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Start-up Requirements for Businesses in Texas

Start-up Requirements for Businesses Who Are Considering a Texas Location

Due to the general business friendly reputation of Texas, many business newcomers to Texas, including non-U.S. based business, are interested in general business start-up procedures of this state, in addition to those specific to environmental permits. The following are general requirements for establishing a business in Texas.

If we can be of further assistance with your start-up plans or more specifically environmental permitting, please contact us.

Choose a Business Structure – Determine the legal structure of the business.

There are several different types of entity structures, each with advantages and disadvantages. Business owners must consider which form of legal entity best suits their particular needs now and in the future as their business grows.

Corporation

A corporation is created when two or more individuals, partnerships, or other entities join together to form a separate entity for the purpose of operating a business. A corporation has its own legal identity, separate from its owners. The owners of a corporation are called “shareholders”. The persons who manage the business and affairs of a corporation are called “directors”. The business owners’ personal assets are protected from debts and liabilities relating to the operation of the corporation. A corporation has centralized management, perpetual duration, and it is easy to transfer ownership interests. Taxation of the corporation varies depending on the type of corporation formed.

C Corporation: A Subchapter C Corporation is taxed as a separate entity. This has the effect of causing the earning of the company to be subject to double taxation to the extent they are distributed as salary or dividends to the owners of the company.

S Corporation: An “S” corporation status is not a matter of state corporate law. Rather, a for-profit corporation elects to be taxed as an “S” corporation by filing an election with the Internal Revenue Service. Owners of Subchapter S Corporations may deduct business losses on personal income tax returns, similar to a partnership. The Subchapter S Corporation also offers alternative methods for distributing the business income to the owners.

General Partnership

A general partnership exists when two or more individuals or businesses join to operate a business for profit. There is no requirement that the agreement be in writing and no state filing requirement. Under a general partnership, a separate business entity exists, but creditors can still look to the partners’ personal assets for satisfaction of debts. General partners share equally in assets and liabilities. A general partnership must file an annual partnership income tax return separate from the partners’ personal returns. A general partnership may be operated under the names of the owners, or a different name. In addition, partners owe a high duty of care, loyalty and good faith to each other. Partners must place the interests of the partnership ahead of their own interests and act as an ordinary prudent person would act under similar circumstances.

Limited Partnership

A Texas limited partnership is a partnership formed by two or more persons and having one or more general partners and one or more limited partners. The limited partnership operates according to a writing or oral partnership agreement. General partners share equally in debts and assets, while limited partners have limited debt obligations.

Registered Limited Liability Partnership

A registered limited liability partnership is a general partnership that has been registered with the Secretary of State. Generally, a partner in a registered limited liability partnership is not individually liable for debts and obligations of the partnership arising from errors, omissions, negligence, incompetence, or malfeasance committed in the course of business by others in the partnership.

Limited Liability Company

A limited liability company is an unincorporated business entity which shares some of the aspects of Subchapter S Corporations and limited partnerships, and yet has more flexibility than more traditional business entities. The limited liability company is designed to provide its owners with limited liability and pass-through tax advantages without the restrictions imposed on Subchapter S Corporations and limited partnerships. The owners of an LLC are called “members”. A member can be an individual, partnership, corporation, trust, or any other legal or commercial entity. Depending on how the LLC is structured, the liability of the members is limited to their investment, they may enjoy the pass-through tax treatment afforded to partners in a partnership, and the members manage the entity.

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Limited Partnership

Registered Limited Liability Partnership

Limited Liability Company

Register with the Texas Secretary of State

All businesses operating in Texas as limited liability companies, corporations, limited partnerships, professional corporations, nonprofit corporations, professional associations and registered limited liability partnerships, must register with the Texas Secretary of State.

A name may not be used by more than one corporation in the state. It is very important to do a thorough search when considering a business name. Taking the time necessary to conduct the name research up front will help avoid legal costs after the business is opened and operating. The Secretary of State’s Office will perform a name search to verify that no other corporation, limited partnership, or limited liability company in Texas is using the exact name selected. This search is only for business names registered with the Secretary of State, and does not include business names registered only with a county clerk.

File a Business Name

If a business is going to conduct business under any name that differs from its business name, it must file an assumed name certificate or doing business as (d.b.a.) with the Texas Secretary of State and/or each county where the business will have a registered or principal office and/or business will be conducted.

Limited Liability Corporations, Corporations and Limited Partnerships

Whenever a business is identified by a name other than the name on file with the Secretary of State, limited liability companies, corporations, and limited partnerships must file an Assumed Name Certificate with the Secretary of State and each county where the business has registered or principal office.

General Partnerships

If the partnership business is conducted under a name that does not include the surname of all of the partners, the general partnership must file an Assumed Name Certificate for the name that the business is using with the county clerk in each county where a business premise is maintained and/or where business is conducted.

When filing an assumed name certificate with the county, the business must provide the name of the business, its mailing address, the expected period of operation (there is a 10 year maximum), the legal structure of the business, the name(s) of the owner(s), their personal address(es), and signature(s), which must be notarized, and the county where the business will operate. The county will keep the original assumed name certificate. Request several certified copies – at least one for the bank and one for your business records.

