How to start a business in Texas

Published Wednesday 10 June 2026

Table of contents

• Plan your business
• Choose your business structure
• Name your business
• Register your business
• Get an employer identification number (EIN)
• Get the licenses and permits you need
• Understand your tax responsibilities
• Get business insurance
• Set up your business finances
• Find funding options
• Get your Texas business running
• Simplify your Texas business finances with Xero
• FAQs on starting a business in Texas

Key takeaways

• A limited liability company (LLC) is the best structure for most Texas small businesses because it protects your personal assets from business debts, offers tax flexibility, and requires less paperwork than a corporation.
• Register through the Texas Secretary of State's SOSDirect portal for $300 (LLCs and corporations) or file an Assumed Name Certificate with your county clerk for $25 to $50 (sole proprietorships and partnerships).
• Texas has no state income tax, but you'll still need to manage franchise tax (for businesses earning over $2.65 million), sales tax at 6.25%, and federal obligations like self-employment tax at 15.3%.
• Open a separate business bank account right after registration and connect it to accounting software like Xero to track cash flow, automate reconciliation, and stay on top of tax deadlines from day 1.

Plan your business

A solid business plan helps you make smarter decisions and shows lenders or investors that you've done your homework. While Texas doesn't require a formal plan to register, creating one gives you a clear roadmap for growth.

Your business plan should cover several key areas. At a minimum, include:

• Business concept: what you're selling and what problem it solves
• Target market: who your customers are and how you'll reach them
• Competitive analysis: how you'll stand out from existing businesses
• Financial projections: startup costs, revenue forecasts, and break-even timeline
• Funding needs: how much capital you need and where it'll come from

Realistic revenue projections are especially important in the current environment. According to Xero Small Business Insights, US small business sales growth averaged just 2.4% year-over-year in 2025, well below the long-term average of 5.5%. Building conservative scenarios into your plan helps you prepare for slower growth periods.

Keep your plan simple and focused. You can always refine it as your business grows and evolves.

Download Xero's free business plan template to get started quickly.

Choose your business structure

Your business structure affects how you pay taxes, your personal liability for business debts, and how much paperwork you'll handle. It's one of the first decisions you'll make when starting a business in Texas.

Texas recognizes several structures. Here are the most common options for small businesses:

• Sole proprietorship: the simplest structure where you and the business are the same legal entity. You're personally liable for all debts. Best for single owners testing a business idea.
• Partnership: shared ownership where partners split profits and responsibilities. General partners are personally liable, while limited partners have liability protection. Best for businesses with 2 or more owners.
• Limited liability company (LLC): protects your personal assets from business debts and offers flexible tax treatment. Best for most small businesses that want liability protection without the complexity of a corporation. Learn more in the guide to starting an LLC.
• Corporation: provides strong liability protection and can issue stock to raise capital, but requires more paperwork and ongoing compliance. Best for businesses planning to seek investors or go public.

When choosing your structure, consider these factors:

• Tax treatment: sole proprietors and partnerships report business income on personal tax returns, while LLCs and corporations have more options
• Liability protection: LLCs and corporations shield your personal assets from business debts, but sole proprietors and general partners are personally liable
• Administrative burden: simpler structures like sole proprietorships require less paperwork, while corporations have the most compliance requirements

Learn more about business structures on the Texas Secretary of State website.

Name your business

Your business name is how customers find and remember you. Before you commit to a name, take a few steps to make sure it's available and legally protected.

Start by checking whether your preferred name is already taken. You can search the Texas Comptroller's business name database and the Texas Secretary of State's SOSDirect portal to see if another business is using the same or a similar name.

If you're operating under a name that's different from your legal name (for sole proprietors) or your registered entity name (for LLCs and corporations), you'll need to file an Assumed Name Certificate, also known as a "doing business as" (DBA) filing. Sole proprietors and partnerships file with their county clerk. LLCs and corporations file with the Texas Secretary of State.

