Texas Business License Basics

Taking your idea and turning it into a legal Texas business involves registering with several different agencies. Understanding which documents to file and which agencies to work with can be challenging, but this guide outlines the Texas business registration process in easy-to-follow steps. We’ll explain everything from selecting your company’s legal structure to securing the required licenses, helping you quickly complete the paperwork so you can focus on launching your business.

Related: Starting A Business In Texas Checklist

Step 1: Business Structure

The first step to registering a business in Texas is to select a business structure (also called a business entity). A business structure refers to how a business is legally organized, and understanding the different options is important, as the choice plays a role in tax implications, the extent of personal liability, and other factors that influence a business’s operations.

There are four common types of business structures: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC), each of which is explained further below.

Related: Comparison of Business Structures

Sole proprietorship: This is the simplest form of business structure, where the individual and business are legally considered the same. As a result, the owner has unlimited personal liability for the business’s debts and obligations.

Pros

• Easy and inexpensive to establish
• Complete control over business decisions
• Minimal regulatory requirements

Cons

• Unlimited personal liability for business debts
• Difficulty raising capital (can’t sell shares of the business)
• Lack of continuity in case the owner becomes incapacitated or dies

Related: How to Start a Sole Proprietorship in Texas

General partnership: This type of structure involves two or more individuals who share the ownership, management, profits, and liabilities of a business.

Pros

• Relatively easy and inexpensive to establish
• Shared decision-making and management responsibilities
• Potential for increased capital and resources

Cons

• Unlimited personal liability for each partner
• Potential for conflicts between partners
• Lack of continuity if a partner leaves or dies

Corporation: A corporation is a separate legal structure that is owned by shareholders (owners). This structure provides limited liability protection to its owners, meaning their personal assets are separate from the business’s debts and obligations.

Pros

• Limited liability protection for shareholders
• Ability to raise capital through the sale of stock
• Continuity in case of ownership changes

Cons

• More complex and expensive to establish and maintain
• Potential for double taxation (profits taxed at the corporate level and dividends taxed at the shareholder level)
• Increased administrative requirements and record-keeping

Related: How to Form a Texas Corporation

Limited Liability Company (LLC): An LLC is a hybrid business structure that combines the limited liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership.

Pros

• Limited liability protection for members (owners)
• Greatest flexibility in how the business is taxed

Cons

• It is more complex and costly to establish compared to a sole proprietorship or partnership, though less than a corporation.

Related: How to Form a Texas LLC

Step 2: Business Name

After deciding on a business structure, the next step for many Texas entrepreneurs is selecting a business name.

Sole proprietors and general partnerships typically register a business name. If the owner(s) of one of these entities will operate under a name other than their full name(s), they will need to register for a Texas Assumed Name (also known as a Doing Business As or DBA) with the County Clerk’s Office in the county where the business is located.

For example, if John Rodriguez wants to start a barbecue truck and plans to operate it using his full name, “John Rodriguez,” he doesn’t need to register a name. However, if he wants to operate under “Lone Star BBQ,” he’ll need to file an Assumed Name Certificate, also known as a DBA (Doing Business As).

A corporation or Limited Liability Company won’t typically register for an Assumed Name since a unique entity name is created during the entity formation process. However, some will want to register an additional name, typically if they have another business or brand name they want to operate under the umbrella of their business structure.

Before filing the formation documents, a Texas business name search should be completed on the Texas Comptroller of Public Accounts website to verify their name isn’t being used.

Step 3: Federal Employer Identification Number 

The next stage for many Texas businesses involves obtaining a Federal Employer Identification Number (FEIN), also known as an EIN. This unique nine-digit number, issued by the Internal Revenue Service (IRS), serves as a business identifier for tax purposes.

An EIN is necessary for businesses that:

• Employ workers
• Operate as corporations, partnerships, or multi-member LLCs

While sole proprietorships and single-member LLCs without employees can use the owner’s Social Security number for tax reporting, many choose to obtain an EIN to help protect the owner’s personal information by reducing the need to share their Social Security number on business documents.

Acquiring an EIN is straightforward and free. The most efficient method is to apply online through the IRS website, which typically takes a few minutes to complete. For those who prefer alternative methods, applications can be submitted by mail or fax using Form SS-4, though these options generally require more time for processing.

How to Apply for a FEIN

Step 4: Professional & Industry Licensing

Professional licensing is an important consideration for many Texas businesses, as several professions require licensing before offering these services in the state. The Texas Department of Licensing and Regulation (TDLR) oversees a wide range of professions and industries, while other specific boards handle certain fields.

