Launching a startup in Texas offers significant advantages, from favorable tax environments to robust funding ecosystems and supportive entrepreneurial communities. Texas has no state income tax, business-friendly regulations, and major startup hubs in Austin, Dallas, and Houston. This guide walks you through the essential steps to establish your business legally, secure funding, and position yourself for success.
Step 1: Validate Your Business Idea and Create a Business Plan
Before handling any legal requirements, validate your concept and develop a comprehensive business plan. A solid business plan becomes essential when seeking funding, securing loans, or refining your business direction.
Key Components of Your Business Plan:
The SBA identifies nine critical sections for a traditional business plan: executive summary, company description, market analysis, organization and management, service or product line, marketing and sales strategy, funding request, financial projections, and appendix. Your executive summary should concisely capture your business concept, mission, and goals, while your market analysis should be backed by real data about trends and opportunities.
Resources Available:
Access over 800 free sample business plans through the Small Business Development Center Network (SBDC). The SBA provides free business plan templates and a step-by-step guide tool to help you develop your own plan. These resources simplify the planning process and are especially helpful for first-time entrepreneurs.
Step 2: Choose Your Business Structure
Selecting the right business structure is foundational, affecting taxation, liability protection, management requirements, and fundraising ability. Texas recognizes several structures:
Limited Liability Company (LLC) is ideal for most small startups. LLCs offer limited liability protection, flexible taxation options (pass-through by default), minimal formalities, and no ownership restrictions. They’re easier to manage than corporations and don’t require annual meetings or formal record-keeping. However, they may face challenges when seeking venture capital.
C Corporation is better if you plan to raise venture capital, issue stock, or scale rapidly. C Corporations provide credibility with investors, structured governance, and unlimited growth potential through unlimited share issuance. The downside is double taxation—profits are taxed at the corporate level and again as shareholder dividends. C Corps also require more regulatory compliance, including annual meetings, bylaws, and detailed record-keeping.
S Corporation offers liability protection with pass-through taxation but has more operational formalities than an LLC. It’s limited to 100 shareholders and typically works better for established businesses rather than early-stage startups.
Sole Proprietorship requires minimal setup but provides no liability protection; your personal assets are at risk. Most advisors recommend avoiding this for startups.
Step 3: Register Your Business Name and File Formation Documents
Check Name Availability:
Search the Texas Secretary of State’s database to ensure your business name is unique and complies with Texas naming rules. If you operate under a name different from your legal entity name, you must file an Assumed Name Certificate with the county clerk.
File with the Texas Secretary of State:
For LLCs, corporations, and limited partnerships, file a Certificate of Formation with the Texas Secretary of State. This is required to operate legally in Texas. Filing fees apply, and you can submit online, by mail, or in person. Credit card, check, money order, or cash are accepted payment methods.
Register at the County Level:
Even after state registration, register your business name with the county or municipal clerk in your operating area. This establishes your exclusive right to the name within that county.
Step 4: Obtain an Employer Identification Number (EIN)
An EIN is a federal tax identification number issued by the IRS. You’ll need an EIN if you form a corporation or LLC, hire employees, file certain tax returns, or establish a Keogh plan.
How to Apply:
The fastest method is applying online through the IRS website, which provides immediate issuance. You can also apply by telephone (1-800-829-4933), fax (859-669-5760), or mail. No application fee exists. You’ll need to provide basic information including your business structure and personal Social Security Number.
Step 5: Understand and Comply with Tax Requirements
Texas Franchise Tax:
The Texas Franchise Tax is levied annually on taxable entities doing business in the state with over $2.47 million in annual revenue. Your first Franchise Tax filing is typically due May 15th of the year following when you started operations in Texas. Entities below this threshold don’t file a Franchise Tax Report but must still file a Public Information Report or Ownership Information Report by May 15.
Sales and Use Tax:
If you sell taxable goods or services, register with the Texas Comptroller of Public Accounts and obtain a Sales and Use Tax permit. You must collect and remit sales tax to the Comptroller.
