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How To Start A Texas Sole Proprietorship

How To Start A Texas Sole Proprietorship

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How To Start A Texas Sole Proprietorship

Starting your first business is a big step, and one of the first things you need to do is decide on your business structure. In simple terms, a business structure refers to the legal framework and entity that houses a business, which shapes your legal responsibilities, such as paperwork, taxes, and personal liability.

In Texas, many people choose a sole proprietorship, but is it the right structure for you? To help you decide, we’ll cover what a sole proprietorship is, its pros and cons, and a step-by-step guide on getting registered.

Related: How to start a business in Texas

What is a sole proprietorship?

A sole proprietorship is the simplest and most common business structure. Legally, there is no distinction between you and your business – you are one and the same. This means no formal registration is required to form and operate a sole proprietorship in Texas. You can get started right away under your own personal name. While the sole proprietorship is popular, there are other business structures worth knowing:

  • General partnership: Much like a sole proprietorship, but involves two or more individuals who agree to share in the profits and liabilities of a business.
  • Corporation: A more complex structure, offering liability protection, but there are more administrative requirements to follow.
  • LLC (Limited Liability Company): Offers liability protection like a corporation but with the flexibility of a sole proprietorship.

Related: Business Structure Overview

Sole Proprietorship Advantages

Starting as a sole proprietor in Texas has several benefits:

  • Ease of setup: The simplest way to start a business. No formal registration or formation documents are needed. You can start right away.
  • Lowest startup costs: It’s the most budget-friendly option, with minimal expenses to get off the ground.
  • Tax simplicity: As a sole proprietor, you don’t need to file separate business tax returns. You report your business income and expenses on your personal tax return, simplifying the tax process.

Sole Proprietorship Disadvantages

However, there are some downsides:

  • Unlimited personal liability: Your personal assets, like your home and car, could be at risk if your business is sued.
  • Less business continuity: If you stop running the business or pass away, the business ends too. This can affect ongoing contracts or business relationships.
  • Potential tax disadvantages: You might face higher taxes since you’ll pay income and self-employment taxes on your profits.

In summary, while a sole proprietorship is easy to start and manage, it comes with the risk of personal liability. If liability protection is a priority, consider forming an LLC in Texas.

Related: How to form a Texas LLC

Steps to Start a Sole Proprietorship in Texas

Starting a sole proprietorship in Texas only requires a few steps to make sure the business is properly set up and legally compliant. Here are the steps to get your proprietorship up and running.

Step 1: Come Up with a Business Name

In Texas, as a sole proprietor, you can operate your business under your full first and last name. If you prefer to use a specific business name, it needs to be registered. For example, let’s say Jane Smith wants to start a catering service. She wants to operate under the business name “Lone Star Cuisine.” Since this isn’t her full name, she’ll need to register “Lone Star Cuisine” as her Doing Business As (DBA) name.

Step 2: Verify Name Availability

Conduct a name search in each county where you’ll operate to ensure the name you want to use isn’t already taken. No other business can have the same name in the county where you’re filing.

Step 3: File the Assumed Business Name Form

If you’re using a specific business name, you must register it with the County Clerk’s office in the county where your business is located. You can find the Assumed Business Name Certificate forms on most County Clerks’ websites or in their offices.

Related: How to register a Texas assumed business name

Registering a DBA doesn’t prevent others from using the name. To protect it, apply for a trademark through the U.S. Patent and Trademark Office.

Step 4: Research Business License Requirements

Business licensing is often necessary, regardless of your business structure. The requirements vary based on your business activities and location.

  • Local business license: Texas doesn’t have a statewide business license, but local licenses may be required. Check with city officials or the economic development office for specific requirements.
  • Sales tax permit: If your business involves selling or leasing tangible personal property or taxable services, you’ll need a Texas Sales Tax Permit from the Texas Comptroller.
  • Professional license: Certain professions in Texas require a license. This includes therapists, tattoo studios, salvage brokers, and food establishments, among others.
  • Employer Identification Number (EIN): While sole proprietors generally use their Social Security Number for tax purposes, an EIN from the Internal Revenue Service (IRS) is required if you hire employees. Some banks also require an EIN to open a business account.

Wrapping Up

Deciding on the right business structure can feel overwhelming during the initial startup stages. While simplicity and cost-effectiveness make a sole proprietorship appealing, keep in mind it also comes with its own set of risks and limitations.

We’d love to hear from you in the comments. Which business entity are you considering, and why? Also, let us know what other questions you still have!

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

How To Start A Texas Sole Proprietorship

How To Start A Texas Sole Proprietorship

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