Do you know that many companies choose to start up in Texas as sole proprietorships? Could you tell me why? Texas is a great place to visit, and not just because of its delicious butter coffee and brunches. It’s also a great place to start a sole proprietorship because it has one of the best business environments in the country.
Starting a business anywhere, but especially in Texas, can be risky and expensive if you don’t know enough about the business you want to start. Even though no paperwork is required to start a sole proprietorship in Texas, there are still important laws and rules to follow when starting a business. This blog will provide you with the ultimate guide for starting a Sole Proprietorship in Texas.
What Is a Sole Proprietorship?
A sole proprietorship is a single, unincorporated business that a single owner owns. So, the owner is liable for all the business debts and losses incurred by the business. The owner can enjoy all the business’s profits as a sole proprietor. Forming a sole proprietorship is easy because the business doesn’t require filing federal or state forms like other business types, such as LLCs and corporations.
Why Is a Sole Proprietorship Best for You?
You may wonder why most business owners started their businesses as sole proprietors.
The answer is simple because no upfront paperwork or formal setup is required to start a sole proprietorship.
As it doesn’t require filing federal or state forms, a sole proprietorship has existed since the start of your business. For example, if you start taking freelance contracts, the designation of sole proprietor is automatic. Even if you start a grocery shop, it’s called a sole proprietorship.
A sole business owner enjoys complete control over and profits from the business. Isn’t this great?
Why Do You Do Sole Proprietorship Texas?
We know you are thinking now that there are so many U.S. states, so why choose sole proprietorship Texas? It definitely makes sense to know about the place where you will be in charge of starting a business and have the intention to go forward alone.
Texas was named the best state in the United States to start a business in July 2019. Austin, its capital city, was recently named the top startup city in the United States. Starting a sole proprietorship in Texas allows you to establish the most popular and common type of small business without legal paperwork. As mentioned above, a sole proprietorship starts automatically when you sell or make contracts, like freelancing or counseling. A sole proprietorship is a low-maintenance business form, so you don’t have to devote all your time to operating the business.
Establishing and operating this type of business structure is easy and inexpensive in the state for non-residents as well. Another reason to do business in Texas is that the innovation ecosystem moves entrepreneurs from the concept stage to the seed stage and then to the growth stage. Doesn’t that sound good?
How to Start Sole Proprietorship in Texas?
First and foremost, let’s jump to your main curiosity regarding the topic, “How to Start a Sole Proprietorship in Texas.”
Once you launch a one-owner business in Texas, you will automatically become a sole proprietor. You can earn income without filing any legal documents with the Texas Secretary of State. Though no action is required to create, you might take the necessary steps that may have legal consequences if not undertaken with care.
There are fewer regulations that need to be followed for starting a sole proprietorship in Texas, as given below:
- Choosing a Business Name: If you want to do a sole proprietorship in Texas, you must be assured that the name is available in Texas once you choose. You must have a distinctive business name that is not the same as, even too similar to, or that another company in the same state hasn’t already claimed.
Your business name shouldn’t be misleading or use any certain government agency terms, but it should be catchy and attract customers. - Filing an Assumed Business Name: You should know there are two types of names you can opt for as a sole proprietorship in Texas. One is the owner’s name, and another is Doing Business As (DBA), or an assumed business name.
If you want to do sole proprietorship under any name without using your own legal name, you can file an assumed business name statement with the Texas Secretary of State’s office, where your business will be located. This will help you sign contracts, receive money in the business’s name, and establish a more professional presence with customers or clients. - Apply for Permits and Business Licenses: Depending on the type of your business and locality, you might obtain necessary business permits, professional or business licenses, and zoning clearances if required in Texas.
Any sole proprietor who is engaged in a business and wants to sell or lease tangible personal assets and taxable services must obtain a seller’s permit in Texas.
Additionally, you may need to obtain separate licenses based on the locality of Texas, as we mentioned above. For example, a peddler’s license is required in San Antonio if a sole proprietor wants to sell door-to-door. - Obtain an Employer Identification Number (EIN): This term is required for sole proprietors who plan to hire employees. Even if you want to open bank accounts, you will need EIN. This reduces the risk of business identity theft. Otherwise, you can use your SSN (Social Security Number) if the case differs.
- Register to pay for Sole Proprietorship Texas Taxes: You may need to obtain sales tax and use tax permits depending on your business activities.
Registration of Sole Proprietorship Texas for Non-Residents
Accessing the Texas marketplace is the key to success for many businesses worldwide. If you want to do business in Texas as a non-resident, choosing a sole proprietorship in Texas is definitely a wise idea. This helps you realize your business dreams globally with less cost and easy formation. To register a sole proprietorship in Texas as a non-resident, you must first decide to start.
You can apply for sole proprietorship online from abroad by providing services like consulting, writing, design, or marketing. It’s best for the startup without employees or contractors. But you might get an EIN from the IRS if you want to hire employees.
Also, if you want to do sole proprietorship under any name without using your own legal name, you can file an assumed business name statement with the Texas Secretary of State’s office. You will be glad to know that no general business license in Texas is required for non-residents, but depending on your business type and operations, you may need additional licenses.
We understand that starting a business in Texas as a non-resident can be tough at first. In this case, you can get business consultations from business legal experts like us. We will help you make your business dreams come true.
