Hello, there!
Did you know Texas is a fantastic place to visit, not just for the yummy butter coffee and delicious brunches? It’s also a great place to start a business! Texas has one of the best business environments in the whole country, which means it’s an excellent place to begin a new business adventure.
But, even though Texas is an excellent place for entrepreneurs, there are still important laws and rules to follow when starting a business. Don’t worry, though! This article will guide you through the essential steps you need to take if you want to start a small business in Texas. So, keep reading to learn more!
Why is Texas the Best State for Starting a Business?
Exxon Mobil, Texas Instruments, AT&T, Occidental Petroleum, Tenet Healthcare, American Airlines Group, ConocoPhillips, Baker Hughes, Hewlett Packard Enterprise, and Oracle are just a few of the top Fortune 500 companies headquartered in Texas.
Texas has nearly 3 million small businesses, accounting for 99.8% of all businesses in the state and employing approximately 5 million Texans. 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.
If you have been thinking aloud, “Why Texas for business?” then it is time to look at some facts. There are several reasons why Texas is often considered a great state for starting a new business:
Low Tax
Texas offers a variety of tax perks at the state and local levels, which is one of the main reasons for establishing a business there. Although Texas is one of the few states with a low tax burden due to the absence of a corporate or personal income tax, these advantages are crucial in driving the state’s tax climate. The cost of doing business in Texas is below the national average. Texas is an excellent state for startups, thanks to its low cost of living and tax rates that include a variety of tax breaks.
Regulatory Environment
Beginning a business in Texas, which is known for its hospitable climate for commercial enterprises and its contributions to the development and expansion of existing companies, is a wise choice. There is no shortage of business support and resources in the state, with the government, private companies, and other local authorities giving much-needed financial assistance to new business starts.
Because of this, Toyota and Charles Schwab have relocated their corporate headquarters from California to Texas. Also, Apple has started construction on a new campus in Austin, which will initially house 5,000 people but has the capacity to grow to 15,000 over time.
Diverse Economy
Even though Texas has a robust economy in the oil and gas industry, the state also has a robust economy in other sectors, including aircraft, automotive and information technology, advanced manufacturing, and life sciences.
With an average GDP of $1.77 trillion, Texas has one of the largest economies in the United States, second only to California. In the fourth quarter of 2021, Texas’ rapidly developing economy grew at a rapid rate of 10.1%, compared to the national average of 6.9%. (3)
The successes of existing local companies can serve as a foundation for new ones. The market is growing constantly, so there is plenty of room for profitable networking and good competition.
Access to Capital
Texas is known for its strong entrepreneurial spirit, which has inspired a whole generation of entrepreneurs with big ideas and new ways of doing things. There are many tools for startups and entrepreneurs in Texas, such as co-working spaces, accelerators, and incubators. This is a big plus for people who want to start a business there. These tools are important for a business’s growth, but what entrepreneurs and new businesses really need in the beginning is money, which is where venture capital (VC) funding comes in.
Open to Innovation
Which states pop into your mind first when you think about innovation?
You’re most likely thinking of the East and West coasts of the United States, specifically Silicon Valley in California and Manhattan (or Brooklyn) in New York. However, annual events, such as South by Southwest (SXSW) in Austin, celebrate the ever-changing worlds of technology and media.
Texas is home to more than 380 airports, which bring in new people daily to see the sights and sounds (including a lively music scene) all over the state.
Starting a business in Texas can be a highly rewarding experience. Some of the most notable elements of this state of innovation are:
- Several active innovation communities in smaller cities and counties serve as a support system for their larger relatives.
- Texas’ innovation environment is highly efficient and effective.
- Texas firms concentrating on innovation are receiving more media attention.
- 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.
Steps for Starting a Business in Texas
If you plan on setting up a business in Texas, there are specific, crucial steps that you should follow to ensure that everything is done correctly. As mentioned earlier, we are here to help you learn about the procedures for starting a business in Texas. These are the necessary steps to take:
1. Choosing a Business Idea
Let’s talk about money a little bit later. Now, you should consider your skills, hobbies, resources, availability, and why you want to start a business. Take the time to look into business ideas and try them out. Remember that your business idea’s success depends on your community’s interests and whether it fills a need.
