Texas is a great place to start building your business. The Lone Star State has the fourth-largest economy in the United States and an unemployment rate of 6.5%.
However, starting a new company can be a daunting task. There are so many things to consider, from what kind of entity you want your company to be to the licensing requirements for operating in the state. Here, we’ll cover the basics of what you need to know about starting a business in Texas.
Create a Financial Plan
Before you even start thinking about opening your doors to the public, make sure you have a solid financial plan in place. Start by creating a budget for your new company that includes everything from rent and utilities to employee salaries and benefits.
It’s also crucial to account for insurance. For business owners in Texas, insurance is a must and can help protect you from a wide variety of problems, including property damage and injuries sustained by your employees.
An accounting professional or bookkeeper can help you determine what your company will need financially once it’s up and running.
Think carefully about the type of business you want to build
The first thing that you need to do is determine what kind of business you want to start. The most common types of companies in Texas are corporations and limited liability companies (LLCs).
Corporations, S-Corporations, and LLCs are called “C” entities because they’re taxed separately from the owners. Sole proprietorships and partnerships are referred to as “S” entities because the business’ profits and losses are reported on a single tax return.
If you’re unsure of what kind of entity you should be, your attorney or accountant will help you determine what is best for your situation. Keep in mind that Texas offers some forms of entity protection, which aren’t available in other states.
Figure out the costs and legal requirements
One of the best resources you can find is the Small Business Guide published by the Texas Secretary of State. This guide outlines many of the legal requirements for starting a new company, including filing fees and any special licenses or permits that you’ll need to obtain before opening your doors.
Other good resources include checking with the agency that governs your particular industry to see any restrictions on doing business in Texas. For example, Texas state law limits out-of-state corporations from participating in most activities without registering as foreign corporations with the Secretary of State.
Figure out whether or not you need an EIN
In Texas, sole proprietorships and partnerships do not need an EIN (Employer Identification Numbers). However, if you operate as a C-Corporation or LLC, you will need an EIN.
An EIN is a nine-digit number that the IRS uses to identify corporations, partnerships, and other types of business entities. Although an EIN does not give you any special tax advantages or prevent you from having to pay taxes, it can help your company comply with certain federal laws.
It’s also essential that all businesses have their own EIN. Using an individual’s or another company’s EIN can have serious legal and tax implications, so make sure that you do not use your own personal number for the business.
Decide where you want to register your business
Once you’ve determined what type of entity you’d like to be, there are two places you can register your company in Texas: with the Secretary of State or with a county clerk. The main difference between these two choices is that you must be registered with the county clerk if you plan on conducting business in more than one county.
There are also some differences in filing fees and paperwork requirements, so make sure that you do your research before deciding.
Find investors or partners to help fund your project
Although self-funding is an option for many businesses, outside financing is the best choice if you can get it. Investors and partners will have experience working with other companies in your particular field.
As a result, they may be able to indicate how your business will do in the market. In addition, they may be more likely to offer you a fair deal and work with you if they know that you’re committed to seeing their investment succeed.
Final Thoughts
Starting and managing a new business can be both exciting and challenging. To simplify the process, do your homework and consider choosing an experienced partner.
As long as you understand the legal requirements, financial obligations, and other concerns that go along with setting up a company in Texas, you’ll be well on your way to starting small-business ownership.