Payroll Taxes:
If you hire employees, you must withhold federal employment taxes and report wages to the IRS.
Additional Tax Considerations:
Texas has no state income tax, making it exceptionally business-friendly for profitability. However, federal income tax obligations remain.
Step 6: Secure Necessary Licenses and Permits
General Business License:
Most Texas cities require a general business license. Requirements vary by location and industry.
Industry-Specific Licenses:
Many professions require occupational or professional licenses issued by the Texas Department of Licensing and Regulation (TDLR). Industries requiring licenses include construction (general contractor’s license), healthcare, law, food service (food establishment permit, food manager certification), and numerous others. Requirements vary significantly—for example, cosmetologists must complete specific training hours and pass state exams, while electricians need classroom and hands-on experience.
Research Your Requirements:
Use the TDLR website to identify specific licenses and permits applicable to your business. Failure to comply can result in penalties, fines, and business closure.
Step 7: Protect Your Intellectual Property
Trademark Registration:
If you have a unique business name, logo, or slogan, consider trademark registration to protect your brand. Texas state registration is quicker and cheaper than federal registration but provides protection only within the state.
Texas Trademark Registration Process:
File a notarized Trademark or Service Mark Application Form with the Texas Secretary of State, including three original specimens showing use of the mark in Texas, and pay the $50 filing fee per class. The state reviews your application, looking for conflicts with existing registrations, and will notify you if issues arise, allowing 90 days for corrections. The process typically takes 4 to 8 weeks, and registration remains valid for five years.
Federal Trademark Registration:
For national or international protection, apply to the U.S. Patent and Trademark Office (USPTO). Federal registration costs $325 per class and provides protection throughout the United States and globally as the U.S. is a signatory to international intellectual property treaties.
Step 8: Obtain Business Insurance
While Texas doesn’t mandate general liability insurance for all small businesses, certain coverages are essential or required.
Essential Coverage Types:
General Liability Insurance protects against customer, vendor, and public claims. Average monthly premiums run approximately $42 in Texas.
Workers’ Compensation Insurance is not mandatory for all Texas employers but is highly recommended and required for government contractors. Average monthly cost is around $31. This coverage protects employees’ medical expenses and lost wages for work-related injuries.
Commercial Auto Insurance is mandatory for business vehicles, with minimum requirements of $30,000 bodily injury per person, $60,000 per accident, and $25,000 property damage.
Cyber Liability Insurance is increasingly important for data-handling businesses, protecting against breaches and ransomware attacks.
Business Owner’s Policy (BOP) bundles general liability and property insurance.
Professional Liability/E&O Insurance averages $59 monthly and covers professional services.
Consider industry-specific risks, your location’s exposure to natural disasters, and contractual requirements when choosing coverage.
Step 9: Navigate Employment Law Compliance
At-Will Employment and Right-to-Work:
Texas is an at-will employment state, meaning employers and employees can terminate relationships at any time for any reason without cause (unless an employment contract exists). Texas is also a right-to-work state; employers cannot require union membership or dues.
Minimum Wage and Overtime:
Texas follows the federal Fair Labor Standards Act (FLSA). The state minimum wage is the federal minimum of $7.25 per hour. Tipped employees can earn a lower base wage of $2.13 per hour if tips bring them to the federal minimum.
Critical Compliance Areas:
Even founders are often classified as employees by the IRS and state regulators, so employment law compliance is essential from day one. Document all employment relationships in writing, avoiding informal agreements. Properly classify workers as employees or independent contractors—misclassification can result in costly disputes. Ensure proper payroll setup, tax withholding, and employment tax return filing with the IRS. Violating employment laws can result in fines, settlements, and legal disputes, particularly around wage claims.
Discrimination and Workplace Safety:
Employers must prevent workplace harassment and discrimination based on race, color, disability, religion, sex, national origin, or age, and cannot retaliate against employees making complaints. Occupational Safety and Health Administration (OSHA) rules apply, and employees have the right to file workers’ compensation claims.