Here are some nice places to start looking into starting a business in Texas:
- Food and Drink: Texas has many restaurants, vineyards, and breweries to satisfy its rising population, evolving gourmet culture, and many tourists. Texas is a great place to start a restaurant, coffee shop, brewery, or catering service.
- Tourism and Travel: Texas attracts local and international tourists due to its diversified landscape and rich cultural legacy. Texas is an excellent place to start a tourism business.
- Pet Services: Texas has young animal lovers, pet-raising families, and farms. Texas has a large (and increasing) pet owner population, making pet grooming or sitting a low-cost business idea with strong demand.
- Event Planning: Texas’s growing art and music scene offers opportunities for event-organizing businesses. With so many music and cultural events each year, this could mean starting a food service, an event planning firm, or your own annual event.
2. Drafting a Business Plan
Have you ever come across the proverb that advises, “Have a plan, or plan to fail?” After choosing the idea, it’s time to draft the business plan to evaluate the profit-making possibilities. A business plan is a roadmap to business success. This will help you better understand startup expenses, competitors, and revenue-generating methods.
It’s good to say that even investors and lenders will want to review your business plan before providing financial assistance. You might prepare by developing a plan before seeking investors and lenders. The SBA says, “Consider it a GPS to your destination for your business goals.”
With a solid business plan, you can outline exactly what you intend to do when you launch your small firm.
3. Choosing a Business Type
Your interests, ambitions, talents, and resources will all play a role in determining the kind of firm you launch. Some enterprises that could do well in Texas are listed below.
- Online Businesses: You can sell almost anything from anywhere if you have an online business. This could include selling things from an online store or offering a professional service online, like tutoring or a virtual counseling business.
- Service-Based Businesses: Service businesses like house cleaning, pet care, and personal training are easy to start in Texas and don’t cost much to get started. They are also a great way to start a business without hiring people immediately. You can do that later as your business grows.
- Consulting: Starting a consulting business can be a great way to go out on your own if you have the skill to help others, like in business, marketing, branding, or something else. Also, starting a business based on what you know can be a way to make money from what you love doing.
- Social Media-Based Business: In the last 10 years, social media has become a much better place to start a business and for marketing. This might be as a consultant for other businesses or as an influencer in your own niche of social media.
4. Deciding on a Business Structure
Beginning a new enterprise, like a business, can be an exciting adventure. Choosing the appropriate legal structure for your company is one of your most critical decisions. Because the kind of company you run will have an effect on everything from your taxes to your legal obligations, it is essential to gather as much information as possible before making a choice.
Most businesses in Texas operate as one of the following entities: Let’s go over the pros and cons of each business structure so you can make the best decision for your new venture.
Sole Proprietorship
The easiest and most popular way to run a business is as a sole proprietorship. In this kind of business, the owner is responsible for all of the responsibilities and debts of the business. One of the benefits of a sole proprietorship is that it is easy to set up and run. Also, you don’t have to file different tax returns because the business’s income and expenses are included on the owner’s tax return. One major drawback, however, is that the proprietor is directly responsible for the company’s debts and legal obligations.
Partnership
“What is a partnership?” you may be wondering. A partnership is a relationship between two or more people to trade or do business. Each person contributes money, property, labor, or skill and shares in the profits and losses of the business.
General partnerships and limited partnerships are the two main types of partnerships. In a general partnership, each partner is just as responsible for the debts and responsibilities of the business. In a limited partnership, one or more general partners run the business and are personally responsible for its debts. Limited partners, however, are only responsible for the amount they put into the business.
One benefit of a partnership is that the owners can divide the workload and split the profits and losses. One major drawback is that the owners are individually responsible for the company’s debts and legal obligations.