For broader protection, consider registering a trademark. A state trademark filed with the Texas Secretary of State covers your name within Texas. For nationwide protection, register with the U.S. Patent and Trademark Office.

Register your business

Registering your business in Texas makes it official and authorizes you to operate in the state. The process and fees depend on your business structure.

For sole proprietors and unincorporated partnerships, follow these steps:

1. Contact your local county clerk's office.
2. Complete an Assumed Name Certificate (DBA filing).
3. Provide basic business details like your name, address, and business name.
4. Pay the filing fee, which varies by county.

For LLCs, limited partnerships, and corporations, follow these steps:

1. Go to the Texas Secretary of State's SOSDirect portal.
2. Create a Certificate of Formation.
3. Enter your business name, address, start date, purpose, and director or member names.
4. Pay the filing fee.

As part of registration, you'll nominate a registered agent who receives legal and tax documents on your business's behalf. Once approved, you'll receive a Certificate of Fact (called a Certificate of Good Standing in other states) authorizing you to operate in Texas.

Here are the filing fees by business structure:

• LLC: $300
• Corporation: $300
• Limited partnership: $750
• Assumed name (DBA): $25 to $50, depending on county

Get an employer identification number (EIN)

An Employer Identification Number (EIN) is a federal tax ID that identifies your business to the IRS. It's free to apply, and most businesses need one.

You need an EIN if you:

• Form a corporation, partnership, or multi-member LLC
• Hire employees
• Open a business bank account
• Pay excise taxes
• Prefer not to use your Social Security Number on business documents

If you're a sole proprietor with no employees and none of the situations above apply, you can use your Social Security Number on tax forms instead.

The fastest way to get an EIN is through the IRS online application. The online tool is only available during specific hours (Eastern Time), and your session expires after 15 minutes of inactivity. The IRS limits applications to 1 EIN per day for each responsible party. You can also mail IRS Form SS-4 or have your tax professional apply on your behalf.

Get the licenses and permits you need

Texas doesn't require a general business license, but you may need industry-specific licenses, local permits, and activity-based registrations depending on your business type and location.

Here's how to identify and apply for the right licenses and permits:

1. Identify required licenses: check the Texas Comptroller's license guide to find industry-specific requirements for your business type. For a detailed walkthrough, see the guide to getting a Texas business license.
2. Apply for a sales tax permit: if you sell retail goods or taxable services, register for a Sales and Use Tax Permit through the Texas Comptroller or by filing Form AP-201. Processing takes 2 to 3 weeks.
3. Check local requirements: contact your city hall or county clerk's office about zoning compliance, home business permits, or location-specific licenses.
4. Review federal license requirements: some activities require federal licenses, including agriculture, alcohol sales, aviation, firearms, and transportation. Check the SBA's list of licensed activities to find the relevant agency.

Understand your tax responsibilities

Texas has no state income tax, which is a significant advantage for business owners. However, you still have state and federal tax obligations to manage throughout the year.

Here are the Texas state taxes you may need to pay:

• Franchise tax (margin tax): businesses with total revenue over $2.65 million owe 0.375% to 0.75% depending on business type. Most small businesses fall below this threshold and owe nothing. The $2.65 million no-tax-due threshold applies to the 2026 and 2027 report years.
• Sales and use tax: if you sell taxable goods or services, you'll collect 6.25% state sales tax plus any local taxes (up to 2%, for a combined maximum of 8.25%)
• Unemployment insurance: if you have employees, you'll pay state unemployment taxes to the Texas Workforce Commission on the first $9,000 of each employee's wages per year

You'll also need to manage these federal taxes:

• Income tax: reported on your personal return (sole proprietorships, partnerships, S-corps) or corporate return (C-corps)
• Self-employment tax: 15.3% on net self-employment income for sole proprietors and partners, covering Social Security and Medicare
• Employer taxes: Federal Insurance Contributions Act (FICA) at 7.65% and Federal Unemployment Tax Act (FUTA) at 6% on the first $7,000 of wages per employee
• Estimated quarterly payments: required if you expect to owe $1,000 or more in federal taxes for the year

Accounting software like Xero helps you track income, categorize expenses, and prepare for tax deadlines throughout the year.

