A Hand on Approach to Starting a Business in Texas by Melvin Feller
A Hand on Approach to Starting a Business in Texas by Melvin Feller
Melvin Feller is currently pursuing another graduate degree in business organizations.
The Steps:
Determine Your Business Structure
Pick a Business Name
Request an Employee Identification Number
Acquire Business Licenses and Permits
Check on Your Business Employer Requirements
Sign Up for Business Banking
Texas’
support for small business, in particular, is evident in its low
business licensing fees, its lack of red tape, and an abundance of
relatively cheap real estate. Few states can boast a similar lack of
regulation that lets businesses be born almost as soon as they are
conceived, with only a small out-of-pocket investment.
First: Determine Your Business Structure
You
need to choose the type of legal, for-profit business entity you want
your business to be, which depends on a few factors. This includes what
kind of business you are starting, whether you’ll have employees and
your comfort with liability. Some structures are free to register;
others have a low fee and are subject to the state franchise tax.
Some of the most common choices include:
Sole proprietorship:
The most common and simplest form of business structure, a sole
proprietorship is perfect for one person who owns all the business
assets. This person is 100% liable for the business. Their sole
proprietorship assumes their name, unless they want to create a “DBA
certificate” to give it another name, to be filed in all counties where
business is conducted. These structures are not subject to the state
franchise tax.
General partnership:
Similar to a sole proprietorship, but it’s for two or more individuals.
It’s a separate business entity from those people, but creditors can
still hit up the partners’ personal assets to satisfy debts and
liabilities. They are not subject to state franchise tax.
Limited liability Company:
An LLC is created by filing a certificate of formation with the Texas
secretary of state. It is an unincorporated business entity with more
flexibility, providing owners with limited liability and pass-through
tax advantages. LLCs are subject to state franchise tax, and the
certification of formation for an LLC is $300. This should not be
confused with a limited liability partnership, which is a general
partnership registered with the secretary of state and, in Texas, costs
$200 for the certificate of formation per general partner.
For-profit corporation:
“Corporations are people, too.” It is true: Corporations are people
with limited liability, centralized management, perpetual duration, and
ease of ownership transferability.
Owners of corporations are
shareholders, and managers of the business are directors. For-profit
corporations must register with the Texas secretary of state, must pay a
filing fee for the certificate of formation of $300, and are subject to
a state franchise tax.
If
your business was formed in a state or entity other than Texas but you
want to “transact business” in the state, you need to file an
application for registration with the Texas secretary of State as a
foreign entity.
Second: Pick a Business Name
This
may sound obvious, but you need to choose a business name. If you open a
sole proprietorship, your name can be the business name — otherwise,
you need an Assumed Name (which comes via the DBA certificate). If
you’re struggling on how to come up with the right name, consider these
steps:
Do a Google Search
If
that business name sounds too good to be true, it may be. First, do a
preliminary search to find any conflicts with your Texas business name,
especially in your local area. Consider a name that is easy to pronounce
and spell as well as one that is very searchable.
Do a Trademark Search
Before
you pick a name, you will want to ensure it has not already been
trademarked. To start, sift through the trademarks already registered
with the U.S. Patent and Trademark Office. This database can show you
which names have already been registered along with the classification
of each one.
Check Texas’s Business Name Database
Once
you have picked a Google-able name and discovered it’s not trademarked,
check the Texas Department of State: Division of Corporations database.
This will ensure your business name is not the same (or too similar) to
another corporation registered in Texas.
Give your name a lot of thought: It is hard to change it up in the middle of your company’s lifespan.
Third: Request an Employee Identification Number
An
EIN, or business tax identification number, is the business equivalent
of a social security number and is used to track your business dealings.
It is useful for establishing business credit, opening business
checking accounts, and, if you have employees, filing their tax
withholdings. You can apply for your EIN with the IRS here.
An
EIN is free to obtain; you can also contract a third party like
LegalZoom to ensure you are 100% compliant with the law, including
getting your EIN for you.
In
addition to understanding your federal tax responsibilities, you also
need to research your state and local taxes. The Comptroller of Public
Accounts collects various state taxes and imposes and collects
franchises taxes, though most small businesses are exempt.
Business
inventory tax is assigned to businesses that own fixed assets, to be
paid to your local county appraisal district. You will want a quality
inventory and fixed asset management system to ensure you know exactly
how much you invested (and thus, what you will have to pay taxes on) in
your equipment and machinery, if applicable.
Fourth: Acquire Business Licenses and Permits
Texas
does not require companies to buy a “general business” license.
However, depending on the type of business you open, you might need a
specific license or permit. Check out the Texas Department of Licensing
and Regulation to see if your specific profession qualifies. If you’re
unsure of what you need, contact your local county or city government to
double check any additional requirements.
Varieties
of small fees are associated with obtaining various business filings
and trademarks, such as a change of registered agent or a limited
partnership periodic report. The full list can be found here — it works
as a good checklist when starting out.
Fifth: Check on Your Business Employer Requirements
This
is specific to the type of business you are starting in Texas,
including whether you have employees, but there are various labor,
safety, and tax obligations to satisfy, too, such as federal and state
mandates like the Americans with Disabilities Act, Equal Employment, and
safety, wage, and labor requirements. You might want to hire a tax or
business attorney to make sure you are following the law here.
