It takes money to start a small business in Texas.
How much depends on your chosen business structure, niche, and location.
Your choices determine state filing costs, professional services fees, licenses and permits, fictitious name registration, and ongoing business expenses like franchise tax and registered agent fees.
Understanding these expenses when starting your business is essential to ensure you can afford the start-up and running costs and have enough cash!
After the costs, you must also know which forms to complete and when to submit them.
So, our question is, “How much does it cost to start a business in Texas?”
You’re about to find that out and much more!
The answer to this question depends on your chosen business structure and your start-up’s complexity because those determine your Texas business registration fees.
So, let’s begin there:
You could start a business in Texas as a solo entrepreneur for free without registering with the secretary of state.
But that option only suits specific niches.
For many of us, registering a formal separate entity (like an LLC or corporation structure) is necessary when starting a business in Texas because of liability and employee requirements.
So, as it’s your choice of business structure that determines your registration fees, we’ll look at the 5 most popular business entities, starting with the simplest, the sole proprietorship:
Sole proprietorships do not register with the Texas Secretary of State, so they have no filing fee.
However, depending on your name (SP owners use their names), you can file a DBA to trade using a catchy brand name relative to your target audience and niche.
You can start a general partnership without registering with the Texas Secretary of State and paying a fee.
GPs can also file a DBA if the partners’ names don’t project the right impression for their target audience.
An LLP is a separate legal entity from its owners. You register it with the Texas Secretary of State’s office using From 701 (Registration of Limited Liability Partnership), costing $200 per partner.
Texas limited liability companies are separate legal entities you register by filing a Certificate of Formation with the Texas Secretary of State’s office using their SOSDirect online registration service. The LLC formation in Texas costs $300.
Your LLC might also be liable for ongoing costs (like franchise tax); we’ll look at those later in the post.
When you form an LLC in another state and want to do business in Texas, you must register with the Texas SOS as a foreign LLC by completing an Application for Registration of Foreign Limited Liability Company (Form 304) and paying the $750 filing fee.
To establish an S corporation in Texas costs $300. Like an LLC, you must register your business with the Texas Secretary of State using the Form 201 Certificate of Formation.
Aside from registering the business entity, regardless of which one you choose, you might need to pay additional costs, depending on your needs. For instance, if you want to reserve your business name before the registrartion, or if you operate under a different business name.
Getting a trademark is also not mandatory yet recommended to provide better protection for your business, as you’ll read in this section.
Businesses that must register a name with the Texas SOS, like LLCs, LLPs, and corporations, can reserve a business name (if they are still waiting to form their business) for 120 days for $40.
Businesses that do not register a name with the Texas SOS (like sole proprietors and general partnerships who use their names) can file a DBA to use an assumed/fictitious name.
For instance, imagine you want to open a fruit and veg chain using the name “Melon Cauli,” but your name’s Tyler Durden; you’ll need to file a DBA in every Texas county you operate in.
A Texas DBA costs $25, and you must renew it every 5 years (unless you change your name prior); apply online using the SOSDirect website and file Form 503 through the Assumed Business Name Certificate.
A trademark stops other businesses from using your chosen business name, and you can secure it at the state and national level; here’s what it costs:
Note: Depending on which structure you run your business under, you could be liable for ongoing costs! For instance, legal entities must appoint a registered agent, and some must file an annual report.
I’ll explain all next:
Did you know that the #1 reason small businesses go bust is a lack of cash flow, with 82% of small businesses failing due to cash flow problems?
A lack of cash flow means your business spends more than it earns; when that happens, you could be toast!
That’s why when learning how to start a small business, you must understand how to calculate your start-up and ongoing costs (fixed and variable) to ensure you keep those “wheels of industry turning.”
But for now, let’s focus on your ongoing costs when you start a business in Texas:
The good news is if you form an LLC in Texas, you’re not required to file an annual report. You would, however, need to file a yearly tax franchise report with the Texas Comptroller of Public Accounts (CPA) office.
Corporations (C and S corps), on the other hand, must file the following reports:
An operating agreement is an internal agreement (physical document) between LLC members that outlines how they’ll run the business and controls the members, managers (member-managed or manager-managed), and reporting officers’ rights, and other internal LLC affairs, including:
The Loan Star State doesn’t require Texas LLCs to file an operating agreement, so no state filing fees apply.
Every Texas LLC must allocate a Texas registered agent to receive official government and business mail (like notification of litigation and legal documents) on its behalf.
Texas residents can act as their LLC’s registered agent once they have a physical address (not a PO box) and are available during regular business hours. LLC owners who’d prefer (for reasons such as a foreign LLC owner and privacy issues) can also choose to employ a registered agent service.
Registered Agent fees vary, but expect to pay between $50 and $300 annually.