Request an Employer Identification Number (EIN)

An EIN, also known as a federal tax identification number, is issued by the IRS and used to identify a business entity.

Open a Bank Account for the Business

In order to open a business bank account, the bank will request a copy of the Certificate of Formation and the EIN.

Set up Tax Information – Determine the potential tax responsibilities of the new business on the federal, state, and local levels.

There is no state income tax in Texas. However, there are several business taxes. The Comptroller of Public Accounts is responsible for administrating and collecting state and local sales tax from businesses operating in Texas. The Comptroller also collects any franchise taxes owed by Texas corporations.

Sales Tax Permit

In general, in order to sell taxable items or provide taxable services, businesses must have a sales tax permit. The Texas sales and use tax permit requirement applies to individuals as well as corporations, firms, partnerships, and all other legal entities.

Franchise Taxes, aka Margin Tax

Corporations, Limited Liability Companies and all other entities doing business in Texas which are not owned 100% by natural persons are subject to franchise taxes. For the 2010 and 2011 tax years, businesses with $1 million or less in total revenue do not pay the Texas franchise tax. After 2011, the threshold amount drops to $600,000. Most taxable entities file an annual report each May 15 and pay the franchise tax. Corporations and Limited Liability Companies must also file a Public Information Report. Other taxable entities must file an annual Ownership Information Report. Failure to do so could result in forfeiture of corporate or business privileges.

Employment Taxes

The Texas Workforce Commission collects all unemployment taxes for workers employed in Texas. Individuals are subject to a self-employment tax on self-employment income, generally from an individual’s trade or business.

Local Taxes

If the business owns tangible personal property that is used to produce income, the property must be reported to the local county appraisal district, after January 1 and no later than March 31, each year. Business owners must report all inventories, equipment, and machinery.

Licenses, Permits and Registrations – Determine the necessary licenses, permits, certifications, registrations, and/or authorizations for a specific business on the federal, state, and local levels.

The State of Texas does not require a general “business” license. However, there are a number of regulatory agencies that have licensing and permitting requirements based on the type of service, or products associated with the business. To ensure that all permitting requirements are met, contact the local county and city governments to determine if there are any additional requirements that must be met.

Texas Commission on Environmental Quality Permits

The Texas Commission on Environmental Quality (TCEQ) is the state’s environmental agency. Three full-time commissioners, appointed by the governor, establish overall agency direction and policy, and make final determinations on contested permitting and enforcement matters. Among its many functions, the TCEQ must review applications for a wide variety of environmental permits. Depending on the type of facility, the following types of permits (as well as certain amendments and renewals of these permits) may be required.

Water quality permits
Beneficial land use permits
New source review air permits
Municipal solid waste permits
Industrial solid waste permits
Hazardous waste permits
Underground injection well permits

These are only the major types of permits. Other permits, including local permits, may be required.

Employee Requirements – Determine federal and state employer requirements.

There are numerous federal and state requirements which must be met concerning labor, safety, and wage obligations. Some of these include the Americans with Disabilities Act Requirements, Equal Employment Requirements, Safety Requirements, Wage and Labor Requirements, Drug-Free Workplace Requirements, and New Hire Reporting Requirements.

All employers must register with the Texas Workforce Commission (“TWC”). TWC collects all unemployment taxes for workers employed in Texas. For new businesses, TWC determines whether an employer should pay state unemployment tax and assign the tax rate. Employers subject to state unemployment tax are required to display printed posters at each work site providing payday and unemployment information. Employers must report new hires and rehires to TWC within 20 days.

Americans with Disabilities Act Requirements

The Americans with Disabilities Act (ADA) provides protection for people with disabilities in the areas of employment, public services and transportation, public accommodation, and telecommunications.

Equal Employment Requirements

Federal and state laws prohibit employment discrimination. The United States Equal Employment Opportunity Commission (EEOC) and the Texas Workforce Commission, Civil Rights Division (TWCCRD) are charged with enforcing fair employment laws which prohibit discrimination on the basis of race, color, sex, religion, disability, age, or national origin. Current statutes cover all employment transactions. All employers with 15 or more employees engaged in an industry affecting commerce, employment agencies, and labor unions are prohibited from denying equal employment opportunities. Regardless of the number of individuals employed, a county, municipality, and any state agency or instrumentality including public institutes of education, are also prohibited from denying equal employment opportunities. The TWCCRD will provide technical assistance and training to employers to facilitate compliance with laws prohibiting employment discrimination. The TWCCRD has jurisdiction for investigating equal employment opportunity complaints in Texas. The EEOC promotes voluntary programs that allow employers and organizations to implement equal employment opportunity programs within their businesses.

Safety Requirements

The Occupational Safety and Health Consultation (OSHCON) program is administered by the Texas Department of Insurance, Division of Workers’ Compensation. The program conducts free on-site safety and health consultations to help small, private sector employers understand and comply with Occupational Safety and Health Administration (OSHA) regulations. The program is geared toward employers in high hazard industries with 250 or fewer employees per worksite and less than 500 employees nationwide.

If we can be of further assistance with your start-up plans or more specifically environmental permitting, please contact us.