By Jake Lawson, LLC Formation Strategist
Starting a business in Texas isn’t rocket science, but there are specific steps you need to follow to do it legally and set yourself up for success. After helping over 400 entrepreneurs launch Texas businesses, I’ve seen every mistake in the book—and I’m going to help you avoid them.
Here’s the reality: Most “how to start a business” guides are written by people who’ve never actually started a business. I’m different. I’ve been through this process hundreds of times, both for my own ventures and for clients ranging from solo consultants to multi-million dollar startups.
This guide covers everything you need to know, in the order you need to know it, with real-world insights you won’t find anywhere else.
Overview: The 7 Essential Steps
- Choose your business name (and secure the domain)
- Select your business structure (LLC, Corporation, etc.)
- Register with Texas Secretary of State
- Get your Federal EIN (Employer Identification Number)
- Open a business bank account
- Register for Texas taxes (Franchise Tax, Sales Tax if applicable)
- Obtain required licenses and permits
Jake’s Reality Check: Most entrepreneurs rush through steps 1-3 and then get stuck on steps 4-7. Plan for the entire process to take 2-4 weeks, not 2-4 days.
Step 1: Choose Your Business Name (The Foundation of Everything)
Your business name is more important than most people realize. It affects your domain availability, trademark possibilities, customer perception, and even your marketing costs.
What Makes a Strong Business Name:
Memorable and Pronounceable: If people can’t say it or remember it, you’re starting with a handicap.
Domain Available: In 2025, if you can’t get the .com domain, consider a different name.
Future-Proof: Avoid names that limit your growth (like “Dallas Web Design” if you might expand beyond Dallas or beyond web design).
Professional: “AwesomeSauce Consulting” might seem fun, but it won’t help you land corporate clients.
The Texas Name Search Process:
Step 1: Brainstorm 10-15 potential names
Step 2: Check availability on Texas’s database: Texas Entity Search
Step 3: Verify domain availability (GoDaddy, Namecheap, etc.)
Step 4: Run a basic trademark search on USPTO.gov
Jake’s Pro Tip: Don’t fall in love with one name. Have 3-5 solid options before you start the formal process. I’ve seen entrepreneurs waste weeks trying to force a name that’s not available.
Common Texas Business Name Mistakes:
- Using restricted words without proper licensing (Bank, Insurance, etc.)
- Choosing names too similar to existing businesses
- Forgetting required designators (LLC, Inc., Corp, etc.)
- Not considering social media handles availability
Step 2: Choose Your Business Structure (This Decision Matters)
Your business structure affects your taxes, liability protection, paperwork requirements, and growth options. Let me break down the real-world implications of each choice.
LLC (Limited Liability Company) – My Top Recommendation
Best for: 85% of small to medium businesses
Why I recommend LLCs:
- Personal asset protection (your house, car, and personal savings are protected if the business gets sued)
- Tax flexibility (can elect S-Corp status later for tax savings)
- Minimal paperwork (no board meetings, corporate resolutions, or complex compliance)
- Credibility (customers and vendors take you more seriously than sole proprietorships)
Texas LLC Costs:
- State filing fee: $300
- Registered agent: $0 if you serve yourself, $150-300/year if hired
- Annual report: $35/year
Real-world example: A client’s consulting LLC was sued by a disgruntled customer for $50,000. Because we properly formed the LLC and maintained separation, the client’s personal assets were protected. A sole proprietorship wouldn’t have provided this protection.
Corporation – For High-Growth Ventures
Best for: Businesses planning to raise venture capital or go public
Types:
- C-Corporation: Double taxation but easier to raise investment
- S-Corporation: Pass-through taxation but ownership restrictions
When to choose Corporation:
- You plan to seek venture capital funding
- You want to issue stock options to employees
- You’re in a high-liability industry
- You expect significant profits and want tax planning flexibility
Texas Corporation Costs:
- State filing fee: $300
- Registered agent: $150-300/year
- Annual report: $35/year
- Additional compliance: $500-2000/year (board meetings, corporate resolutions, etc.)
Sole Proprietorship – The Default (Not Recommended)
Reality check: A sole proprietorship isn’t really a business structure—it’s what happens when you don’t choose one.
Why I rarely recommend sole proprietorships:
- No liability protection (your personal assets are at risk)
- No business credit building (everything runs through your SSN)
- Professional credibility issues (harder to get business banking, contracts, etc.)
- Tax limitations (can’t elect S-Corp status for tax savings)
When sole proprietorship makes sense:
- Very low-risk businesses (freelance writing, consulting)
- Testing a business idea before formal launch
- Businesses with minimal revenue expectations
Partnership – Proceed with Extreme Caution
Jake’s honest take: Most partnerships fail, and when they do, it gets messy fast.