Get business insurance

Insurance protects your business from unexpected costs that could otherwise put your finances at serious risk. The types of coverage you need depend on your industry, location, and whether you have employees.

Here are the most common types of business insurance for Texas small businesses:

• General liability insurance: covers claims related to bodily injury, property damage, and advertising injury. It's the most common type of small business coverage.
• Workers' compensation insurance: Texas doesn't require most private employers to carry workers' comp, but it's strongly recommended if you have employees. Without it, you're exposed to lawsuits from injured workers.
• Professional liability insurance: also called errors and omissions (E&O) insurance, it covers claims of negligence, mistakes, or failure to deliver services as promised. Essential for consultants, accountants, and other service-based businesses.
• Commercial property insurance: covers damage to your business property, equipment, and inventory from fire, theft, or natural disasters.

Some industries have additional requirements. For example, commercial auto insurance is required if you use vehicles for business purposes, and businesses in certain regulated fields may need surety bonds or specialized coverage.

Shop around and compare quotes from multiple insurers. An insurance agent who specializes in small business coverage can help you identify the right policies for your situation.

Set up your business finances

Getting your finances in order from the start helps you track profitability, stay compliant, and make confident decisions as your business grows.

Open a business bank account

A business bank account separates your personal and business finances. This makes it easier to track profitability, simplify tax filing, and protect your personal assets.

You'll need a few documents to open your account:

• Government-issued ID
• Business registration documents (Certificate of Formation or Assumed Name Certificate)
• EIN (or Social Security Number for sole proprietors)

Look for accounts with low fees, free transactions, and integrated payment processing. For more detail, see the guide to opening a business bank account for your LLC.

Set up accounting software

Staying on top of invoicing matters from day 1. Xero Small Business Insights data shows US small businesses waited an average of 27.9 days to be paid in the December quarter of 2025, with payments arriving 7.8 days late on average. Tracking invoices and following up on overdue payments can make a real difference to your cash flow.

Accounting software helps you track income and expenses, send invoices, and stay on top of tax obligations from day 1. Xero connects to your bank, automates reconciliation, and gives you real-time visibility into your cash flow. For personalized setup help, connect with a Texas-based Xero advisor.

Set up payroll

Since Texas has no state income tax, payroll is simpler than in many other states. However, you still need to handle federal payroll obligations.

Here are the key federal payroll taxes you're responsible for:

• Federal income tax withholding: based on each employee's W-4 form
• Social Security and Medicare (FICA): 7.65% employer contribution
• Federal unemployment tax (FUTA): 6% on the first $7,000 of wages per employee

Payroll software like Xero automates calculations, filings, and payments to help you stay compliant and save time.

Find funding options

Starting a business requires capital for registration fees, equipment, inventory, and operating expenses. Choosing the right funding source depends on how much you need, how quickly you need it, and how much control you want to keep.

Self-funding (bootstrapping)

Self-funding means using personal savings, credit cards, or assets to start your business. You maintain full control and avoid debt to lenders, though you take on all the financial risk yourself. Create a detailed budget before committing personal funds so you know exactly how much you're putting on the line.

Small Business Administration (SBA)-backed loans

Small Business Administration (SBA)-backed loans are government-guaranteed loans issued through participating banks and lenders. The SBA guarantee reduces the lender's risk, making it easier for small businesses to qualify that might not meet traditional loan requirements.

To improve your chances of approval:

• Maintain a credit score above 680
• Prepare a detailed business plan
• Gather collateral documentation

Find SBA-approved lenders through the SBA's Lender Match tool.

