TEXAS BUSINESS LAW BASICS: STARTING AND STRUCTURING YOUR BUSINESS

Starting a business in Texas requires a solid understanding of the state’s legal and regulatory framework. Texas is widely recognized for its business-friendly policies, offering several types of legal structures, such as sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Each structure carries unique implications for liability, taxation, and day-to-day operations, making it essential to choose the right one for your business goals. This makes understanding the Texas business law basics critical to minimizing risk and ensuring long-term success. 

This Texas business start-up guide provides a comprehensive overview of key legal considerations when forming and structuring a business in Texas, including entity selection, registration procedures, compliance requirements, and liability protection. By mastering these legal basics, business owners can build a strong foundation, maintain compliance, and position their ventures for sustainable growth in the dynamic Texas economy.

Choosing the Right Legal Structure for Your Business in Texas

Considering starting a business in Texas? Well, you should know that selecting a business structure in Texas profoundly affects liability, taxes, management, and compliance. Texas law distinguishes between non-filing entities (sole proprietorships, general partnerships) and filing entities (LLCs, corporations, partnerships with limited liability).

Sole Proprietorship & General Partnership

These require no registration with the Texas Secretary of State and are easy to establish. However, they offer no personal liability protection; owners risk their personal assets if the business is sued or incurs debts.

Limited Liability Company (LLC)

Most popular for SMEs in Texas, LLCs are formed via a Certificate of Formation filed with the Secretary of State (fee: $300). They provide limited liability, flexible management (member- or manager‑managed), and pass-through federal taxation, avoiding double taxation. Texas also permits Series LLCs, enabling the separation of assets and liabilities among business “series” under one umbrella.

Corporations (C‑Corp & S‑Corp)

Formed by filing a Certificate of Formation and governed by the Texas Business Organizations Code (BOC). They provide strong personal liability protection and perpetual existence, but C-corporations face double taxation unless they elect S-corp status through the IRS. A single individual in Texas can serve as president, secretary, director, and shareholder

Limited Partnerships (LP), Limited Liability Partnerships (LLP), and Limited Liability Limited Partnerships (LLLP)

LPs require general and limited partners and must register with the state. LLPs offer liability protection to general partners and also require state filing. LLLPs combine features of LPs and LLPs, providing liability safety to both general and limited partners .

Registering Your Business

Name Selection & Assumed Name (DBA)

• Check availability through the Texas Secretary of State’s online database to ensure your chosen name is unique and compliant.
• To operate under a different name, file an Assumed Name Certificate (DBA) with the Texas SOS (Form 503) and in the county where your business operates.

File Formation Documents

• LLCs, Corporations, LPs, LLPs, and LLLPs must file a Certificate of Formation with the Texas Secretary of State, either online via SOSDirect or by mail
• Out-of-state entities (“foreign”) must file an Application for Registration (e.g., Form 301 for corporations).

Appoint a Registered Agent

All filing entities must designate a registered agent with a physical Texas address, available during business hours for service of process.

Obtain EIN & Tax Registrations

• Apply for a Federal Employer Identification Number (EIN) via IRS Form SS-4; essential for hiring staff and opening bank accounts
• Register with the Texas Comptroller:
  • Sales & Use Tax Permit (required for goods/services sales),
  • Franchise Tax/Public Information Report
• Texas doesn’t require LLCs to file annual reports, but you may need to file a ‘No Tax Due’ report.

Licenses & Permits

Texas has no universal state business license, but it may require:

• Industry-specific licenses (professional, environmental, health/safety),
• City/county permits (zoning, occupancy),
• Food or alcohol permits, etc.

Open a Business Bank Account

Use your EIN and formation documents to open a separate business bank account, which is essential for liability protection and clear record-keeping.

Applying for Permits, Licenses, and Local Regulations

Identify Requirements

• Use the Texas Business Licenses & Permits Guide to find required licenses by industry.
• Check with city or county websites for local permits.