You
have a few other economic hurdles to clear as you start up and begin
running your business in the state of Texas, particularly if you have
employees. Here are a few of the most important — but be sure to refer
to the full state handbook if you have further questions:
Business Insurance
Texas
does not require most private businesses to have workers’ compensation
insurance, though those that do obtain helpful legal protections, such
as immunity from lawsuits by injured employees. Those without workers’
comp must also file an annual notice with the Texas
Department of Insurance.
Commercial
property insurance, such as tenant coverage while renting or leasing a
building, that will insure your on-premises property, is highly
recommended.
Offering
health insurance isn’t a requirement for small employers in Texas, but
those that do offer it need to make it available to all employees
working 30 hours or more a week, year-round. Insurance companies usually
require 75% of eligible employees to participate in their health plan.
Note
that the Patient Protection and Affordable Care Act requires all small
employer group plans to cover essential health benefits like emergency
services and prescription drugs.
Texas Workforce Commission
The
Texas Workforce Commission (TWC) and 28 local workforce development
boards have teamed up to form Texas Workforce Solutions, to provide
support services and administering unemployment benefits and tax
programs. A few services to keep in mind:
Skills
for Small Business provides training funds for businesses with fewer
than 100 employees — $725 for full-time existing employees and double
that amount for full-time, new employees to aid in upgrading skills,
preparing new hires, and increasing competitiveness. Training is also
available at local colleges.
Skills
Development Funds are collaborative training programs customized to
specific business needs. Companies can apply for this fund grant and
customized curriculum.
The
Work Opportunity Tax Credit Program offers a tax credit reducing the
federal tax liability of employers if they hire someone from target
groups, such as SNAP recipients, ex-felons, veterans, and residents of
rural renewal counties.
Unemployment Tax
The
Texas Unemployment Compensation Act requires “liable employers” to pay
unemployment tax. Most of the business structures discussed above fall
under this category; non-liable employers include those who hire only
independent contractors rather than full-time employees, and those whose
employees are paid through a professional employer organization.
Once
wages are paid out, employers need to register with the TWC within 10
days of becoming liable for the state’s unemployment tax.
Third-Party Resources, Programs, and Lenders
You
do not have to go it alone in Texas. A number of state and federal
resources, such as the U.S. Small Business Administration, offer
business advice, low-interest loans, grants, and much more. Their
programs are geared toward helping veteran-owned businesses,
minority-owned businesses, and women-owned businesses, and they are
worth exploring if you qualify.
Sixth: Sign Up for Business Banking
If
you are a new business owner, it is a very good idea to separate your
personal and business banking accounts. First, sign up for a business
checking account. If you do not want to be saddled with hefty fees,
there are many free business-banking accounts out there. Before you
settle on a bank, consider how often you plan to make transactions and
how much a balance you can carry month to month.
Getting
a business credit card is also a great way to start building business
credit and provide a safety net if you need a bit of extra capital. If
you qualify, a 0% introductory rate can act as an interest-free loan
while you get up in running.
If
you are interested in starting a business in Texas, you are definitely
in luck: The barrier for entry is low and the number of resources at
your disposal is high.
It
may be really, hot down there in the summer, but that is a small price
to pay for getting your foot in the door of the small business world and
keeping it there.
Texas
appears to have a stake in helping you succeed — do not take that for
granted. It is hard enough to stay afloat in today’s economy, and a
state government that has your back is a benefit few should turn down.
Texas Startup Resources
- Texas Business Portal
- Texas Hospitality for Small Business Owners
- Texas Business Advisor
- Central Texas Lawyer Referral Service
- Texas Trademark FAQ
- Texas State Securities Board
- County-Specific Startup Resources
- US Small Business Administration
- Texas Economic Development Commission
- Texas Wide Open For Business Website
SMALL BUSINESS INCENTIVES
The
incentives in this section are a summary of the most commonly utilized
state offerings. The following programs and organizations provide
opportunities that can help small businesses get tools, training, and
procurement opportunities they need.
The
local incentives section summarizes offerings from the county and city
level. The following programs and organizations provide opportunities to
help small businesses prosper.
Texas
is committed to providing and facilitating funding for companies and
communities with expansion and relocation projects in the Lone Star
State. Asset-based loans for companies, leveraged loans to communities,
and tax-exempt bond financing are just a few means of obtaining the
capital necessary for a successful project.
Melvin Feller Business Consultants Group Business Ministries in Texas and Oklahoma.
Melvin Feller founded Melvin Feller Business Consultants Group
Ministries in the 1970s to help individuals and organizations achieve
their specific Victory. Victory as defined by the individual or
organization are achieving strategic objectives, exceeding goals,
getting results or desired outcomes. He has extensive experience
assisting businesses achieve top and bottom line results. He has broad
practical experience creating WINNERS in many organizations and
industries. He has hands-on experience in executive leadership,
operations, logistics, sales, program management, organizational
development, training, and customer service. He has coached teams to
achieve results in strategic planning, business development,
organizational design, sales, and customer response and business process
improvement. He has prepared and presented many workshops nationally
and internationally.
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