Pro-Tip
When you change registered agents, you must file a “change of registered agent Form 401” with the Texas Secretary of State and pay the $15 filing fee.
In Texas, most businesses need licenses and permits; let’s see if they apply to you next!
Business licenses come at 3 levels: federal, state, and local.
Permits are usually state and local. Which you need and what they cost depends on your industry and location.
Here’s what you need to know about Texas:
Texas doesn’t implement a general state license. Still, when you start a business in Texas, you might need one at the county or city level and, depending on your niche, a federal level, too!
How to find the licenses your business needs:
Texas businesses (including remote ones) that sell tangible, taxable goods or services must get a State seller’s permit from the Texas Comptroller website and a local sales license (county or city) by visiting the Comptroller.Texas.gov website.
The Lone Star State’s seller’s license (also known as a sales tax permit) is free, but you might need to post a security bond; for further info, contact a Texas Comptroller’s field office.
Now let’s look at those additional costs when you start a business in Texas:
Texas encourages entrepreneurialism by not charging a state income or corporate tax, allowing you to keep a hefty net profit.
The Loan Star State also offers various incentives, like franchise tax exemption and the Texas Small Business Credit Initiative (TSBCI), to help your start-up.
But even so, your business might have other ongoing tax costs!
LLCs (and other registered entities) have an annual maintenance cost (i.e., a state fee for doing business in that location) called franchise tax.
Texas LLCs make an annual franchise tax report with the Office of the Comptroller. Businesses that owe less than $1000 or have a total revenue of less than $1.23 million are franchise tax-exempt.
Note:
Even though your Texas LLC might not owe any franchise tax, you must still file your annual franchise tax report by May 15. Filing is free, but there’s a $50 late filing fee.
We know Texas doesn’t charge personal income or corporation tax. Still, self-employed business owners must pay federal income tax, and those with employees withholding tax to the IRS and Texas unemployment insurance (UI) tax each quarter.
Federal income tax works on a sliding scale (i.e., the more you earn, the more you pay).
Contact your county’s appraisal district and tax office for further information on Texas business taxes.
Okay, and that’s what you need to know regarding “how much does it cost to start a business in Texas?”
Well, almost!
Filing fees, licenses, permits, business names, and taxes are some expenditures when starting a business in Texas.
But to promote and run your business effectively, you might need branding strategies and software tools that streamline your operations, which come at an additional cost.
Common branding, marketing, accounting and other tools for small businesses include:
You might not need these software systems when you first start your Texas business, but knowing what’s available and which ones are free ensures you have what your business needs when it needs it.
Entrepreneurs who form an LLC, LLP, or corporation in Texas must have a business bank account to separate personal and business transactions to protect their liability.
Opening a bank account in Texas is free, but there might be monthly fees to consider.
Many Texas banks, however, require a business EIN to open a business bank account. Separate structures like LLCs and corporations need EINs to register their business with the Texas SOS; sole proprietors and general partnerships might need to apply for one with the IRS (for free) if they cannot use their Social Security Number.
Most insurance policies are optional when you start a business; your chosen cover depends on your industry and business needs.
However, some insurance policies are mandatory when you start a business in Texas and hire employees or use company vehicles.
Mandatory Texas business insurance:
Note:
Small business worker’s compensation insurance isn’t mandatory in Texas, but filing a notice with the Texas Department of Insurance is.
A sole proprietorship or general partnership is the cheapest way to start a business in Texas because you do not register them with the Texas SOS.
Low taxes, innovative business incentives, and a first-class lifestyle are the main benefits of living and working in the Loan Star state.
Texas filing fees vary depending on your chosen entity, for example:
For most aspiring business owners, the benefits of forming an LLC in Texas far outweigh the costs because of the liability protection, pass-through taxation, management structure, and business name protection the structure provides.
The Loan Star State doesn’t implement a general state business license. Still, depending on your niche and location, you might need a local business license to do business in Texas.
I hope I’ve answered your question. “How much does it cost to start a business in Texas?”
The answer depends on your start-up’s complexity and future goals, such as out-of-state expansion or raising capital.
Your job now is to ensure your start-up earns more than it spends. You do that by minimizing your expenses, like using free accounting software, acting as your registered agent when you form an LLC, buying business combined insurance policies, and using affordable branding solutions.
One last note: Today is New Year’s Eve. 2024 is a heartbeat away, and so is your new business!
I wish you a happy and prosperous New Year.
Good luck.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
Terry is a serial entrepreneur with over 25 years of experience building businesses across multiple industries – construction, real estate, e-commerce, hotelier, and now digital media. When not working, Terry likes to kick back and relax with family, explore Taoism’s mysteries, or savor the taste of fine Italian red wine.
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