Limited Liability Company (LLC)
A limited liability company is a kind of organization that combines the liability protection of a corporation with the ease and flexibility of a partnership. One of the good things about an LLC is that it protects the owners from being sued. In an LLC, the owners are not personally responsible for the business’s debts and liabilities, and the business’s income and spending are reported on the owner’s tax returns. Also, an LLC can have as many owners as it wants and can be taxed as either a partnership or a company. One of the biggest problems with an LLC is that it requires more paperwork and formalities than a sole proprietorship or a partnership.
C Corporation
Did you know a corporation is considered a separate entity from its owners under the law? The name of a C corporation is registered with the state when the group submits a Certificate of Formation for a For-Profit Corporation to the Texas Secretary of State’s office as part of its formation process. The proprietors of a corporation are not individually responsible for the obligations and debts of the business.
One of the benefits of forming a corporation is that it offers maximum liability protection to the owners. A corporation can also issue shares to raise funds and continue to exist. A corporation can also raise funds by issuing shares, making growing and extending the business more accessible. One of the significant disadvantages of a corporation is that it is subject to more regulations and formalities than other types of commercial entities. Furthermore, the corporation and its stockholders are responsible for paying taxes on corporate profits.
S Corporation
“S corporation” refers to a “small business corporation” that has chosen to be taxed as an S corporation under Section 1362(a). 2 One significant advantage is that S corporations usually don’t have to pay federal income taxes. Instead, the company’s income and losses are split among its owners and passed on to them. The owners then report the profit or loss on their tax returns, allowing them to avoid double taxation on corporate income.
One disadvantage is that you must file the articles of incorporation with your state, hire a registered agent, and pay the necessary fees to form an S corporation. This may also charge ongoing fees, like Texas franchise tax fees or fees for filing a yearly report. Additionally, S corporations must submit IRS Form 2553, Election by a Small Business Corporation, which may increase administrative complexity.
5. Finalize Your Business Name
Once you’ve decided on your business structure, it’s necessary to register your business with the state of Texas. But before this, you should finalize your unique business name.
When founding an LLC, include the phrases “limited liability company,” “limited company,” or an abbreviation like “LLC.” Corporation names must include the words company, incorporated, limited, Co., Corp., Inc., or Ltd.
Once you’ve come up with a memorable company name, it’s a good idea to check to see if the corresponding domain name for your website is still accessible. Additionally, confirm name compliance requirements with the Texas Secretary of State and think about trademarking your name to stop others from using it in the future.
6. Designate a Texas Registered Agent
After finalizing the business name, you must appoint a Texas registered agent on your Certificate of Formation, whether incorporating a Texas LLC or a Texas company.
Your Texas registered agent is in charge of accepting service of process and other legal documents on your behalf. The paper can be sent to the registered agent if someone sues your business. You want a trusted person who checks the mail to be your registered agent. You can be the registered agent yourself or pay a registered agent service to do it for you.
7. Registration of Your Business in Texas
Once you have designated your registered agent, it’s time to make your business official. To ensure that your Certificate of Formation filing is accepted, you must file it with the Secretary of State with the utmost care through the registered agent of Texas.
You can register your business online through the Texas Secretary of State’s website by providing information about your business. Alternatively, you can get the necessary paperwork from the Texas SOS website (under “Business and Nonprofit Forms”), fill it out, and submit it to:
Box 13697, Attention: Secretary of State
78711 Austin
8. Obtain the Necessary Permits and Licenses for Your Business
Once you officially register your business entity in Texas, you should research what federal, state, and local business licenses you’ll need before beginning operations. There are many different types of licenses needed for different types of businesses. For instance, the Texas Alcoholic Beverage Commission requires certain licensing before approving an application to open a business in Texas that sells food, drink, or tobacco.
If your business is incorporated as an LLC, partnership, or C corporation, you should get a Federal Tax ID, or EIN, from the IRS. Most banks will require you to verify your EIN before opening a business bank account, as they use it to identify your company for tax purposes. You can request an EIN or get help from your registered agent on the IRS website.
