but seeking guidance from professionals such as attorneys, SCORE mentors, or local business organizations is vital. In addition, networking with other entrepreneurs and connecting with mentors can offer valuable insights and support as you establish your business in the Lone Star State. Numerous organizations and resources in Texas cater to local entrepreneurs, providing mentorship and assistance. Some of these organizations include

North Texas SCORE:  This non-profit organization supports businesses by offering networking opportunities, resources, and mentorship to start and grow a business in the North Texas region.

Phone No (214) 987-9491.

Website:  https://www.score.org/dallas

Texas Women’s Business Centers (WBCs): For female entrepreneurs, WBCs provide business guidance, financial assistance, and networking resources to women launching or operating a business in Texas. Find a local WBC through the SBA.

Website:  https://www.sba.gov/local-assistance

Texas Association of Mexican American Chambers of Commerce (TAMACC):  Catering to Latino entrepreneurs, TAMACC offers various support programs, including technical assistance, financial resources, and access to training and development.

Phone No (512) 444-5727.

Website:  https://tamacc.org/contact/

Veterans Business Outreach Center (VBOC) in Texas:  Military veterans looking to start a business can find support from this organization. VBOC provides mentorship, community support, and guidance on local business administration.

Phone No (210) 458-2458

Website:  www.utrgv.edu/vboc

Small Business Development Centers (SBDCs) in Texas: Funded by the U.S. Small Business Administration, SBDCs offer support services such as consulting, mentorship programs, and access to resources for a low fee. These services are available to entrepreneurs throughout Texas.

Website:  https://www.sba.gov/local-assistance

These resources provide new businesses and those seeking additional support with an excellent hub to access information, expand their network, and grow their business in Texas.

The Economy of Texas

Texas has one of the most diverse economies in the U.S. Starting with oil, farming, high technology and tourism - there are many opportunities to start a business.

Texas’s economy is as diverse as any state in the US, with several strong business segments.

Entrepreneurs who want to launch a business in Texas must deeply understand the state’s economy. This knowledge is essential in gaining insight into consumer patterns, growth prospects, and the financial landscape. Additionally, a robust economy provides a favorable environment for new businesses to flourish and expand.

Economic Overview

Average Household Income

The median household income in Texas stands at $67,404, which is slightly lower than the national median. Despite this, the income level still indicates a sizable consumer base, offering businesses an attractive local market to target.

Average Level of Education

Approximately 18.7 percent of Texas residents aged 25 years and older hold a bachelor’s degree, while 83.6% of Texans have completed their high school education. This relatively high level of education often translates to a skilled workforce, benefiting companies in search of qualified employees.

Consumer Spending per Capita

In Texas, the average personal consumption expenditure per person is $39,661, which has significantly increased since 2000 when it was $22,536. This rise in consumer spending indicates a thriving market that businesses can tap into for potential revenue and growth opportunities.

Top Industries in Texas

Texas has long been known for its diverse and thriving economy, fueled by various key industries contributing to its growth and prosperity. One of the most significant industries in Texas is the energy sector. The state is a leader in traditional energy production, such as oil and gas, and renewable energy sources, like wind and solar power. Texas has the largest crude oil reserves in the United States and ranks first for natural gas production. Additionally, it has made significant strides in renewable energy, becoming the largest wind power-producing state in the U.S.

Another important industry in Texas is the technology sector. The state has emerged as a major tech hub, with cities like Austin, Dallas, and Houston home to numerous technology companies and start-ups. The technology industry in Texas has experienced rapid growth in recent years, with a focus on areas such as software development, data centers, and electronics manufacturing. This growth is supported by a highly educated workforce and the presence of leading research universities and institutions that foster innovation and collaboration.

The aerospace and defense industry is crucial to Texas’s economy. The state has a strong history in aviation and space exploration, with major companies such as Lockheed Martin, Raytheon, and Boeing having a significant presence in the region. In addition, Texas is home to several military installations, including Fort Hood, Lackland Air Force Base, and Naval Air Station Corpus Christi, contributing to the state’s defense industry. Furthermore, Houston’s Johnson Space Center, a key facility for NASA, supports the state’s thriving aerospace sector.

Another vital industry in Texas is agriculture, with the state being one of the top producers of various agricultural products in the United States. Texas leads the nation in cattle, cotton, and hay production and is also a significant producer of wheat, corn, and other crops. The state’s large size, diverse climate, and fertile land contribute to its success in agriculture, allowing it to support a wide range of farming activities. The agricultural industry substantially impacts the state’s economy, with thousands of Texans employed in farming, ranching, and related industries.

Texas has also witnessed the rise of the healthcare and biotechnology sectors in recent years. The state’s growing population and increased focus on healthcare innovation have led to expanding medical facilities and the development of cutting-edge biotechnology research centers. The Texas Medical Center, located in Houston, is the largest medical complex in the world, housing over 50 medical institutions and employing more than 100,000 people. The biotechnology sector in Texas is also experiencing significant growth, with companies focusing on areas such as pharmaceuticals, medical devices, and research and development.

