Starting a business in Texas is straightforward compared to many other states, but the legal requirements for small business in Texas still demand attention. Texas has no personal income tax, a business-friendly regulatory climate, and a fast online registration system. That said, skipping steps like entity registration, tax permits, or local licenses can result in fines, back taxes, or forced closure. This article walks through every requirement you need to meet before opening your doors.
What are the Legal Requirements for Small Business in Texas?
The legal requirements for small business in Texas include registering your business entity, obtaining an EIN, getting a sales tax permit, securing required licenses, and following state employment laws. Most businesses also need a DBA if operating under a trade name. Setup typically takes 1-4 weeks.
Also Check: How to File Bankruptcy in Texas: Step-by-Step Guide
1. Choose and Register Your Business Structure
The first legal step is picking a business entity. Each type has different liability, tax, and reporting rules.
Common business structures in Texas:
| Entity Type | Liability Protection | State Filing Required | Annual Report |
|---|---|---|---|
| Sole Proprietorship | None | No (DBA only if trade name used) | No |
| General Partnership | None | No | No |
| LLC | Yes | Yes | No (franchise tax applies) |
| Corporation (C or S) | Yes | Yes | Yes |
| Nonprofit | Yes | Yes | Yes |
To form an LLC or corporation, file with the Texas Secretary of State via the SOSDirect portal. As of 2024, the filing fee for a domestic LLC is $300. Corporations pay $300 as well. Processing typically takes 3-5 business days online.
Sole proprietors and general partnerships do not file with the state unless using a trade name, but they still need local permits and tax registrations.
2. File a DBA (Assumed Name Certificate)
If you operate under any name other than your legal name or registered entity name, Texas law requires you to file an Assumed Name Certificate, commonly called a DBA (Doing Business As).
- Sole proprietors and partnerships file with the county clerk in each county where business is conducted.
- LLCs and corporations file with the Texas Secretary of State and also with the county clerk.
- The county filing fee is typically $14-25 per county.
- DBA registrations are valid for 10 years.
Failing to file a DBA can prevent you from opening a business bank account or enforcing contracts under that name.
3. Get a Federal Employer Identification Number (EIN)
An EIN is a federal tax ID issued by the IRS. Most small businesses need one. You must have an EIN if you:
- Have employees
- Operate as a partnership, LLC with multiple members, or corporation
- File certain excise, employment, or alcohol/tobacco/firearms tax returns
- Withhold taxes on income paid to a non-resident alien
Sole proprietors with no employees can use their Social Security Number instead, but getting an EIN adds a layer of privacy and is often required to open a business bank account.
Apply free at IRS.gov. You receive your EIN immediately after completing the online application. No fee, no waiting.
4. Register for Texas State Taxes
Sales and Use Tax Permit
If you sell taxable goods or certain services in Texas, you must obtain a Sales and Use Tax Permit from the Texas Comptroller before making your first sale. Texas imposes a 6.25% state sales tax, and local jurisdictions can add up to 2%, bringing the total to a maximum of 8.25%.
Register online through the Texas Comptroller’s eTEXAS system at no cost. You must collect tax at the point of sale and file returns monthly, quarterly, or annually based on your sales volume.
Taxable services in Texas include:
- Telecommunications
- Internet access
- Cable and satellite TV
- Amusement services
- Data processing
- Information services
- Laundry and cleaning services
- Security services
Franchise Tax
Texas imposes a franchise tax on most taxable entities doing business in the state. For 2024, businesses with annual revenues under $2.47 million pay no franchise tax (the “no-tax-due” threshold). Above that, the rate is 0.75% of taxable margin for most businesses and 0.375% for qualifying retailers and wholesalers.
Even businesses below the threshold must file a “No Tax Due” report annually.
5. Obtain Required Business Licenses and Permits
Texas has no general statewide business license, but many industries require specific state licenses. The legal requirements for small business in Texas vary significantly by industry.
State-licensed industries include:
- Contractors and electricians (Texas Department of Licensing and Regulation)
- Food service and restaurants (Texas Department of State Health Services)
- Healthcare providers (Texas Medical Board, Texas Board of Nursing, etc.)
- Childcare facilities (Texas Health and Human Services)
- Real estate agents and brokers (Texas Real Estate Commission)
- Insurance agents (Texas Department of Insurance)
- Cosmetologists and barbers (Texas Department of Licensing and Regulation)
- Alcohol sales (Texas Alcoholic Beverage Commission)
Check the Texas Business Licenses and Permits portal at texas.gov for a searchable database by industry and location.