Texas small business grants

Grants provide funding you don't have to pay back, though they're competitive and often have specific eligibility requirements. Learn more about how to get a small business grant. Texas options include:

• Skills for Small Business: Texas Workforce Commission grants for employee training
• Texas Enterprise Fund: incentives for businesses creating jobs in Texas
• Federal grants: search Grants.gov for industry-specific opportunities

Check your local Small Business Development Center (SBDC) for current grant opportunities in your area.

Crowdfunding and alternative financing

Crowdfunding platforms like Kickstarter, Indiegogo, and GoFundMe let you raise money from supporters who believe in your business idea. Peer-to-peer lending platforms offer another option beyond traditional bank loans. Both approaches can also help validate market demand before you invest heavily. Get started with Xero's guide to small business budgeting and forecasting.

Get your Texas business running

Once you've registered and set up your finances, it's time to launch. Staying organized from the start helps you build momentum and avoid compliance problems down the road.

Complete these tasks before opening day:

• Set up your workspace or storefront
• Stock inventory or prepare your service offerings
• Create your website and social media profiles
• Set up payment processing

Stay on top of these ongoing compliance requirements:

• File annual reports with the Texas Secretary of State (for LLCs and corporations)
• Renew licenses and permits as required
• File and pay taxes on schedule
• Keep accurate financial records

As your business grows, focus on these areas:

• Build your customer base through marketing and referrals
• Track your cash flow and adjust pricing as needed
• Consider hiring when demand exceeds your capacity

Simplify your Texas business finances with Xero

Starting a business in Texas involves a lot of financial moving parts, from tracking expenses and sending invoices to managing payroll and preparing for tax season. Xero brings it all together in one place so you can spend less time on the books and more time growing your business.

Xero connects to your bank, automates daily reconciliation, and gives you real-time visibility into your cash flow. You can send professional invoices, track expenses on the go with the free mobile app, and collaborate with your accountant or bookkeeper from anywhere. Get one month free.

FAQs on starting a business in Texas

Here are answers to some of the most common questions about starting a business in Texas.

How much does it cost to start a business in Texas?

Basic registration costs range from $25 for an Assumed Name Certificate to $300 for an LLC or corporation filing through the Texas Secretary of State. A sales tax permit and EIN are both free. Additional costs may include business licenses ($50 to $500+), insurance, equipment, and initial inventory. Most Texas small businesses can complete basic registration for under $500.

Do I need a lawyer or accountant to start a business in Texas?

You don't legally need either to register a business in Texas, and the process is straightforward enough to handle on your own. However, a lawyer can help if you have multiple business partners and need an operating agreement, or if you work in a heavily regulated industry. An accountant is valuable if you have complex tax situations or need financial projections for investors. For basic bookkeeping and tax preparation, accounting software like Xero can handle most small business needs.

Is it worth forming an LLC in Texas?

For most small businesses, yes. An LLC protects your personal assets from business debts, offers flexible tax treatment, and requires less paperwork than a corporation. The $300 filing fee is a small investment compared to the liability protection you get in return. If you're testing a business idea with minimal risk, a sole proprietorship is a simpler starting point, but most growing businesses benefit from LLC protection.

Can I run a business from home in Texas?

Yes, Texas allows home-based businesses. Check your local zoning laws before you start, as some areas restrict certain business activities in residential zones. Your homeowners association (HOA) may have additional rules, and businesses with customer traffic, inventory storage, or production may need local permits.

What is a registered agent and do I need one?

A registered agent is a person or company designated to receive legal and tax documents on your business's behalf. LLCs, corporations, and limited partnerships are required to have a registered agent in Texas. You can serve as your own registered agent as long as you have a physical Texas address and are available during regular business hours to accept documents.

How long does it take to register a business in Texas?

Online filings through SOSDirect for LLCs and corporations typically receive confirmation within 1 to 2 business days. Filing by mail takes 5 to 7 business days for processing. A sales tax permit takes 2 to 3 weeks, and an Assumed Name Certificate is processed same day to a few days depending on your county.