Company Formation in Texas
Owners face many risks in creating and operating businesses, but by formalizing your business with the Texas Secretary of State, you can gain limited liability. Company formation in Texas provides a structured legal framework that protects business owners from personal liability. Setting up a separate legal entity between you and your business means that you can’t be held personally liable simply because you own the business. Sole proprietorships don’t have this protection, and the person who “runs” the business is the business – which is why people use the phrase “d/b/a,” short for “doing business as.” This means that if a sole proprietor’s business fails (or is sued), the sole proprietor may personally have to pay its debts. Worse still is a general partnership, where every partner of the business can be held personally liable – including for debts owed by other partners! This can be fatal not only to your business but to your livelihood.
Three types of entities can protect you from being held to account for your businesses’ debts. The first is the corporation, where the business is a separate “person” owned by its shareholders. Most people think of corporations as giant, billion-dollar enterprises – but small business can be corporations too! The ability to resell shares and ensure steady management can assist a new business in finding its footing so long as securities laws restricting fundraising are satisfied. Corporations usually have the disadvantage of double taxation – the corporation’s income gets taxed first, and then any money the corporation pays its stockholders (called “dividends”) or employees (salary or wages) gets taxed again. However, some corporations (called “S” corporations) avoid this problem, as their owners can report all income from the corporation as personal income for tax purposes.
Two other entities offer similar advantages to small business owners. In a limited partnership, some partners are “general partners” that run that business and absorb any liability; the rest are “limited partners” that can’t be held liable but can profit. Limited liability partnerships are limited partnerships that also limit the general partner’s liability to a certain amount. These partnerships are created by a partnership agreement – the agreement that binds all partners to certain rules. Like “S” corporations (and unlike double-taxed “C” corporations), income from a limited partnership is taxed as personal income to a partner. Unlike corporations, the general partner of a limited partnership normally owes fiduciary duties to all other partners – and if these duties are broken, the general partner may be in serious legal trouble.
Finally, company formation in Texas offers various business structures, including limited liability companies (LLCs), which combine elements of corporations and limited partnerships. Like partners, members of an LLC only have their LLC income taxed once; also like partners, members of an LLC may owe fiduciary duties to the other members. Registering a company in Texas as an LLC allows every member to take part in the business—an LLC can either be managed by managers (who can be elected or selected) or by its membership. Thus, just as a corporation has bylaws, an LLC is governed by a company agreement that describes how the LLC will work.
All of these types of businesses start the same way: by filing key documents with the Texas Secretary of State. All of these businesses have the advantage of a formal set of rules that bind you and your business partners, to ensure that everyone lays by the same rules. We can help you determine what type of entity is right for you , draft governing documents to keep your company in business, and let you know what rights and obligations you may have under any company agreement.
The Spencer Law Firm: Your Partner in Starting a Business in Houston, Texas
Starting a business in Houston, Texas, presents a wealth of opportunities, given the city's dynamic economy and diverse industries. However, navigating the legal landscape can be complex. The Spencer Law Firm, based in Houston, specializes in guiding entrepreneurs through these intricacies, ensuring a solid foundation for their ventures.
How to Start a Business in Texas
A Step-by-Step Guide for Entrepreneurs
Why Texas Is a Top State for Business Formation
Texas consistently ranks as one of the best states to start a business. With no state income tax, a strong economy, and a business-friendly regulatory environment, it's a prime location for both first-time entrepreneurs and expanding enterprises.
Key Advantages of Starting a Business in Texas:
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No personal or corporate state income tax
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Affordable cost of living
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Access to large consumer markets (Houston, Dallas, Austin)
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Diverse economy: tech, energy, manufacturing, and services
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Pro-business infrastructure and workforce incentives
Step 1: Choose the Right Business Structure
Choosing a legal entity type affects your taxes, liability, and day-to-day operations.
