zenbusiness

How to Start, Run, and Grow a Business in Texas

by Team ZenBusiness

- July 26, 2018 8:38 pm

You’ve been working hard. You came up with an idea, decided to start your own business, and now you’re ready for the next step.

The only thing standing in the way of you and your new LLC is the administrative work to set it up. Unfortunately, it’s a bit complicated—there’s complex paperwork, confusing acronyms, legal procedures, and endless decisions to be made.

But don’t worry, we’ve got your back. Below we’ve outlined how to start, run, and grow your business in the state of Texas.

    1. Choose a name for your new business.


By now you either live in the state of Texas, or Texas is the soon-to-be home of you and/or your new business. You’ve chosen wisely because ZenBusiness chose to make it home, too! Now that you’ve committed to starting a new business, the next step is selecting a name.

Some tips to keep in mind during the selection process:

  • Try to think of a name that hasn’t been used before.
  • When submitting your proposed name with the Texas Secretary of State, keep in mind name checks are phonetic and based on the first two words.
    • Example 1: If an existing company is named “Sweet Treats” and your requested company name is “Saweet Treets,” it will be rejected.
    • Example 2: If an existing company is named “Sweet Treats,” and your requested company name is “Sweet Treats 2,” it will also be rejected.
  • Here are a few links to check out as you’re choosing a name:
    • Make sure the name of your business isn’t violating Texas state law.
    • Check whether the name you selected is already in use by another business.
    • Visit the Texas Secretary of State FAQ page.

    2. Understand your entity type.


LLCs have a lot of benefits. In fact, 90% of ZenBusiness customers choose LLCs over corporations. This is because LLCs offer limited liability protection, flexibility in taxation and management, and minimal record keeping.

  • Limited Liability Company (LLC): A Limited Liability Company (LLC) is a legal entity that provides limited liability protection, meaning owners are protected from the LLC’s debts and claims should something happen to the company.
    •  LLCs are “pass-through entities.”
      • Unlike Corporations, LLCs are not their own tax entities.
      • Profits or losses can therefore be passed through to your personal income without facing corporate taxes.
      • You can report your LLC’s profits or losses on your individual income tax return.
      •  Owners of the LLC are considered self-employed and are subject to self-employment tax.
    •  LLCs are an American entity type only.
  •  Corporation: A corporation is a legal entity separate from the people who form and own it.
    •  As a separate entity, the corporation itself pays taxes and can be held liable for its actions.
      • This separation shields owners from personal liability.
      • It also allows corporations to pay taxes solely on profits they receive in the form of salaries, bonuses, and dividends.
    • Corporations require extensive record keeping, operational processes, and reporting.
    • Corporations are internationally recognized entities.

    3. Get a Registered Agent.


Name, check. Entity type, check. Now it’s time for a Registered Agent.

Registered Agents act as the direct contact between your company and various government offices. The state of Texas requires LLCs to designate a Registered Agent when they form or register their business. For more about Registered Agents and how they function, take a look at our Registered Agent Service.

Once you’ve selected your Registered Agent, you can start the official formation process.

    4. Register your LLC with the Texas Secretary of State.


Certificate of Formation

When “incorporating” (legal jargon for creating/forming/registering) your LLC in Texas, the official filing document is called a Certificate of Formation. Here are the sections you’ll see when filling out your Certificate of Formation:

  • Article 1: List your business name and business type (LLC, corporation, etc.).
  • Article 2: List the name and address of your Registered Agent.
    • Physical addresses only (no P.O. boxes)!
  • Article 3: List your governing authority(s).
    • Governing authorities can be LLC members or appointed managers.
  • Article 4: Explain your LLC’s purpose.
    • This section is optional. However if you want to go into further detail about your business and its goals, this is the section for you.
  • Organizer: This is the person who prepared and filed your Certificate of Formation.
    • This person does not have to be involved in your LLC. In fact, it’s often times the Registered Agent or a third party service like ZenBusiness.
  • Effectiveness of Filing: Choose when you want to launch your LLC as an official legal entity.
    • Option 1: When the formation document is filed/approved by the Secretary of State.
    • Option 2: A date within three months of the Secretary of State’s filing/approval.
    • Option 3: A date surrounding a specific event, but again within three months of the Secretary of State’s filing/approval.
      • Option 3 requires a bit of paperwork. You need to list the specific event, and you also need to file a Statement of Event or Fact with the Secretary of State once the event has occurred. Unfortunately, this Statement of Event or Fact cannot be done online.
      • Example: You want your formation to occur after your website, social media platforms, and other online branding elements are complete. If your branding and Statement of Event or Fact are complete within 90 days, then the Certificate of Formation will be submitted and made valid. If 90 days pass and your branding and Statement of Event or Fact are not done, then the Certificate of Formation will not be submitted and your business will not be formed.
  • Signature: Get your Organizer to sign and date the document.

Keep in mind Articles 1-4 can be altered by filing an amendment. The sections Organizer, Effectiveness of Filing, and Signature cannot be altered once submitted.

Name Acceptance/Rejection

Once your Certificate of Formation is submitted, the Texas Secretary of State will either accept or reject your business’s name. Should it be rejected, you will be required to submit a new name. All your other hard work will be saved, though.

