Last updated: February 23, 2026
Texas is the second-largest state by both population and GDP, and it consistently ranks among the top states for new business formations. The business climate is favorable — no state personal income tax, a large and diverse consumer market, and a regulatory environment designed to attract entrepreneurs. Texas uses a franchise tax instead of a traditional corporate income tax, and most small businesses fall below the no-tax-due threshold entirely.
This guide walks you through every step to legally start a business in Texas, from choosing your structure to getting the licenses and tax registrations you need. We’ve compiled requirements from the Texas Secretary of State, the Texas Comptroller of Public Accounts, the Texas Workforce Commission, and local agencies so you don’t have to piece it together yourself.
How to Start a Business in Texas (Step by Step)
Step 1: Choose Your Business Structure
Your business structure determines your personal liability, tax treatment, and paperwork requirements. The most common options in Texas:
- Sole Proprietorship — Simplest to start, but you’re personally liable for all debts. No state filing required (just an assumed name certificate if using a DBA).
- LLC (Limited Liability Company) — Most popular choice. Protects personal assets, flexible tax treatment, and relatively simple to maintain. The majority of new entity formations in Texas are LLCs.
- Corporation (S-Corp or C-Corp) — More formal structure with shareholders, directors, and officers. Better for businesses seeking investors or planning to go public.
- Partnership — For businesses with two or more owners. Can be a general partnership (GP), limited partnership (LP), or limited liability partnership (LLP).
For most small businesses, an LLC is the right choice. It gives you liability protection without the complexity of a corporation.
Step 2: Register Your Business with the State
LLC Formation via Texas Secretary of State
Texas business entities are registered through the Texas Secretary of State at sos.texas.gov. Online filings are handled through SOSDirect.
| Item | Cost |
|---|---|
| Certificate of Formation filing fee | $300.00 |
| Total to form a Texas LLC | $300.00 |
| Franchise Tax Report (due May 15 annually) | No tax due if revenue < $2.65M |
| Public Information Report (PIR) | Filed with franchise tax (no separate fee) |
How to file:
- Go to SOSDirect and select “Formation/Registration”
- Choose a business name that includes “LLC,” “L.L.C.,” or “Limited Liability Company” — it must be distinguishable from existing entity names on file
- Designate a Texas Registered Agent with a physical street address in Texas (P.O. boxes are not accepted)
- Pay by credit card — online filings are typically processed within 2-3 business days
- You’ll receive email confirmation and can download your filed document from SOSDirect
Assumed Name (DBA): If you plan to operate under a name different from your LLC’s legal name, you’ll need to file an Assumed Name Certificate. LLCs file Form 503 with the Secretary of State ($25) and should also file with the county clerk in each county where you do business.
Federal EIN (Employer Identification Number)
After forming your LLC, apply for a free EIN from the IRS at IRS.gov. You’ll receive it immediately when applying online. You need an EIN to open a business bank account, hire employees, and file taxes.
Important: Register your LLC with the state before applying for an EIN, since the IRS application requires your legal entity name.
Step 3: Get Required Licenses & Permits
No Statewide General Business License
Texas does not have a single statewide business license. Instead, licensing requirements depend on your industry and location:
- Industry-specific licenses: Many professions require licensing from agencies like the Texas Department of Licensing and Regulation (TDLR), the Texas Department of State Health Services (DSHS), or industry-specific boards
- Local permits: Cities and counties may require their own business permits or licenses — check with your city’s business licensing department
- Home occupation permits: If operating from home, many Texas cities require a home occupation permit
Use the Texas Governor’s Office business resources to find industry-specific licensing requirements for your business type.
Step 4: Register for State Taxes
Texas Sales Tax
If your business sells taxable goods or services, you must get a Texas Sales and Use Tax Permit before beginning operations.
- State sales tax rate: 6.25%
- Local sales tax: Up to an additional 2% (city, county, transit, special purpose districts)
- Combined maximum rate: 8.25%
- Registration: Free online at the Texas Comptroller of Public Accounts
After registration, you’ll receive your sales tax permit. It must be displayed at your business location. Sales tax returns are filed monthly, quarterly, or annually depending on your volume.
Texas Franchise Tax
Texas has no personal income tax, but it does impose a franchise tax (also called the “margin tax”) on most business entities. Here’s what you need to know:
- No tax due threshold (2026): If your annualized total revenue is at or below $2.65 million, you owe no franchise tax — but you still must file a Public Information Report (PIR)
- EZ computation rate: 0.331% of revenue (available if revenue is $20 million or less)
- Standard rates: 0.375% (wholesale/retail) or 0.75% (all other businesses)
- Due date: May 15 each year
- First filing: Due the year after your LLC is formed
For most small businesses, the franchise tax won’t apply — the $2.65 million no-tax-due threshold covers the vast majority of new businesses. You still must file the PIR to keep your entity in good standing.