If you must form a partnership:
- Get a detailed partnership agreement (don’t skip this)
- Define ownership percentages clearly
- Establish exit procedures
- Consider an LLC with multiple members instead
Better alternative: Form an LLC with multiple members. You get the same operational flexibility with better liability protection and tax options.
Step 3: Register Your Business with Texas Secretary of State
This is where your business becomes “real” in the eyes of the law. Here’s how to do it right the first time.
Filing a Texas LLC
Required document: Certificate of Formation (Form 205)
Filing fee: $300
Processing time: 5-10 business days online, 15-20 by mail
Key information you’ll need:
- LLC name (with “LLC” or “Limited Liability Company”)
- Registered agent name and Texas address
- Management structure (member-managed or manager-managed)
- Organizer information (person filing the documents)
Jake’s filing tips:
- File online through SOSDirect for faster processing
- Use a registered agent service if you want address privacy
- Choose member-managed unless you have specific reasons for manager-managed
- Keep copies of everything for your business records
Filing a Texas Corporation
Required document: Certificate of Formation (Form 201)
Filing fee: $300
Processing time: 5-10 business days online
Additional requirements for corporations:
- Board of directors (can be just you initially)
- Corporate bylaws (internal rules and procedures)
- Stock certificates (even if you own 100%)
- Annual board meetings (document these properly)
Sole Proprietorship and Partnership
No filing required with the Secretary of State, but you may need to register a “DBA” (Doing Business As) or “Assumed Name” if operating under a name other than your legal name.
County-level filing: DBAs are filed with the county clerk where you do business, not the state.
Step 4: Get Your Federal EIN (Don’t Pay for This)
An EIN (Employer Identification Number) is your business’s “social security number” for tax purposes. You’ll need it for banking, taxes, and most business activities.
How to Get Your EIN (Free from IRS)
Online application: 15 minutes on IRS.gov
By mail/fax: 4-6 weeks processing time
By phone: Available for businesses outside the U.S.
Required information:
- Legal business name (exactly as filed with the state)
- Business address (registered agent address works)
- Responsible party (you, as the business owner)
- Business structure (LLC, Corporation, etc.)
Jake’s EIN warnings:
- Never pay for EIN services (the IRS provides this free)
- Wait until your LLC/Corp is approved before applying
- Use the exact legal name from your state filing
- Avoid third-party websites that charge $50-200 for a free service
Common EIN Mistakes That Delay Banking
- Name mismatch between EIN and state filing
- Wrong business structure selected on application
- Incorrect responsible party information
- Missing EIN confirmation letter (banks want to see this)
Step 5: Open a Business Bank Account (Separation is Critical)
A business bank account isn’t just convenient—it’s essential for liability protection and tax compliance.
Why You Must Keep Business and Personal Finances Separate
Legal protection: “Piercing the corporate veil” happens when courts ignore your business structure due to commingled funds.
Tax compliance: The IRS gets suspicious when business and personal expenses are mixed.
Accounting simplicity: Separate accounts make bookkeeping and tax preparation infinitely easier.
Professional credibility: Business checks and cards look more professional than personal ones.
What Banks Require for Business Accounts
Required documents:
- State formation documents (Certificate of Formation)
- EIN confirmation letter from IRS
- Valid ID for all account signers
- Initial deposit ($25-500 depending on bank)
Optional but helpful:
- Business license (if applicable)
- Operating agreement or bylaws
- DBA certificate (if using assumed name)
Best Banks for Texas Small Businesses
Based on my clients’ experiences:
Chase Business Banking: Good online platform, many locations, reasonable fees
Bank of America: Strong digital tools, but higher fees for small accounts
Wells Fargo: Decent for established businesses, can be difficult for new LLCs
Local credit unions: Often better rates and personal service
Online banks (Mercury, Relay): Lower fees, better features, no physical locations
Jake’s banking tip: Start with a local credit union or community bank. They’re more likely to approve new businesses and provide personal service when you need help.
Step 6: Register for Texas Taxes
Texas has no personal income tax, but businesses have specific tax obligations you need to understand.
Texas Franchise Tax (Almost Everyone Files, Few Pay)
Who must file: All LLCs and Corporations
Filing deadline: May 15th annually
Cost to file: Usually $0 (but you must still file)
How it works:
- Revenue under $1.23 million: $0 tax owed (but still must file)
- Revenue over $1.23 million: 0.375% of taxable margin
Where to register: Texas Comptroller WebFile
Jake’s franchise tax reality: Over 90% of my clients owe $0 in franchise tax but still must file annually. Don’t skip this—penalties for not filing are steep.