What Are the Benefits of Being a Sole Proprietor in Texas?
Starting a sole proprietorship in Texas can be a great way to expand your business globally. Texas provides countless benefits, including taxes, to non-resident business owners, such as,
- Cost of Formation: One of the main benefits of starting a sole proprietorship in Texas is that the overall cost of forming this business structure is lower than any other business.
- Easy Setup: Another benefit of doing a sole proprietorship in Texas is the easy setup and operation process.
- Pass-Through Entity: Another key benefit is that you don’t have to pay taxes on your business’s income, as a sole proprietorship is a pass-through entity. Rather, you can pay taxes on the income at your personal tax rate.
- Signing Contracts: As a sole proprietor, you can sign contracts using your personal name, and also your customers can write checks to the business using the same name.
- Tax Return: There’s no distinction between the owner and the business itself; sole proprietors don’t need to file business tax returns. Rather, they can simply claim any business profits or losses on their personal tax returns. Also, paying payroll taxes is not obligatory if a sole proprietor has no employees.
- Flexibility in Control: A sole proprietor has total control over the business. So that you can observe the business activities, make decisions, and stop operations on your own. This will help you grow your business.
- Easy Transition: If you launch your business as a sole proprietorship, it doesn’t mean you have to run this structure for a lifetime. You can easily change your business type to LLC, corporation, or general partnership from Sole proprietorship by filing the right paperwork and formalities.
- Gain Profits: As the only owner in a sole proprietorship, you don’t have to share your business profits with others. You can enjoy all the profits earned from the business alone.
What Are the Drawbacks of Being a Sole Proprietor in Texas?
If you want to start a business quickly in Texas, choosing a sole proprietorship is the right fit for you. But you need to know there are also fewer disadvantages, such as:
- No Liability Protection: One of the main drawbacks is sole proprietorship doesn’t provide liability protection to its owner.
As the sole proprietorship is not considered a legally separate entity, you are liable for all the business debts and losses. If your business is sued, your personal assets will be at risk of theft. - Difficulty in Finding Investors: In a sole proprietorship, finding investors can be challenging. Because investors don’t want to invest in sole proprietorship as they wouldn’t share any profits from the business.
- Uncertain Future: For lacking legal requirements in a sole proprietorship business, there’s no future certainty about who will take over the business after your death. This may create issues in conducting business in the future. A sole proprietorship business will remain active until you dissolve this or upon death.
- Taxation: Another significant disadvantage of Sole proprietorship in Texas is that you may miss out on other benefits under different business structures in terms of taxation. As the sole proprietorship isn’t a separate legal but a pass-through structure for tax purposes, you must pay tax returns to the Internal Revenue Service (IRS) at the personal income rate.
- Difficulty in Selling a Business: When your business grows, your responsibility for paying taxes will also increase. Therefore, in terms of selling the business, you may have difficulty finding a buyer, as the buyer would be responsible for paying any outstanding obligations.
How Are Sole Proprietors Taxed in Texas?
Sole proprietorship Texas taxes are a part of the personal tax return for each sole proprietor. One must pay estimated federal taxes (IRS Form 1040-ES) four times within a year as a sole proprietor. Then, your Texas business’s earnings and outgoings will be calculated and reported based on profit and loss, the costs of the home-based business, and the costs of goods sold. All will be reported by filling out IRS Form 1040 Schedule C. The rest of the calculation is that the net income will be counted as taxable business income.
At first, figuring out your taxes as a sole proprietor may seem difficult. Over time, this will be fixed. However, business identity theft is risky, depending on the business operations of a sole proprietorship. In such a situation, you may get help from a business legal expert who will give you business consulting services about filing the “sole proprietorship Texas form.”
FAQs
Q1: What licenses are required to start a sole proprietorship in Texas?
Answer: Depending on your business activity or business type and the requirements of the state or city, you may need to obtain a sales tax permit.
Q2: What goods are taxable in Texas?
Answer: Anything that can be touched, moved, or used is subject to sales tax in Texas. Food, gas, and several medications that don’t require a prescription are all excluded from sales tax. In Texas, sales tax is not usually collected on digitally delivered items.
Q3: Can a DBA be a Sole Proprietorship?
Answer: DBA is the abbreviation for “Doing Business As.” This can’t be a sole proprietorship but is used for filing business names for a sole proprietorship.
Q4: How much does it cost to register a sole proprietorship?
Answer: There are no fees needed to register a sole proprietorship in the state. But depending on your business type and locality, you may have to pay some fees for business formation services if they are required in Texas.
Q5: Does a sole proprietor need a separate bank account in Texas?
Answer: No, sole proprietors have no legal requirement for a separate bank account. But we highly suggest you not use your personal bank account for business. Therefore, you can open a separate business bank account. This will help you with more transactions than a personal bank account.
Final Thoughts
In conclusion, you should have careful planning and attention to detail to start a sole proprietorship in Texas. After exploring all the advantages and formation processes, we hope you have all the answers you searched for. Now, you can decide whether starting a sole proprietorship in Texas is easy and beneficial for you or not.
Also, there are many legal and financial obligations that you should understand properly before starting a sole proprietorship in Texas. Otherwise, these will threaten your business’s ability to operate in the future.
In this case, you can seek professional assistance from us. We can help you with our expert guidance and experience regarding any kind of business information and services.
