... ...
top of page
Group of lawyers discussing on a lawsuit

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.

Attorneys Sitting in their Office discussing

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:

  • No personal or corporate state income tax

  • Affordable cost of living

  • Access to large consumer markets (Houston, Dallas, Austin)

  • Diverse economy: tech, energy, manufacturing, and services

  • 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:

  1. Search for name availability: Use the Texas SOSDirect website.

  2. Reserve the name (optional): $40 for 120 days.

  3. 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:

 

Filing Fees:

  • LLC: $300

  • Corporation: $300

  • Name Reservation: $40 (optional)

File online at SOSDirect.

 

Step 4: Get an EIN from the IRS

Apply for an Employer Identification Number (EIN) to:

  • Open a business bank account

  • Hire employees

  • 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:

  • Sales tax permit

  • Franchise tax registration

  • 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:

  • EIN

  • Articles of Organization/Incorporation

  • 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:

  • Zoning clearance

  • Health and safety permits

  • Home occupation permits (for home-based businesses)

If hiring employees:

  • Register with the Texas Workforce Commission (TWC)

  • 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

Lawyers in Lobby

We Can Help

Whatever your legal needs might be, the Spencer Law Firm are experts in the field of law. Contact us for a free consultation.

Book a Consultation

The Spencer Law Firm
Executive Tower West Plaza
4635 Southwest Freeway, Suite 900
Houston, TX 77027

Phone: 713-961-7770
Toll Free: 888-237-4529
Fax: 713-961-5336

Thank you for submitting a request. An attorney will be in contact if you qualify to be a potential client of the Spencer Law Firm.

  • Youtube
  • Facebook
  • Twitter
  • LinkedIn
  • Instagram

© 2025 by The Spencer Law Firm

bottom of page