Texas’s diverse and robust industries contribute to the state’s strong economic position and provide ample opportunities for businesses and entrepreneurs seeking to thrive in this dynamic environment.

Important Opportunities for Networking When Starting a Business in Texas

Networking is a skill that most successful business owners have as one of their top talents.  You can do it too!  Networking is a great way to improve your success and grow your personal and business reputation.  Here are a few ways to get started.

Identify complementary businesses: Complementary businesses can play a vital role in enhancing the growth and success of an enterprise in Texas. By identifying and partnering with businesses that offer products or services that align with or supplement their offerings, companies can expand their market reach, pool resources, and reduce costs.

For instance, a software development company might collaborate with a data center provider to offer comprehensive solutions to their clients. Such strategic partnerships can lead to increased efficiency, improved customer satisfaction, and a stronger competitive advantage in the marketplace.

Leverage workforce talent: Leveraging workforce talent is essential for businesses looking to thrive in Texas’s dynamic economy. With a highly educated and skilled workforce, the state offers a rich talent pool that companies can tap into for their needs.

By attracting and retaining top-notch employees from various industries, such as technology, aerospace, and healthcare, businesses can foster innovation, drive productivity, and maintain a competitive edge.

Collaborate with industry leaders: Collaborating with industry leaders in Texas can benefit businesses seeking to grow and expand. Engaging with established companies, research institutions, and industry organizations can lead to valuable insights, access to resources, and opportunities for joint ventures. This collaboration fosters a culture of innovation and knowledge sharing, enabling businesses to stay abreast of the latest trends and developments in their respective sectors.

By working closely with industry leaders, companies can capitalize on new opportunities, navigate challenges, and ultimately achieve long-term success in the competitive Texas market.

Workforce and Talent

To make informed decisions about staffing and recruitment strategies for your business, understanding the workforce and talent in Texas can provide valuable insights into the state’s labor market.

Unemployment Rate

Texas, known for its booming economy, has an unemployment rate of 6.0%. This figure is an essential indicator of job opportunities and the state’s financial health.

Minimum Wage

The minimum wage in Texas is $7.25 per hour, which can influence labor costs and your business’s budget and salary structure.

Average Age and Demographics

The population is almost equally divided between genders, with females comprising 50.4% and males 49.6%, while the median age is 35. This data can be valuable in tailoring products or services to cater to the specific age and gender requirements of the state’s populace.

Breakdown of People with Various Levels of Education

Here is the education level breakdown of Texans aged 25 and above:

  • 19% hold a higher degree.
  • 83% have a high school education.
  • 10.5% have no high school diploma.

This information can assist you in finding and hiring employees who possess the necessary education and skills for your business.

Top Areas of Skilled Workers for Residents of Texas

The Texas economy has benefited from diverse, skilled workers, contributing to its growth and development. Some of the top areas of skilled workers for residents of Texas include the energy sector, technology, healthcare, and aerospace and defense industries.

The energy sector is a crucial driver of the Texas economy, with the state being the largest producer of oil and natural gas in the United States. Skilled workers in this sector range from engineers to geoscientists, providing expertise in exploring, producing, and distributing energy resources. According to the U.S. Energy Information Administration, Texas accounted for about 43% of the nation’s crude oil production.

Technology is another prominent industry in Texas, with cities like Austin and Dallas becoming hubs for startups and tech giants. In addition, the state’s tech sector employs many skilled workers, such as software developers, data scientists, and IT professionals. In 2019, CompTIA reported that the Texas tech sector contributed about $141.8 billion to the state’s economy, representing 8.3% of the overall GDP.

Healthcare is also essential in Texas, providing numerous job opportunities for skilled workers, including physicians, nurses, and medical technicians. As of 2021, the Texas Medical Center in Houston was the world’s largest medical complex, employing over 106,000 individuals and hosting 10 million patient encounters annually. The demand for healthcare professionals in Texas is expected to grow in the coming years, fueled by the state’s expanding population and aging demographics.

The aerospace and defense industry is another critical source of skilled employment opportunities in Texas. Home to several major defense contractors and NASA’s Johnson Space Center, the state offers various roles for engineers, scientists, and technicians. According to the Texas Economic Development Corporation, Texas’s aerospace, aviation, and defense industries employed over 153,000 workers.

Texas boasts diverse, skilled workers across various industries, contributing to the state’s economic growth and stability. The energy, technology, healthcare, and aerospace and defense industries are among the top areas where skilled workers find employment in Texas. As these sectors continue to expand and evolve, the demand for highly qualified professionals will likely grow, further solidifying Texas’s position as an economic powerhouse.

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