Texas Sales and Use Tax
Who needs this: Businesses selling tangible goods or specific services in Texas
Tax rate: 6.25% state rate + local rates (total usually 8.25-8.75%)
Registration: Required before making taxable sales
Common taxable activities:
- Retail sales of physical products
- Digital products (software, downloads, streaming)
- Certain services (telecommunications, data processing)
- Restaurant meals and catering
Jake’s sales tax advice: When in doubt, consult a Texas CPA. Sales tax compliance is complex, and mistakes are expensive.
Employment Taxes (If You Have Employees)
Federal requirements:
- Payroll taxes (Social Security, Medicare, Federal Income Tax withholding)
- Federal unemployment tax (FUTA)
- Workers’ compensation insurance
Texas requirements:
- Unemployment insurance through Texas Workforce Commission
- Workers’ compensation (not required but recommended)
Step 7: Obtain Required Licenses and Permits
License requirements vary dramatically based on your industry and location. Here’s how to figure out what you actually need.
State-Level Licenses
Professional licenses (through various Texas agencies):
- Healthcare: Doctors, nurses, therapists, etc.
- Legal: Attorneys, paralegals
- Financial: Accountants, insurance agents, real estate agents
- Skilled trades: Electricians, plumbers, HVAC technicians
- Personal services: Cosmetologists, barbers, massage therapists
Business licenses (through Texas Department of Licensing and Regulation):
- Food service: Restaurants, caterers, food trucks
- Alcohol sales: Bars, liquor stores, breweries
- Transportation: Commercial vehicles, ride-sharing
- Construction: General contractors, specialty contractors
Local Licenses and Permits
City/County requirements:
- Business license or permit (varies by city)
- Zoning compliance (especially for home-based businesses)
- Building permits (for renovations or new construction)
- Signage permits (for exterior business signs)
- Fire department permits (for restaurants, manufacturing, etc.)
How to research local requirements:
- Contact your city clerk’s office directly
- Visit your city’s official website business section
- Consult with a local business attorney for complex situations
Federal Licenses (Industry-Specific)
Common federal licenses:
- FFL (Federal Firearms License) for gun dealers
- Transportation licenses for interstate commerce
- Import/export licenses for international trade
- Broadcasting licenses for radio/TV stations
After Formation: Setting Up for Success
Essential Business Infrastructure
Business Insurance:
- General liability: Protects against customer injuries, property damage
- Professional liability: Covers errors and omissions in professional services
- Cyber liability: Essential for businesses handling customer data
- Workers’ compensation: Required if you have employees
Accounting System:
- QuickBooks Online: Most popular for small businesses
- FreshBooks: Good for service-based businesses
- Wave: Free option for very small businesses
- Hire a bookkeeper: Consider this if numbers aren’t your strength
Legal Documents:
- Operating agreement (for LLCs) or bylaws (for corporations)
- Customer contracts or terms of service
- Employee handbook (if you have employees)
- Non-disclosure agreements (if handling sensitive information)
Building Your Online Presence
Professional Website:
- WordPress on your own hosting (recommended)
- Squarespace or Wix for simple sites
- Shopify for e-commerce
- Hire a professional if budget allows
Domain and Email:
- Secure your .com domain before someone else does
- Professional email (john@yourbusiness.com, not john.smith.business@gmail.com)
- Google Workspace or Microsoft 365 for business email
Social Media:
- Claim your business name on major platforms even if you don’t plan to use them immediately
- Focus on 1-2 platforms initially rather than trying to be everywhere
- LinkedIn is essential for B2B businesses
Financial Management Best Practices
Separate Business and Personal:
- Different bank accounts (we covered this)
- Separate credit cards for business expenses
- Distinct accounting systems for each
Cash Flow Management:
- Invoice promptly and follow up on late payments
- Maintain 3-6 months of operating expenses in savings
- Understand your break-even point and monitor it monthly
Tax Preparation:
- Keep detailed records of all business expenses
- Save receipts electronically (use apps like Receipt Bank or Expensify)
- Consider quarterly estimated payments if you expect to owe taxes
- Hire a CPA for tax planning and preparation
Common Texas Business Formation Mistakes (And How to Avoid Them)
Mistake #1: Rushing the Name Selection
What happens: You pick a name without proper research, then discover trademark issues or domain problems later.
How to avoid: Spend time on name research upfront. Check state records, federal trademarks, and domain availability before falling in love with a name.
Mistake #2: Choosing the Wrong Business Structure
What happens: You form an LLC when you needed a Corporation (or vice versa), creating tax and investment complications later.
