Legal Steps for Entrepreneurs Starting a Business in Texas
Starting a business in Texas is an exciting journey, but it can also be challenging, especially when it comes to dealing with legal considerations. As an entrepreneur, one of the first steps to take is making certain that your business operates within the framework of Texas business law.
At Laird Morgan, Lawyer, I’ve helped many Collin County, TX clients get their businesses off the ground, and I understand how overwhelming it can be to know where to begin. This article walks you through the key legal steps you should take when starting a business in Texas.
Choosing the Right Business Structure
The first decision you must make as an entrepreneur is what type of business entity to form. Texas business law provides several options, each with its advantages and disadvantages. Your choice will influence your taxes, liability, and other legal aspects of operating your business.
The most common business structures in Texas are:
Sole proprietorship: The simplest form of business where you, as the owner, are personally responsible for any debts or legal actions against your business. This option offers minimal legal protection.
Partnership: If you're starting a business with others, a partnership may be the right choice. You’ll share profits and liabilities with your partners, but it’s essential to create a partnership agreement outlining each person’s responsibilities and obligations.
Limited Liability Company (LLC): An LLC combines the flexibility of a partnership with the limited liability protection of a corporation. As an LLC owner, your personal assets are protected from business debts and lawsuits.
Corporation: A corporation is a more formal business structure. It offers strong protection against personal liability but requires strict compliance with Texas business law, including holding regular meetings and keeping accurate records.
Each business structure has specific legal implications, so it’s important to carefully consider which one aligns with your goals. If you’re unsure, I recommend consulting with a business law professional, like myself, who can help you make the best decision for your business.
Registering Your Business Name
In Texas, your business name is essential for establishing your brand and identity. Before you can legally operate, you’ll need to register your business name with the state.
If you’re forming an LLC or corporation, this process is part of the registration. However, if you're operating as a sole proprietor or partnership, you may need to file for a "Doing Business As" (DBA) name with the county clerk's office.
Texas business law requires that your business name not conflict with any existing trademarks or business names. It’s a good idea to conduct a name search through the Texas Secretary of State's website to check for availability.
Obtaining an Employer Identification Number (EIN)
Once you've chosen your business structure and named your business, the next step is to obtain an Employer Identification Number (EIN) from the IRS. This number serves as your business's federal tax ID and is used for tax reporting purposes. It is required for most businesses, including LLCs and corporations.
The process of obtaining an EIN is relatively simple and free. You can apply online through the IRS website, and I always advise clients to do this early to avoid delays. It’s a crucial step in Texas business law that allows you to open a business bank account, hire employees, and pay taxes.
Registering with the State of Texas
Depending on your business structure, you’ll need to file certain documents with the Texas Secretary of State. For example, if you’re starting an LLC or corporation, you’ll need to file Articles of Incorporation or Articles of Organization. These documents outline your business's purpose and other important details.
Along with registering your business with the Secretary of State, you may also need to register for state taxes. The Texas Comptroller’s office handles the collection of state sales tax, franchise tax, and other business-related taxes.
Your registration will depend on the type of business you're starting. For example, if you’re selling goods or services, you’ll need to register for a sales tax permit. If you’re hiring employees, you’ll need to register for unemployment insurance taxes.
Complying with Local Regulations
While state-level registration is important, local regulations are equally significant. Depending on where your business is located in Texas, you may need to apply for certain local permits or licenses. These can include zoning permits, health department permits, and professional licenses.
It's essential to research and understand the local business laws in your area. Each city or county in Texas has its own requirements, so it's important to check with your local government to make sure you're complying with all regulations. As an experienced Texas business lawyer, I often assist clients in making certain that they meet all local legal obligations.
Employment Laws
As your business grows and you hire employees, it’s important to understand Texas business law as it relates to employment. Texas is an “at-will” state, which means that employers can terminate employees at any time, for any reason, as long as the reason isn’t discriminatory or illegal.
However, there are still various employment laws you’ll need to follow, including:
Wage and hour laws: Texas follows federal minimum wage laws, but you may also need to comply with local wage ordinances.
Worker’s compensation: While Texas doesn’t require most private employers to carry worker’s compensation insurance, it’s often a good idea to protect both your employees and your business.
Employment contracts: If you’re hiring key employees, you might want to create employment contracts that outline job duties, compensation, and other important terms.
I recommend consulting with a business law professional when drafting employment agreements to make sure they comply with state and federal laws. This will help avoid potential legal disputes in the future.
Intellectual Property Protection
Protecting your intellectual property is vital for entrepreneurs. Texas business law offers several legal protections for your business’s ideas, products, and brand.
Trademarks: If you have a logo or a unique name, it’s important to protect it with a trademark. This prevents others from using your intellectual property and can give your business a competitive edge.
Patents: If your business involves creating new inventions, you should consider filing for a patent. A patent protects your unique product or process and gives you exclusive rights to use it.
Copyrights: If your business involves creating original content, such as music, books, or software, you may want to copyright your work to prevent others from using it without permission.
Trade secrets: If your business relies on confidential information (such as recipes or manufacturing processes), you can protect it under Texas law as a trade secret.
By protecting your intellectual property, you’re safeguarding your business’s brand, products, and services from competitors. It’s crucial to take these steps early, as intellectual property disputes can lead to costly legal battles.
Taxes and Financial Responsibilities
Texas business law requires businesses to adhere to various tax laws. The state of Texas does not have a state income tax, but businesses are still subject to other taxes.
Franchise tax: If your business is a corporation or LLC, you’ll likely need to pay franchise taxes, which are based on the revenue your business generates.
Sales tax: If you sell tangible goods or taxable services, you’ll need to collect sales tax from your customers. This tax must be remitted to the Texas Comptroller’s office regularly.
Federal taxes: In addition to state taxes, your business will be subject to federal taxes. Make sure to file your taxes on time to avoid penalties and interest.
I encourage all entrepreneurs to consult with an accountant or tax professional to confirm compliance with tax laws. At Laird Morgan, Lawyer, I frequently work with business owners to review their financial responsibilities and confirm their businesses are in good standing.
Staying Compliant with Ongoing Legal Requirements
Once your business is up and running, you must stay on top of ongoing legal requirements. Texas business law requires businesses to file annual reports and renew certain licenses and permits.
Corporations and LLCs must file an annual report with the Secretary of State and pay an annual fee. Additionally, if you’re operating a business that requires specific licenses or permits, make sure to renew them before they expire.
As your business grows and changes, you may need to modify your business structure or update your legal documents. It’s a good idea to periodically review your business’s legal standing to make sure you’re in full compliance with all relevant laws.
Call My Office Today
At Laird Morgan, Lawyer, I’ve helped countless entrepreneurs start and grow successful businesses in Texas, and I know how important it is to lay a strong legal foundation. I’m proud to serve Collin County, Texas. Call today.