Step 10: Secure Funding and Resources
Texas offers diverse funding opportunities for startups at various stages:
Small Business Grants:
The Texas Capital Fund provides grants for economic development and job creation, particularly in low-income or rural areas. The Texas Emerging Technology Fund (ETF) supports early-stage companies in biotech, clean energy, and IT, providing both funding and mentorship. The StartHER Grant offers $5,000 plus training for women-owned businesses with five or fewer employees founded within five years, with applications accepted every fall. The Texas A&M New Ventures Competition features prize pools up to $1.9 million for science and tech ventures in pre-seed to early growth stages with under $250,000 revenue.
SBA Loans:
SBA 7(a) Loans offer up to $5 million for working capital, equipment, and expansion for businesses with good credit and financial stability.
Mentorship and Support:
SCORE, the nation’s largest network of free business mentors, provides confidential business counseling, free tools and templates, and inexpensive workshops across Texas. Mentorship is completely free, supported by the SBA and volunteer experts.
Accelerators and Incubators:
Capital Factory in Austin provides coworking spaces and a 12-week accelerator program offering six months of free space and up to $250,000 in cloud hosting credits from Amazon, Google, and Microsoft for only 1% equity. The University of Texas at Austin Technology Incubator (ATI) supports early-stage tech companies with mentorship and resources. Tech Fort Worth focuses on high-tech startups including life sciences and clean tech. Station Houston offers coworking and accelerator programs with a strong focus on startup growth.
Pitch Competitions:
SXSW Pitch Competition (Austin) features nine categories with finalists receiving significant exposure and potential investment connections. BexarBio Pitch Competition (San Antonio) awards over $100,000 in cash prizes to promising startups. Startup Texas Accelerator (Brownsville) supports emerging industries with expert workshops, mentorship, and networking, awarding up to $10,000 in reimbursements through the Advancement Fund.
Step 11: Set Up Your Physical Location
Determine whether you’ll operate from home, a coworking space, or a physical office. Major Texas cities offer diverse commercial real estate options.
Coworking and Shared Spaces:
Coworking spaces are excellent for early-stage startups, offering flexible terms, built-in networking, and low overhead. These are widely available in Austin, Dallas, Houston, and other major cities.
Commercial Lease Negotiation:
When leasing traditional office space, understand lease terms, negotiate favorable conditions, and ensure the space meets your operational needs. Professional commercial real estate firms in Texas specialize in matching startups with suitable spaces.
Step 12: Build Your Team and Establish Operations
Hire Your First Employee Carefully:
Before hiring your first employee, ensure you understand all employment law obligations, including minimum wage compliance, tax withholding, and workers’ compensation requirements. Get all employment terms in writing.
Set Up Accounting Systems:
Establish proper bookkeeping and accounting systems from day one to track revenue, expenses, and cash flow. This simplifies tax filing and provides crucial insights into business performance.
Create Operating Procedures:
Document your business processes, including standard operating procedures, internal controls, and governance practices (especially important for LLCs and corporations).
Step 13: Launch and Iterate
With legal structure, funding, team, and operations in place, you’re ready to launch. Remember that startup success requires flexibility—be prepared to pivot based on market feedback and customer insights while maintaining compliance with all applicable regulations.
Ongoing Compliance:
After launching, maintain continuous compliance with Texas laws, including annual franchise tax filings, renewal of business licenses and permits, updates to business records with the Secretary of State if ownership changes, and proper corporate governance for your entity type.
Summary and Key Takeaways
Texas offers an exceptional environment for startups with no state income tax, diverse funding opportunities, strong mentorship networks through SCORE and university programs, and vibrant accelerator ecosystems in major cities. Success requires careful navigation of business formation, legal compliance, tax requirements, and strategic funding decisions. Leverage free resources like SCORE mentoring, SBA tools, and pitch competitions to accelerate your growth while ensuring you meet all state and federal requirements from day one. The combination of business-friendly policies, available capital, and supportive entrepreneurial communities positions Texas as one of the nation’s premier startup destinations.