Some professions requiring licenses in Texas include:

• Accountants – Texas State Board of Public Accountancy
• Architects – Texas Board of Architectural Examiners
• Attorneys – State Bar of Texas
• Engineers – Texas Board of Professional Engineers and Land Surveyors
• Real Estate Agents – Texas Real Estate Commission
• Nurses – Texas Board of Nursing
• Therapists – Texas State Board of Examiners of Professional Counselors
• Cosmetologists – Texas Department of Licensing and Regulation

In addition to professional licensing, there are some industry-specific licenses. A few of these include:

• Automotive repair shops – Texas Department of Licensing and Regulation
• Food establishments – Texas Department of State Health Services
• Childcare facilities – Texas Health and Human Services Commission
• Insurance agents – Texas Department of Insurance

Each licensing board has its own set of requirements, fees, and renewal processes. It’s advisable to check with the relevant licensing authority for the most up-to-date information regarding your specific profession or industry.

Step 5: Sales Tax Permit

Texas requires businesses that sell or lease tangible personal property or provide taxable services to obtain a Sales Tax Permit. This permit allows businesses to collect sales tax from customers and remit it to the state.

Who needs to register:

• Retailers of tangible goods
• Service providers offering taxable services
• Businesses leasing tangible personal property
• Online sellers with nexus in Texas
• Out-of-state sellers meeting certain economic thresholds in Texas

Businesses must register with the Texas Comptroller of Public Accounts to obtain a Texas Sales Tax Permit. Registration can be completed online through the Comptroller’s website or by submitting a paper application.

Step 6: Resale Certificate

A Texas Resale Certificate enables businesses to purchase items for resale without paying sales tax at the time of purchase. Instead, the business collects sales tax from the end customer when the item is sold.

Who will want one:

• Retailers purchasing inventory for resale
• Wholesalers buying goods to sell to other businesses
• Manufacturers acquiring components for products they will sell
• Service providers purchasing materials that become part of a taxable service
• Online sellers sourcing products to resell on e-commerce platforms

To obtain a resale certificate, businesses must first have a valid Texas Sales Tax Permit. The certificate can be acquired through the Texas Comptroller’s office online or by submitting a paper form.

Step 7: Local Business Licenses

While Texas does not require a state-wide general business license, many cities and towns have their own local licensing requirements. Here are some common types of local business licenses in Texas:

• General Business License: Some Texas cities require a general business license for all businesses within city limits. This license ensures businesses comply with local regulations. For example, the City of Garland requires a Certificate of Occupancy issued by the Building Inspection Department for all businesses operating within the city.
• Contractor License: Many cities require specific licenses for contractors to ensure they meet local standards and regulations. For example, the City of Austin requires various contractor registrations through its Development Services Department, depending on the type of contracting work.
• Food-based Business License: Businesses handling food typically require special licenses to ensure public health and safety. For example, the City of Dallas requires a Food Establishment Permit, issued by the Department of Code Compliance, for restaurants and other food service businesses.
• Specific Industry Licenses: Various cities may have unique licensing requirements for specific industries. For example, the City of El Paso requires a Second Hand Goods Dealer License issued by the Tax Office for businesses dealing in used merchandise.

Licensing requirements can vary significantly between cities in Texas. Be sure to check with your local city government or chamber of commerce for specific licensing requirements in your area.

Step 8: Local Building & Zoning Permits

Understanding local building and zoning regulations ensures that your business complies with local laws and is in a suitable location. Researching these aspects before finalizing any property purchase or lease agreement is advisable.

Texas municipalities typically have several types of permits and approvals that businesses may need:

Zoning Compliance: Zoning laws dictate where different types of businesses can operate within a city or county. Before setting up your business, verify that your intended location is zoned for your type of business activity. This applies to commercial spaces and, in some cases, home-based businesses.

Building Permits: If you plan to construct a new building or renovate an existing one, you’ll likely need building permits. These ensure that all construction work meets local safety and building codes.

Certificate of Occupancy: Many Texas cities require a Certificate of Occupancy before a business can begin operations in a building. This document certifies that the building is safe for occupancy and complies with all relevant codes and regulations.

Sign Permits: If you plan to install business signage, many municipalities require separate permits.

Home Occupation Permit: For those planning to run a business from home, some Texas cities require a specific permit for home-based businesses. For example, the City of San Antonio requires home-based businesses to obtain a Certificate of Occupancy from the Development Services Department.

These permits and approvals are typically handled by local government departments such as Planning and Development, Building Inspection, or Community Development. The specific department names and processes vary by municipality, so it’s best to check with your local city or county government for precise information.