Start a Business in Texas

Texas has become one of the top formation states in the country, and the pull is not just talk. The headline advantage is that Texas levies no personal state income tax. For the pass-through entities most small businesses use — LLCs and partnerships — the profit lands on the owner's individual return, and in Texas that return carries no state income-tax line at all. Owners who relocate a company from a high-tax state often feel the difference immediately.

Where Texas differs from a lot of "easy" formation states is in its structure. Two separate agencies run the show. The Texas Secretary of State creates entities: you file your formation certificate with the SOS, most commonly through its online portal, SOSDirect, or by uploading documents through SOSUpload. Then, once the company exists, the Texas Comptroller of Public Accounts takes over the ongoing side — franchise tax and the annual information report that keeps you compliant. Nobody tells new owners this split up front, and it is the single most common source of confusion, so it is worth internalizing early: the SOS births the entity, the Comptroller keeps it alive.

The other thing that makes Texas attractive is scale. It is the second-largest state economy in the country, with deep concentrations of energy, technology, logistics, healthcare, and professional services, plus major metros in Houston, Dallas–Fort Worth, Austin, and San Antonio. A business that forms in Texas is planting itself in a market large enough that many companies grow for years without ever registering anywhere else. That breadth is exactly why the entity choice matters — the right structure for a one-person consultancy is not the right structure for an oil-and-gas partnership or a group of physicians opening a clinic together.

Texas recognizes five formation types under its Business Organizations Code. In plain terms, here is how they split apart and who tends to pick each.

LLC — the flexible default

A limited liability company is what most new Texas businesses form, and for good reason. It puts a liability wall between your personal assets and the company's debts, it is taxed as a pass-through by default so profits are reported once on the owners' returns, and it asks very little in the way of ongoing formality. It works for a single owner or a room full of them, for a service business or a warehouse operation. When you are not certain which structure you need, the Texas LLC is almost always the correct place to start — you can layer on different tax treatment later without tearing the company down.

Corporation — built to raise money and issue stock

A corporation exists to issue shares. It answers to a board of directors, runs through officers, and keeps the formalities — meetings, minutes, resolutions — that investors expect to see. That rigor is the point: venture capitalists, angel groups, and employee stock-option plans are all designed around corporate shares. If you intend to raise a priced round in the Texas startup scene, grant equity to your team, or eventually pursue an acquisition or public offering, the corporation is the vehicle purpose-built for it.

LP — active managers, passive backers

A limited partnership joins a general partner who runs the business and shoulders the liability with one or more limited partners who put in capital but stay out of daily control. In Texas this is a familiar shape for real-estate syndications, oil-and-gas ventures, investment funds, and family holding arrangements, where a small group manages and a larger group simply funds. The limited partners' exposure is generally capped at what they invested.

LLP — a shield for professional partners

A limited liability partnership is a general partnership with a liability shield bolted on, so one partner is not personally on the hook for another partner's negligence or malpractice. It is the standard pick for licensed professionals practicing together in Texas — law firms, accounting practices, medical groups — who want to share an operation without sharing one another's individual liability. Texas treats the LLP registration a little differently from the other entities, which the compliance section below gets into.

Nonprofit — a mission with no owners

A nonprofit corporation has no shareholders and issues no stock. It is organized to advance a charitable, educational, religious, or civic purpose, and forming one with the Texas Secretary of State is the first move toward federal 501(c)(3) tax-exempt status from the IRS. Keep the two steps distinct in your head: Texas incorporation and IRS tax exemption are separate applications, and the nonprofit structure only handles the first.

You can usually narrow this down with a handful of honest questions about where the business is actually headed.

Will you raise venture capital or hand out stock options? If the answer is yes, form a corporation. Investor term sheets and option pools are written around corporate stock, and converting an LLC into a corporation after the fact costs more time and money than simply starting in the right form.

Are you a group of licensed professionals opening a practice together? An LLP gives each partner a shield against the others' liabilities while preserving the flexibility of a partnership — the reason it dominates among Texas law and accounting firms.

Do you have backers who want to fund the business but not run it? A limited partnership lets a general partner take the wheel and the liability while limited partners contribute capital and keep their exposure capped. It is the workhorse structure behind Texas real-estate and energy deals.

Are you building something mission-driven rather than profit-driven? A nonprofit corporation is the structure that opens the door to tax-exempt status, grant eligibility, and tax-deductible donations once the IRS approves your exemption.

Everything else, or still deciding? Form an LLC. It guards your personal assets, keeps tax and paperwork light, and fits the overwhelming majority of small and growing Texas businesses. Because an LLC can elect to be taxed as an S-corp or C-corp down the line, choosing it now rarely closes any doors.

The dollars-and-cents differences between these types come mostly from the state's filing fees, which vary by entity — a limited partnership, for instance, costs meaningfully more to register than an LLC. Each entity page on this site lists the current Texas filing fee next to our service price, so you can weigh the real numbers before committing.

Whichever entity you land on, the mechanics rhyme. None of the steps are hard once you know the order and which agency owns each one.

1. Clear your name. Your entity name has to be distinguishable from every other name already on file with the Secretary of State. You can run a name search through SOSDirect, and it is worth doing before you get attached to anything — Texas will reject a filing that is too close to an existing name. Each entity type also carries its own required designator, such as "LLC," "Inc.," "L.P.," or "LLP." If you plan to operate under a different public-facing name, that is a separate assumed-name (DBA) filing.

2. Appoint a registered agent. Texas requires every entity to name a registered agent with a physical Texas street address who is present during business hours to accept lawsuits and official state notices. The agent must consent to the role. You can serve as your own agent, but many owners use a commercial service to keep a home address off the public record and to make sure nothing time-sensitive slips through.

3. File your formation document with the Secretary of State. For an LLC this is the Certificate of Formation (Form 205); corporations, limited partnerships, and nonprofits each have their own certificate. You submit it to the Texas Secretary of State — typically through SOSDirect — and pay the state fee. The entity legally exists the moment the SOS accepts the filing. Standard processing runs a couple of weeks; Texas offers expedited handling for an added per-document fee if you are in a hurry.

4. Get an EIN from the IRS. An Employer Identification Number is your business's federal tax ID. The IRS issues it at no charge, and you need it to open a bank account, hire employees, and file taxes. Anyone charging you a fee to "obtain" one is billing for something the federal government hands out for free.

5. Set up governance and stay on top of Texas compliance. Depending on the entity, that means an operating agreement (called a company agreement in Texas), corporate bylaws, or a partnership agreement. Then comes the part that trips people up: the ongoing state requirement lives with the Comptroller, not the Secretary of State. Nearly every Texas entity must file an annual franchise tax report and Public Information Report with the Texas Comptroller of Public Accounts, due May 15 each year. Many small businesses fall under the state's no-tax-due threshold and owe nothing, but the report itself is still mandatory, and missing it can put your entity's right to do business at risk. Two exceptions are worth flagging: Texas LLPs also file an annual report with the Secretary of State, and Texas nonprofits file a periodic report with the SOS when the state requests one rather than every year. Whatever your structure, put the Comptroller's deadline on the calendar — it is the recurring obligation every Texas owner should track.