In Texas, if your company wants to sell taxable goods or services, it is required to apply for a sales tax permit in order to collect sales tax.
9. Secure Business Funding
Well, now let’s talk about money for operating your business. Starting a business in Texas requires funding. You should have enough money to pay your expenses. Most startups need six months to a year of expenses to account for the long ramp-up before profitability. It’s important to research and evaluate the best fit for secure funding.
There are several ways to secure funding, such as:
- Personal Assets: Most business owners commonly use personal savings or assets for funding to start a business.
- Business Loans: You can obtain a small business loan from your bank or credit union. The Small Business Administration (SBA) offers loan guarantees to small businesses in Texas.
- Capital: You can obtain capital from investors or venture capital firms. They invest in early-stage or high-growth companies in exchange for money.
- Government Grants: Businesses that meet specific standards, like doing research and development, can get federal and state government grants. The Texas Enterprise Fund and the Governor’s Small Business Assistance Program are two ways to get these in Texas.
- Open a Business Bank Account: Whether you form LLCs or corporations, opening a bank account is necessary for tracking your income and expenses. This allows you to keep your personal finances separate from business transactions.
- Obtain Insurance: Texas businesses must have specific insurance policies, such as commercial liability insurance and workers’ compensation insurance.
Business insurance can protect your business and your personal assets from the effects of unplanned events like lawsuits for personal injuries or natural disasters. An insurance agent can help you look into the different coverage choices for your business. This could include general liability insurance to protect you from claims about injuries or making mistakes that could cost you money.
10. Business Employer Requirements
Are you bored after reading all these steps? No worries! You are on the final step. Once you have secured funding, you must learn about state and federal employer requirements such as the Americans with Disabilities Act, equal employment, labor, safety, and tax obligations if you have hired or plan to hire employees. As we mentioned, you must obtain an EIN for business employees.
Why Is Texas an Ideal State for Doing Business as a Non-Resident?
So if you consider incorporating or expanding your business in the U.S. as a non-US resident, Texas is the ideal state, especially for small businesses. This can offer many benefits to entrepreneurs. One of the main advantages is the business-friendly environment. Texas is strategically located in the United States’ center, making incorporating businesses in other states easier.
Their leading business: The supportive climate and favorable regulatory environment lay the foundation for small businesses to thrive. When you start a business in Texas as a non-resident, you can use the state’s strong banking system, which gives you access to low banking fees, a stable currency, and many parks and bonuses for credit card users.
Also, Texas is ranked No. 2 for the workforce in CNBC’s 2022 America’s Top States for Business. This takes you to a village of talented individuals—human resources professionals, software developers, and more—to steer a startup to success.
The ease and low cost of forming a business in Texas and its low cost of living make it an ideal location for non-residents looking to start a business. Additionally, Texas has a relatively low tax burden, including no state income tax, which can benefit entrepreneurs looking to keep more of their earnings.
Texas also has a booming venture capital industry, with many investors and accelerators looking to help fund promising new businesses. This can provide a significant advantage for non-resident entrepreneurs who may not have as many resources or connections in the area.
How Business Globalizer Helps Texas Businesses Get Started
Texas has become such a hub for new and expanding businesses because of the special benefits it provides entrepreneurs. It is essential to weigh all the potential benefits and downsides before making a decision to set up a business in Texas.
Therefore, it is crucial for non-residents to consult with legal and financial professionals to ensure compliance with all legal and tax requirements. But Business Globalizer can be your trusted partner in the company formation journey.
As a non-resident, you may face additional regulations, but we’ll guide you through the process hassle-free. We understand that the Texas franchise tax system can be overwhelming. But don’t worry; we have got you covered. 100+ companies have trusted us for their US company formation services. We’ll ensure you understand your tax obligations and help you file your incorporation certificate.
Contact us today and incorporate your business in Texas.
Wrapping Up…
That’s it. We hope that we have covered all of your curiosity and questions. We tried our best to guide you. Thanks for staying with us. Don’t hesitate to contact us for further queries.