Business TypeBest ForLiability ProtectionTaxation
Sole ProprietorshipLow-risk, solo operationsNonePersonal income tax only
PartnershipMultiple owners, informal setupLimited (LLP improves)Pass-through
LLC (Limited Liability Company)Most small businessesYesFlexible (pass-through or corporate)
Corporation (C-Corp or S-Corp)High-growth or investor-backed businessesYesCorporate or pass-through (S-Corp)
👉 Pro Tip: For most small businesses, an LLC offers the best mix of flexibility, liability protection, and ease of management.
Step 2: Name Your Business and Reserve It
How to Secure a Business Name in Texas:
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Search for name availability: Use the Texas SOSDirect website.
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Reserve the name (optional): $40 for 120 days.
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Register a DBA (Doing Business As) if using a different trade name.
Step 3: Register Your Business with the Texas Secretary of State
File formation documents online or by mail:
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Corporation: Form 201
Filing Fees:
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LLC: $300
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Corporation: $300
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Name Reservation: $40 (optional)
File online at SOSDirect.
Step 4: Get an EIN from the IRS
Apply for an Employer Identification Number (EIN) to:
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Open a business bank account
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Hire employees
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File taxes
Apply online for free at the IRS EIN portal.
Step 5: Register for Texas State Taxes and Permits
Some businesses must register with the Texas Comptroller of Public Accounts:
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Sales tax permit
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Franchise tax registration
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Professional licenses (cosmetology, contracting, healthcare, etc.)
Use the Texas Business Licenses and Permits Guide for a detailed checklist.
Step 6: Open a Business Bank Account and Set Up Accounting
Separate your business finances to ensure legal protection and tax clarity.
Checklist:
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EIN
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Articles of Organization/Incorporation
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DBA certificate (if applicable)
Recommended tools: QuickBooks, Xero, or a Texas-based CPA.
Step 7: Understand Local Zoning, Permits, and Employer Obligations
Check city and county requirements for:
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Zoning clearance
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Health and safety permits
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Home occupation permits (for home-based businesses)
If hiring employees:
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Register with the Texas Workforce Commission (TWC)
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Get workers' compensation insurance (optional but recommended)
Business Formation Timeline in Texas
StepEstimated Time
Name Search & Reservation1 day
Formation Document Filing2–5 business days
EIN ApplicationSame day (online)
Licenses & Permits3–10 business days
Bank Account Setup1–3 days after registration
Total Estimated Time: 1 to 3 weeks
Cost Breakdown by Business Type in Texas
Entity TypeEstimated Cost
Sole Proprietorship$0–$25 (DBA only)
LLC$300 (Form 205) + optional DBA
Corporation$300 (Form 201) + optional license costs
Partnership$200–$500 (varies by filing & agreements)
Real-World Example: LLC Success Story in Austin, TX
"Lone Star Digital," a boutique marketing agency, launched as a two-person LLC. By completing Texas filings, securing a DBA, EIN, and license, they scaled from zero to $750K in 18 months — powered by the state’s pro-business climate and accessible filing process.
FAQs About Starting a Business in Texas
Q- How much does it cost to start a business in Texas?
A- $350–$700 for most businesses, including state filing fees, DBA, and permits.
Q- Do I need a business license in Texas?
A- No general license is required, but many industries require specific state or local permits.
Q- Can I start a business from home in Texas?
A- Yes, but you may need a home occupation permit depending on your city.
Q- What’s the difference between an LLC and a DBA?
A- An LLC is a legal entity with liability protection. A DBA is just a trade name — not a business structure.
Helpful Resources for Texas Entrepreneurs
Author Bio
Author: Ashley Spencer, J.D. Ashley Spencer is a startup attorney and small business consultant based in Houston, Texas. With over 15 years of experience helping entrepreneurs incorporate and grow their businesses, she specializes in Texas business law, formation strategy, and regulatory compliance.has an extensive skill set that encompasses state and federal securities transactions and litigation, regulations and compliance. Ms. Spencer has litigated on behalf of Plaintiffs, defended and represented clients involving investigations and enforcement proceedings with the Texas Securities Board, FINRA and the U.S. Securities & Exchange Commission
Last updated: April 29, 2025
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