Local Permits
In addition to state licenses, most Texas cities and counties require:
- Certificate of Occupancy (for any physical business location)
- Home Occupation Permit (if operating from a residence)
- Sign Permit (for exterior business signage)
- Health Permit (for food-related businesses)
- Fire Inspection Certificate (for retail and restaurant locations)
Contact your city or county clerk’s office to confirm which local permits apply to your specific business type and location.
6. Comply with Texas Employment Laws
If you hire employees, additional legal requirements for small business in Texas kick in immediately.
Workers’ Compensation Insurance
Texas is the only state where workers’ compensation insurance is not mandatory for private employers. However, if you choose not to carry it (called being a “non-subscriber”), you lose common law defenses if an employee sues you for a work-related injury. Most general contractors require subcontractors to carry workers’ comp. Check your contracts before opting out.
Unemployment Insurance Tax
Any employer who pays wages of $1,500 or more in any calendar quarter, or employs at least one worker for at least 20 weeks per year, must register with the Texas Workforce Commission (TWC) and pay state unemployment (SUTA) taxes.
Register through the TWC’s Unemployment Tax Services portal.
New Hire Reporting
Texas employers must report all new hires and rehires to the Texas New Hire Reporting Program within 20 days of the hire date. This feeds into the national child support enforcement database.
Required Workplace Postings
Texas employers must display the following posters in a place where all employees can see them:
- Texas Payday Law notice
- Texas Unemployment Compensation Act notice
- OSHA Job Safety and Health notice (federal)
- Fair Labor Standards Act (minimum wage) notice (federal)
- Equal Employment Opportunity notice (if 15+ employees)
- Family and Medical Leave Act notice (if 50+ employees)
7. Open a Business Bank Account
While not a legal requirement in the strictest sense, mixing personal and business finances creates serious legal and tax problems. To open a business bank account you will typically need:
- EIN
- Business formation documents (Articles of Organization or Incorporation)
- DBA certificate (if applicable)
- Government-issued ID
Keeping finances separate protects your personal assets if your LLC or corporation is ever sued.
8. Understand Ongoing Compliance Requirements
Meeting the initial legal requirements for small business in Texas is only part of the obligation. Ongoing compliance includes:
Annual and ongoing tasks:
| Task | Deadline | Agency |
|---|---|---|
| Franchise Tax Report | May 15 each year | Texas Comptroller |
| Sales Tax Returns | Monthly, quarterly, or annual | Texas Comptroller |
| Payroll Tax Deposits | Per IRS schedule | IRS |
| SUTA Tax Returns | Quarterly | Texas Workforce Commission |
| Registered Agent Maintenance | Ongoing | Texas Secretary of State |
| Business License Renewals | Varies by license | Issuing agency |
Letting a business license or registered agent status lapse can result in your entity being forfeited by the state, which suspends your legal right to do business in Texas.
Frequently Asked Questions
Do I need a business license to operate in Texas?
Texas does not issue a single statewide general business license. However, many industries require specific state licenses, and most local governments require permits. Check the Texas.gov licensing portal and your city or county website to find what applies to your business type and location.
How much does it cost to start an LLC in Texas?
Filing a domestic LLC with the Texas Secretary of State costs $300. You may also pay county DBA filing fees ($14-25), registered agent fees if you hire one ($50-300 per year), and any industry-specific license fees. Total startup costs typically range from $350 to $700 before any professional services.
Is a registered agent required for an LLC in Texas?
Yes. Every Texas LLC and corporation must maintain a registered agent with a physical street address in Texas. The registered agent receives legal documents and official state notices on your behalf. You can serve as your own registered agent or hire a professional service, which typically costs $50-300 per year.
What taxes does a small business pay in Texas?
Texas small businesses pay federal income tax, self-employment tax (for sole proprietors and partners), sales tax on taxable goods and services, the Texas franchise tax (if revenue exceeds $2.47 million), and payroll taxes if they have employees. Texas has no personal or corporate income tax at the state level.
How do I register for sales tax in Texas?
Register for a Texas Sales and Use Tax Permit through the Texas Comptroller’s eTEXAS system at comptroller.texas.gov. Registration is free and takes about 15-20 minutes online. You must register before making your first taxable sale. Once registered, you receive your permit number and begin collecting and remitting sales tax per your assigned filing schedule.
Do sole proprietors need to register their business in Texas?
Sole proprietors do not file formation documents with the Texas Secretary of State. However, if you use a trade name other than your own legal name, you must file an Assumed Name Certificate with your county clerk. You still need an EIN if you have employees, a sales tax permit if you sell taxable goods, and any applicable industry licenses.
Conclusion
The legal requirements for small business in Texas cover entity registration, tax permits, industry licenses, and employment rules. Texas makes it relatively easy to get set up, but each step matters. Register your entity, get your EIN and tax permits, secure your licenses, and stay current on annual filings. Get these right from the start and you avoid costly penalties down the road.
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