Gather Required Information

• Legal business name (or DBA),
• Employer Identification Number (EIN),
• Business address, ownership details, and business activity description.

Apply Online or In Person

• State Licenses: Use online portals such as
  • SOSDirect (business registration),
  • TDLR (professional licenses),
  • TABC (alcohol permits),
  • Comptroller eSystems (sales tax permit).
• Local Permits: Visit your city/county clerk or permitting office website.

Pay Applicable Fees

Fees vary by license and jurisdiction (some permits are free, others can cost hundreds or more).

Await Approval and Post Licenses

Processing times vary. Post approved licenses at your place of business if required.

Track Renewal Dates

Most licenses require annual or biennial renewal; mark deadlines to avoid penalties.

Business Contracts and Agreements Needed

Let’ look into the types and key clauses to remember when dealing with business contracts:

Operating Agreement (for LLCs)

You do not legally require an operating agreement or business contract in Texas in case you are running an LLC, but it’s strongly recommended. It:

• Establishes liability protection for single- and multi-member LLCs,
• Customizes default Texas rules (profit distribution, voting),
• Is often required by banks or investors to open accounts or extend credit.

Partnership & Shareholder Agreements

• Clearly define roles, capital contributions, profit/loss allocation, decision-making authority, and exit strategies.
• Critical in multi-member LLCs, general partnerships, or corporations to prevent disputes.

Employment & Independent Contractor Agreements

• Employment contracts outline duties, compensation, benefits, “at-will” terms, and termination procedures.
• Independent contractor agreements clarify contractor status for tax and legal purposes and set scope, payment, deadlines, and termination terms.

Non‑Compete & Confidentiality Agreements 

• Non-compete clauses in Texas must follow Article 15 of the Business & Commerce Code; enforceability requires reasonable scope, duration, and legitimate consideration.
• NDAs protect sensitive business information, trade secrets, and client data. They often include survival terms continuing post-contract.

Legal  Compliance & Tax Responsibilities for Texas Business Owners

Now, let’s learn the critical legal requirements for Texas businesses:

Franchise Tax

• All “taxable entities” (LLCs, corporations, LLPs, LPs, including series LLCs) must file a franchise tax report by May 15 annually.
• For 2024–2025, businesses with annual revenue of ≤ $2.47 million are exempt from paying franchise tax but still must file a Public Information Report (PIR) or an Ownership Information Report (OIR).
• Revenue above the threshold requires filing either an EZ Computation (if revenue ≤ $20 million) or the Long Form, along with PIR/OIR.

Sales & Use Tax

• Most businesses selling taxable goods or services must obtain a Sales & Use Tax Permit from the Texas Comptroller; the application is free.
• The state rate is 6.25%, and local jurisdictions can add up to 2%, totaling as high as 8.25%.

Federal Tax Obligations

• All businesses with employees, or those structured as partnerships, LLCs, or corporations, must secure an EIN from the IRS.
• Employment taxes and withholding obligations must also be fulfilled at the federal level.

Other Texas Taxes

• Property Taxes: Administered locally, businesses must declare taxable personal and real property to county appraisal districts.
• Industry-Specific Taxes: Certain sectors (e.g., utilities, oil and gas, lodging, fuel) have additional state tax obligations.

How MBB Supports New Texas Business Owners?

Looking for a business attorney near you in Texas? Mazurek, Belden & Burke, P.C. in San Antonio provides comprehensive legal support tailored for new Texas business owners. We assist with legal entity formation, guiding entrepreneurs through setting up LLCs, corporations, and partnership structures to ensure compliance with the Texas Business Organizations Code. MBB also drafts and negotiates critical business contracts, including NDAs, non-competes, employment agreements, and transactions for buying or selling assets. Our attorneys offer intellectual property protection, covering trademarks, copyrights, and trade secret safeguarding. With face-to-face accessibility at our San Antonio office, we deliver practical, cost-effective legal services designed to support startup growth and regulatory compliance. Contact us today to schedule a consultation and build your business with trusted legal support.