Texas Unemployment Tax (If Hiring Employees)
If you plan to hire employees, you must register with the Texas Workforce Commission (TWC) for unemployment tax.
- New employer rate: 2.7%
- Experience-rated range (2026): 0.32%–6.32%
- Taxable wage base: $9,000 per employee per year
- Register online at TWC Unemployment Tax
Report new hires to the Texas New Hire Reporting Center within 20 days of hire.
Step 5: Get Business Insurance
Insurance requirements depend on your business type and whether you have employees:
Workers’ Compensation
Texas is one of the few states where workers’ compensation insurance is not mandatory for most private employers. Employers who choose not to carry it are called “non-subscribers.”
| Status | Requirement |
|---|---|
| Private employers (most industries) | Optional — but non-subscribers must file DWC Form 005 with TDI |
| Government contractors | Required for building/construction contracts with government entities |
| Non-subscribers | Must notify employees in writing and post notice at the workplace |
Important: While not legally required, carrying workers’ comp is strongly recommended. Non-subscribers lose key legal defenses in employee injury lawsuits (contributory negligence, fellow employee negligence, assumption of risk). The Texas Department of Insurance, Division of Workers’ Compensation oversees the program.
General Liability Insurance
While not always legally mandated, general liability insurance is practically essential for most businesses. It protects against claims of bodily injury, property damage, and advertising injury. Many clients, landlords, and government contracts require proof of coverage.
Texas Business Guides by Industry
Every industry has different licensing, permit, and insurance requirements. Choose your business type for a detailed breakdown of everything you need in Texas:
- How to Start a Cleaning Service in Texas — Permits, insurance, sales tax rules, and cost breakdown
- How to Start a Food Truck in Texas — Health permits, mobile food vendor requirements, fire safety, and commissary rules
- How to Start a Daycare in Texas — HHS licensing, background checks, training, and facility requirements
- How to Start an HVAC Business in Texas — TDLR license, EPA certification, insurance, and bonding
- How to Start a Hair Salon in Texas — TDLR salon license, cosmetology requirements, and sanitation rules
- How to Start a Landscaping Business in Texas — TDA pesticide licensing, irrigation licensing, and workers comp
- How to Start a Private Investigation Business in Texas — DPS licensing, experience requirements, insurance, and bonding
Texas Business Resources & Official Links
| Resource | What It’s For |
|---|---|
| Texas Secretary of State | LLC/Corp formation, assumed names, entity search |
| SOSDirect (Online Filing) | File Certificate of Formation and other documents online |
| Texas Comptroller of Public Accounts | Sales tax permits, franchise tax, tax registration |
| TX Comptroller Tax Registration | Register for sales tax permit (free) |
| Texas Workforce Commission | Unemployment tax, employer registration |
| TX Dept. of Licensing and Regulation (TDLR) | Professional licensing (HVAC, cosmetology, and more) |
| TDI Division of Workers’ Compensation | Workers’ comp requirements, non-subscriber filings |
| IRS EIN Application | Free federal tax ID number |
| TX New Hire Reporting | Report new employees within 20 days |
Frequently Asked Questions
How much does it cost to start an LLC in Texas?
The filing fee for a Certificate of Formation with the Texas Secretary of State is $300. After formation, most small businesses owe no franchise tax (the no-tax-due threshold is $2.65 million in annual revenue), but you must still file a Public Information Report each year by May 15.
Does Texas require a general business license?
Texas does not have a single statewide business license. Licensing requirements depend on your industry (regulated professions need licenses from agencies like TDLR or DSHS) and your location (many cities and counties require local business permits).
Does Texas have a state income tax?
No. Texas has no state personal income tax. Instead, the state imposes a franchise tax (margin tax) on business entities. However, businesses with annualized revenue below $2.65 million owe no franchise tax — they only need to file the required report.
Do I need to collect sales tax in Texas?
If you sell taxable goods or services, yes. Texas has a 6.25% state sales tax plus up to 2% in local taxes, for a maximum combined rate of 8.25%. You must get a sales tax permit from the Texas Comptroller before you begin collecting.
When is the Texas franchise tax report due?
The franchise tax report and Public Information Report are due by May 15 each year. New LLCs file their first report the year after formation. If you miss the deadline, penalties and interest apply, and the state can eventually forfeit your business entity’s right to transact business.
Is workers’ compensation insurance required in Texas?
For most private employers, no. Texas is one of the few states where workers’ comp is optional. However, employers who don’t carry it (“non-subscribers”) must file DWC Form 005 with the Texas Department of Insurance, notify employees in writing, and lose certain legal defenses in employee injury lawsuits. Workers’ comp is strongly recommended even though it’s not required.