To start a small business in Texas, you file a Certificate of Formation with the Secretary of State, pay a $300 fee, get a federal Employer Identification Number from the IRS, and register with the Texas Comptroller for any state taxes that apply to your business. Depending on what you sell and where you operate, you may also need local permits, an assumed name certificate, and employment paperwork. If you file online and have your information ready, the state side can be done in under a week.
Pick a Business Structure
The Texas Business Organizations Code sets out the entity types available, and your choice drives both your personal liability exposure and how the IRS taxes your profits.1State of Texas. Business Organizations Code Four structures cover most small businesses:
- A limited liability company (LLC) is the default choice for most owners. Members aren’t personally liable for business debts, management is flexible, and profits pass through to your personal return. The IRS treats a single-member LLC as a sole proprietorship and a multi-member LLC as a partnership unless you elect otherwise.2Internal Revenue Service. LLC Filing as a Corporation or Partnership
- A corporation is a separate legal entity with shareholders, directors, and officers. It carries more formalities (bylaws, board meetings, minutes) but is better suited for outside investment. C-corporations pay their own income tax; an S-corporation election passes income through to shareholders.
- A general partnership forms automatically when two or more people share profits, with no state filing required. Each partner is personally liable for business debts, which makes this the riskiest structure.
- A limited partnership (LP) has at least one general partner with full liability and one or more limited partners whose exposure is capped at their investment. The LP filing fee is $750, more than double the LLC or corporation fee.3Office of the Texas Secretary of State. Business Filings and Trademarks Fee Schedule
If you’re unsure, an LLC is the safe pick. You get liability protection without corporate formalities and can change your tax treatment later without restructuring the entity.
Clear a Business Name
Your entity name must be distinguishable from every other name on file with the Secretary of State. “Distinguishable” is a lower bar than it sounds. Rearranging the same key words (Summit Energy versus Energy Summit) is enough, and names in different languages count as different even if they mean the same thing. But adding “The,” or swapping a number for its spelled-out equivalent, won’t do it: “One World” and “1 World” are considered the same name.4Cornell Law School. 1 Texas Admin Code 79.38 – Distinguishable Names
Your name must also signal your entity type. A corporation needs “corporation,” “company,” “incorporated,” “limited,” or an abbreviation like “Corp.” or “Inc.” An LLC needs “limited liability company,” “limited company,” or an abbreviation like “LLC.”5State of Texas. Business Organizations Code Chapter 5 – Names of Entities Check availability through the SOSDirect portal before you draft any formation documents. A conflict discovered after submission means rejection and lost time.
File the Certificate of Formation
The Certificate of Formation is what brings your company into legal existence. The form depends on your entity:
- Form 205 for a limited liability company
- Form 201 for a for-profit corporation
Both are on the Secretary of State’s business forms page.6Office of the Texas Secretary of State. Business and Nonprofit Forms
Registered Agent
Every Texas entity must name a registered agent with a physical street address in Texas. The agent accepts lawsuits and official state notices on your behalf. A P.O. box or mail-forwarding service won’t satisfy the requirement.7State of Texas. Business Organizations Code Chapter 5 – Names of Entities, Registered Agents and Registered Offices If the agent is a company, an employee must be available at that address during normal business hours.
You can serve as your own registered agent if you have a Texas street address and are reliably available during the day. Many owners hire a commercial service for $100 to $300 per year instead. The main advantages are privacy (the service’s address, not yours, goes on the public record) and reliability.
Governing Persons and Purpose
You’ll also list the names and addresses of initial governing persons (managers for an LLC, directors for a corporation) and a statement of purpose. Most filers use a general statement that the entity will engage in any lawful activity. Being more specific gains nothing and can create problems if the business later changes direction.
How to Submit and What It Costs
The filing fee is $300 for both LLCs and corporations, due at submission.3Office of the Texas Secretary of State. Business Filings and Trademarks Fee Schedule You can file online through SOSDirect or SOSUpload, by mail, or in person in Austin.8Office of the Texas Secretary of State. Filing and Other General FAQs Online filings carry a small convenience surcharge and are processed significantly faster than paper submissions, which can take several weeks depending on volume. Once approved, the Secretary of State issues a stamped certificate confirming your company exists.
Get an EIN and Choose Your Tax Treatment
Form your state entity first; applying for an Employer Identification Number before the state filing is complete can cause delays.9Internal Revenue Service. Get an Employer Identification Number The EIN is free, the online application takes about ten minutes, and you’ll need it to open a business bank account, hire employees, and file tax returns.