If you choose to set up your business through ZenBusiness, we will collect three alternate name options during the sign-up process. This helps speed up the process should your first selection be rejected.

Processing

Is your formation urgent? Do you have time to kill? If you partner with ZenBusiness, we offer three different processing speeds for your Certificate of Formation.

  • Normal: 2-3 weeks
  • Expedited: 6-8 days
  • Rush: 3-5 days

Confirmation

The state will review and approve the formation of your new LLC in days or weeks, depending on the processing speed you selected. This official formation confirmation is often referred to as your “filing evidence.”

    5. Get an Employer Identification Number (EIN).


An Employer Identification Number (EIN), or a Taxpayer Identification Number, is a nine-digit code assigned to your company by the IRS. An EIN is required if you want to open a business bank account, hire employees, or limit your liability. It also serves the important purpose of keeping your business and personal transactions separate.

More on the importance of an EIN:

  • Banking and Financing: Banks and credit unions require an EIN to open a bank account. It’s also helpful when trying to obtain financing for your business.
  • Financial Separation: An EIN allows the IRS, banks, credit card companies, and other entities to track your business and personal finances separately.
  • Limited Liability: An EIN establishes your business as a separate entity, which preserves limited liability should your company ever be sued.
  • Reduces Identity Theft: An EIN prevents you from having to give your SSN to suppliers, lenders, and others, which significantly reduces your chances of identity theft.
  • Employees: You need an EIN if you are hiring employees or offering retirement plans. EINs are what the IRS uses for payroll tax remittances and federal taxes on 401(k) plans.

    6. Open a bank account for your business.


It’s important to keep personal and business funds separate. This separation protects you, and it protects your LLC. It also keeps your business finances organized, easy to track, and easy to review. In order to open a bank account, you’ll need an EIN, as well as your Certificate of Formation (also known as filing evidence).

ZenBusiness has a bank account product in Beta. If you’d like to get on the list, shoot us an email us at feedback@zenbusiness.com.

    7. Get a business license and check for permit requirements.


Business licenses and permits are mandatory to keep your business operations legal. All businesses need some kind of license, permit, or tax registration at the local, county, state, and/or federal level(s). Requirements vary based on your business’s location, industry, and activity.

Our partners at Business Licenses, LLC make the process easy by delivering a report that lists the licenses and permits needed for your company to operate.

    8. Draft an operating agreement for your LLC.


Operating agreements describe and set important guidelines for your business.

  • Growth: Articulate the guidelines and purpose of your LLC to prepare for future growth.
  • Ownership: In case ownership changes, it is important to document a succession plan or outline a voting system.
  • Protection: Implement regulations so owners and their personal assets are protected from the LLC.
  • Funding: Outline legal and financial details like decision-making authority and how funds ought to be used. This will help when interacting with potential investors or lenders.
  • Default: Without an operating agreement, some of the rules and guidelines that govern your LLC will default to the standard rules set by the state.

    9. Understand your ongoing and annual requirements.


It’s important to ensure your LLC remains in good standing with the state at all times. If you miss a filing deadline, you run the risk of increased liability, costly fees and penalties, and/or poor standing with the state. This isn’t to be taken lightly—the state could actually revoke your right to conduct business.

Below we’ve listed a few good standing requirements for Texas LLCs.

  • LLCs: Though it is required in most states, Texas does not require LLCs to file annual reports. Rather, Texas LLCs file Annual Tax Franchise Reports with the Texas Comptroller of Public Accounts (CPA).
    • Franchise tax is an annual privilege tax required by all (taxable) entities doing business in the state of Texas. It is calculated as a percentage of the business’s net income each year.
    • The deadline for the Annual Tax Franchise Report is May 15.
    • Late submissions are penalized $50.

    10. Get started.


At ZenBusiness, we’re changing the way people create businesses. As you may have discovered, some services promise an easy solution but saddle you with upcharges, delays, and hidden fees. Not us.

We’ve made it fast, frictionless, and, inexpensive, with no hidden costs or bureaucratic red tape. We use technology and automation to keep costs down and then pass those savings on to you.

At ZenBusiness, we’re revolutionizing how people start companies. That’s why we’ve set a goal to launch 1 million U.S. businesses over the next five years. Here are a few things we can offer you, as your business becomes reality.

  • Business Filing
  • EIN: ($70) Avoid the hassle of getting an EIN by letting the ZenBusiness team secure your number with the IRS and deliver your final paperwork.
  • Registered Agent Service: ($110/year) ZenBusiness will appoint a Registered Agent on your behalf that will meet all state requirements.
  • Worry Free Guarantee: ($110/year) We will take care of all of your reporting and stay on top of deadlines so you know you’re in compliance 100% of the time.
  • Annual Reports: ($75) We can help you if this is your first timing filing or your 101st time filing.
  • Business License Reports: ($95) Our partners at Business Licenses, LLC make the process easy by delivering a report that lists the licenses and permits needed for your company to operate.
  • Name Reservation: ($50) This service prevents others from registering your name and ensures it will be available when you’re ready to start your business.
  • New York Publication: ($200) All newly created New York LLCs are required to publish an announcement of their formation in two local newspapers for six consecutive weeks. We can do this for you*.

*Pricing is valid for August 2018 only. Pricing is subject to change.

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