How to avoid: Consider your long-term goals. If you plan to seek investment or go public, start with a Corporation. For most other businesses, LLC is the better choice.
Mistake #3: Serving as Your Own Registered Agent
What happens: Important legal documents get lost in your personal mail, or your address becomes public record.
How to avoid: Consider hiring a registered agent service, especially if you work from home or travel frequently.
Mistake #4: Mixing Business and Personal Finances
What happens: You lose liability protection, create tax complications, and make accounting a nightmare.
How to avoid: Open business banking immediately and never use business accounts for personal expenses (or vice versa).
Mistake #5: Ignoring Ongoing Compliance
What happens: You miss annual reports, tax filings, or license renewals, leading to penalties or business dissolution.
How to avoid: Set up calendar reminders for all compliance deadlines. Consider hiring professionals for complex requirements.
Timeline and Costs: What to Actually Expect
Typical Timeline for Texas Business Formation
Week 1:
- Choose and research business name
- Decide on business structure
- Gather required information for filing
Week 2:
- File formation documents with Texas SOS
- Apply for EIN with IRS
- Research licensing requirements
Week 3:
- Receive approved formation documents
- Open business bank account
- Register for Texas taxes
Week 4:
- Obtain required licenses and permits
- Set up accounting system
- Create basic business infrastructure
Jake’s Reality Check: This assumes everything goes smoothly. Add 1-2 weeks buffer for potential delays or complications.
Actual Costs for Starting a Texas Business
DIY LLC Formation:
- State filing fee: $300
- Registered agent: $0-200/year
- EIN application: Free
- Business banking: $0-25/month
- Basic insurance: $200-500/year
- Total first year: $500-1,025
Professional LLC Formation:
- Service fee: $0-300
- State filing fee: $300
- Registered agent: $150-300/year
- Professional guidance: $500-1,500
- Total first year: $950-2,400
Corporation Formation:
- State filing fee: $300
- Legal assistance: $1,000-3,000
- Registered agent: $150-300/year
- Ongoing compliance: $500-2,000/year
- Total first year: $1,950-5,600
Resources for Texas Entrepreneurs
Government Resources
Texas Secretary of State: sos.state.tx.us
Texas Comptroller: comptroller.texas.gov
Texas Workforce Commission: twc.texas.gov
Small Business Administration: sba.gov
Professional Services
SCORE Mentors: Free business mentoring nationwide
Small Business Development Centers: Free consulting and workshops
Texas CPA Society: Find qualified accountants
State Bar of Texas: Locate business attorneys
Funding and Support
Texas Enterprise Fund: State economic development incentives
CAPROCK: Regional development corporations
Angel investor networks: Research local groups
Community banks: Often more flexible than national chains
Frequently Asked Questions
Do I need a lawyer to start a business in Texas?
For simple LLCs, no. You can handle the formation yourself or use a reputable formation service. Consider hiring an attorney if you have multiple owners, complex ownership structures, or are in a regulated industry.
How long does Texas business formation actually take?
Online filings typically process in 5-10 business days. Mail filings take 15-20 business days. Add time for EIN application, banking, and licensing—expect 3-4 weeks total for a complete setup.
Can I change my business structure later?
Yes, but it can be complex and expensive. You might need to dissolve the old entity and form a new one, or file conversion documents. It’s better to choose the right structure initially.
What if someone else is using my desired business name?
Texas requires business names to be “distinguishable” from existing entities. If your exact name is taken, you’ll need to modify it or choose a different name entirely.
Do I need business insurance immediately?
General liability insurance is smart to have before you start serving customers. Other insurance types depend on your industry and specific risks. Consult with a business insurance agent.
Jake’s Final Thoughts
Starting a business in Texas is straightforward if you follow the proper steps and avoid common pitfalls. The state is genuinely business-friendly, with reasonable costs and efficient processes.
The biggest mistake I see is entrepreneurs rushing through formation without thinking through the long-term implications. Take time to choose the right structure, name, and setup from the beginning—it’s much easier than fixing problems later.
Remember: Business formation is just the first step. The real work begins after you’re officially formed. Focus on building systems, serving customers, and growing sustainably.
Ready to start your Texas business? Begin with name research and structure selection. If you need professional help, stick with reputable formation services or consult with a business attorney. Most importantly, don’t let perfect be the enemy of good—at some point, you need to stop planning and start executing.
Jake Lawson has guided over 1,200 entrepreneurs through U.S. business formation, including 400+ Texas businesses. His insights come from real-world experience helping startups, consultants, and growing companies navigate the formation process successfully. For more business formation guides and resources, visit llciyo.com.
Need help with your Texas business formation? Check out our Texas LLC formation guide or compare the best LLC formation services for 2025.