The IRS applies its own tax classification regardless of what the state calls your entity. A single-member LLC is taxed as a sole proprietorship. A multi-member LLC defaults to partnership taxation. Either way, profits flow through to the owners’ personal returns and are subject to self-employment tax, which covers Social Security and Medicare and often catches first-time owners off guard.10Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
If your business generates enough profit, electing S-corporation treatment can reduce self-employment taxes. You pay owner-employees a reasonable salary subject to payroll tax, and the remaining profit distributed as dividends is not. File IRS Form 2553 no later than two months and 15 days after the start of the tax year you want the election to apply to; miss the window and you’re stuck with default treatment for the year, though late-election relief is sometimes available.11Internal Revenue Service. Instructions for Form 2553 The election isn’t free money. It adds payroll processing, requires reasonable compensation that the IRS actually scrutinizes, and may not save much under roughly $60,000 to $80,000 in annual profit. Talk to an accountant before filing.
Register for Texas Taxes
Franchise Tax
Texas has no personal state income tax, but most business entities owe a franchise tax, a privilege tax for being formed or doing business in the state.12Texas Comptroller. Franchise Tax If your total revenue is $2.65 million or less, you owe nothing for the 2026 report year.13Texas Comptroller. Texas Franchise Tax Report Forms for 2026
Even below that threshold you still have to file. Every LLC, corporation, and limited partnership must submit a Public Information Report each year listing its officers or managers and their addresses, due on the franchise tax due date.14Texas Comptroller. Texas Franchise Tax Public Information Report and Ownership Information Report Filing Requirements Skip it and your entity falls out of good standing; eventually the Secretary of State can forfeit your right to do business.
Sales and Use Tax Permit
If you sell taxable goods or services, you need a Sales and Use Tax permit from the Texas Comptroller before you collect any tax. The state rate is 6.25%, and local jurisdictions can add up to 2%, for a maximum combined rate of 8.25%.15Texas Comptroller. Sales and Use Tax Collecting without a permit, or failing to collect when required, both create penalty and interest problems that compound quickly.
If You’re Hiring Employees
Several federal and state obligations kick in the moment you have a first hire.
Every new employee completes Section 1 of Form I-9 on their first day. You have three business days from the hire date to examine their identity documents and complete Section 2.16E-Verify. Form I-9 and E-Verify You also must report the new hire to the state within 20 days of their start date; Texas forwards that information to the National Directory of New Hires, which child support agencies use.17Administration for Children and Families. New Hire Reporting
Federal unemployment tax (FUTA) applies at 6.0% on the first $7,000 of each employee’s wages. Most employers get a credit of up to 5.4%, bringing the effective rate to 0.6%.18Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
On workers’ compensation, Texas is unusual: private employers are not required to carry it.19Texas Department of Insurance. Workers’ Compensation Insurance Guide Going without it means employees can sue you directly for workplace injuries, and you lose several legal defenses available to insured employers. If you contract with government entities, workers’ comp coverage is mandatory for employees working on those projects. Most employers carry a policy anyway.
Assumed Names and Local Permits
If you operate under any name other than your exact registered entity name, Texas requires an assumed name certificate (commonly called a DBA). LLCs, corporations, and limited partnerships file their DBA with the Secretary of State. Sole proprietors and general partnerships file with the county clerk in each county where they maintain business premises or conduct business.20State of Texas. Business and Commerce Code Chapter 71 – Assumed Business or Professional Name Sole proprietors frequently assume they can skip this step; they can’t.
Many cities and counties also require a general business permit, and certain industries need occupational licenses at the local level. Zoning rules dictate where particular businesses can operate; a retail shop in a residentially zoned area will get shut down regardless of your state paperwork. Check with your city’s planning department and the county clerk’s office before signing a lease or running a business from your home.
Beneficial Ownership Reporting (Mostly Not You)
The Corporate Transparency Act originally required most small businesses to file a Beneficial Ownership Information report with the Financial Crimes Enforcement Network (FinCEN). A March 2025 interim final rule narrowed the requirement so that only entities formed under foreign law and registered to do business in the U.S. need to file.21Financial Crimes Enforcement Network. Frequently Asked Questions A Texas business formed domestically under the Business Organizations Code is exempt as of 2026. The rule has gone through several legal challenges, so watch for future changes.
Staying in Good Standing
Formation is one-time; keeping the entity alive is ongoing. Texas doesn’t use a traditional annual report. Your yearly obligation is the franchise tax report and Public Information Report filed with the Comptroller.14Texas Comptroller. Texas Franchise Tax Public Information Report and Ownership Information Report Filing Requirements Miss them and the Comptroller can forfeit your right to transact business.
Keep your registered agent information current. If your agent resigns or moves and you don’t update the Secretary of State through a separate filing, you can miss a lawsuit and end up with a default judgment. Beyond state filings, remember federal quarterly estimated tax payments if you’re profitable, FUTA filings if you have employees, and any local permit renewals your city or county requires.