Choose Your Business Structure
Texas recognizes several structures, each with different liability, tax, and administrative requirements:
- Sole Proprietorship: You own and operate the business personally. No formal state filing required unless you use a "doing business as" (DBA) name. Simplest to start, but you're personally liable for debts.
- Partnership: Two or more owners. Requires a partnership agreement (not filed with the state) and registration if using a trade name.
- Limited Liability Company (LLC): A legal entity separate from you. Offers liability protection and tax flexibility. Most common choice for small businesses. Requires filing a Certificate of Formation.
- Corporation: A separate legal entity. Requires a Certificate of Formation and more ongoing compliance (annual meetings, board records). More complex, often chosen by larger or investor-backed companies.
Step 1: Check Name Availability & Reserve It
Before filing, verify your business name isn't already registered:
- Visit the Texas Secretary of State website (sos.texas.gov).
- Use the business name search tools to check available names.
- If you want to reserve the name while you prepare other documents, you can file a Name Reservation. Check the current fee and reservation period on the SOS site.
- For an LLC, the name must include "LLC" or an approved variation.
- For a corporation, use "Inc.", "Corp.", "Company", or similar designations.
Step 2: Prepare Your Formation Documents
For an LLC or Corporation:
- File a Certificate of Formation with the Texas Secretary of State.
- Include your entity name, principal address, registered agent, and management/ownership information.
- The state provides fillable forms; many people complete them without a lawyer.
For a Sole Proprietorship or Partnership:
- If using a trade name (DBA), file an Assumed Name Certificate with the county clerk (for Houston, that's Harris County).
Step 3: File with the Secretary of State
- Submit your formation documents online via SOSDirect (the Secretary of State's e-filing system) or by mail.
- Filing fees: Check the current fee schedule on sos.texas.gov—fees vary by document type and entity.
- Processing time: Online filings are typically faster than mail; check current turnaround times on the SOS site.
- You'll receive a confirmation that your business is registered.
Step 4: Obtain an EIN (Employer Identification Number)
File with the IRS:
- Apply online at irs.gov (free; the EIN is issued immediately when you apply online).
- Or use Form SS-4 by mail or fax.
- You need an EIN to open a business bank account, hire employees, and file taxes (even with no employees, it's good practice to separate business finances).
Step 5: Register for State & Local Taxes
- Texas Comptroller of Public Accounts (comptroller.texas.gov): Apply for a sales tax permit if you sell goods or taxable services. There's typically no fee to register.
- Local city/county: Some cities and counties require permits or registrations. Check with your city's finance or small-business office.
- County Clerk: File your Assumed Name (DBA) if applicable.
Step 6: Open a Business Bank Account
- Bring your Certificate of Formation, EIN letter, and photo ID.
- Separate business and personal finances from day one—this protects your liability shield and simplifies taxes.
Step 7: Get Business Insurance & Licenses (If Required)
Depending on your industry:
- General Liability Insurance: Often required to rent commercial space. Cost varies by industry and coverage—get a few quotes.
- Professional Licenses: Contractors, real estate agents, cosmetologists, and many service providers need state or local licenses. Check the Texas Department of Licensing and Regulation (TDLR) website.
- Health Permits: Food service, healthcare, and childcare require permits from the relevant county health department.
Timeline & Cost Summary
| Step | Typical Timeframe | Cost | |------|-----------|--------------| | Name search & reservation | About a day | Check SOS fee schedule | | Form preparation | A few days | Free (DIY) or attorney fees | | Secretary of State filing | Varies (online is faster) | Check SOS fee schedule | | EIN application | Same day (online) | Free | | Tax registration | A few days | Typically free |
Confirm all current fees on the official state and federal sites before budgeting.
Common Mistakes to Avoid
- Skipping the EIN: Necessary for business banking and taxes.
- Using personal bank accounts: Blurs liability protection and complicates taxes.
- Not registering a DBA: Required if your business name differs from your personal name.
- Ignoring industry licenses: Operating without proper licenses can result in fines or closure.
- Filing without a registered agent: Corporations and LLCs need someone to receive legal documents.
Next Steps
Once registered, your business is legally formed but not complete. You'll also want to:
- Draft an operating agreement (LLCs) or bylaws (corporations) defining ownership and decision-making.
- Set up business accounting from day one.
- Check zoning compliance if you operate from a physical location.
- Understand your tax and payroll obligations if hiring employees.
For personalized guidance, connect with SCORE Houston (free mentoring), the Small Business Administration (SBA), or a local business attorney. The BEM community also shares resources for Houston entrepreneurs—check our local business library for templates, funding guides, and vendor recommendations.